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Free Trade Agreements Stymied by Political Roadblocks

Organized labor - in industries that are a vital part of the U.S. supply chain - is worried that the three FTAs currently on the table won't deliver on their promises to create jobs and increase U.S. competitiveness.

July 2011
In his January 2011 State of the Union address, President Barack Obama made a plea to Congress to pass a trade agreement with South Korea that "will support at least 70,000 American jobs."

The South Korean agreement, as well as agreements with Colombia and Panama (a total package valued at $13 billion) is on the threshold of being sent to Congress for ratification - but there is a roadblock. None of these free trade agreements (FTAs) will go to Congress unless an accord with Congress is reached on expanded subsidies for jobless workers. According to White House economic aide Gene Sperling, "The administration will not submit implementing legislations on the three pending FTAs until we have an agreement with Congress on the renewal of a robust, expanded TAA (trade adjustment assistance) consistent with the objectives of the 2009 trade adjustment assistance law."

The bottom line is that the White House wants Congress to authorize more than $2 billion in trade adjustment assistance or it will block these major trade agreements that promise to create thousands of new jobs and positively impact a number of important U.S. industries. A Wall Street Journal editorial of May 20, 2011 points out that "those familiar with the tactics of this White House won't be surprised to learn that that beneficiaries of the program that Mr. Obama wants to resurrect include union workers whose job losses had nothing to do with foreign competition."

On the other hand, organized labor has expressed major opposition to the most important of the treaties, the South Korean pact. In a news release dated December 9, 2010, the United Steelworkers (USW) voiced the following opposition: "After thorough review, the USW Executive Board views the agreement as falling far short of what is necessary to ensure that U.S. workers and businesses have a fair deal.The auto sector is of vital importance to our members who make the glass, tires, steel, plastics, and countless other products that are part of the supply chain in the auto and auto parts sector.Promises made by previous administrations as to the enormous benefits of free trade agreements have simply not come to pass for American workers. Indeed, our trade deficit continues to sap our nation's economic strength and the existing FTAs have not provided the benefits that were promised.In the auto sector, imports of vehicles and parts from Korea have exceeded exports by 14-to-1 or more over the last decade. Korean transplant auto production here in the United States, while providing welcome jobs, continues to act as a magnet for foreign components as their domestic content averages only about 40 percent."

Background on the Agreements
All three free trade agreements were initiated under the Bush Administration. Here are the details of each one:

Korea: The U.S.- Korea Free Trade Agreement (KORUS FTA) was ratified on June 30, 2007. U.S. trade involvement with Korea in 2009 was $87 billion, with U.S. exports of $41 billion and imports of $46 billion. Korea ranks seventh among U.S. trading partners, and Korea ranks as the world's eighth leading market for U.S. produced goods.

Top categories for U.S. exports to Korea (2009 data) include electrical machinery ($4.6 billion), machinery ($4.4 billion), optical and medical instruments ($1.9 billion), aircraft ($1.8 billion), and organic chemicals ($1.4 billion). Agricultural exports to Korea in 2009 totaled $3.9 billion, and Korea was the fifth-largest market in the world for U.S. agricultural output. U.S. exports of private commercial services (excluding military and government) were $12.9 billion in 2009. Leading services included educational and business, technical and professional, and royalties and license fees.

As for imports, in 2009, Korea was the seventh-largest supplier of imported goods to the U.S. economy. Korea supplied $39.2 billion in goods led by electrical machinery ($14.2 billion), vehicles - primarily automobiles ($7.2 billion), machinery ($6.7 billion), mineral fuel and oil ($1.8 billion), and iron and steel products ($1.1 billion). U.S. imports of Korean agricultural products totaled only $246 million, but imports of private commercial services were $6.4 billion. (Notably, the U.S. goods balance of trade deficit was $10.6 billion in 2009, but services produced a surplus of $6.2 billion.)

Colombia: The U.S.-Colombia trade promotion agreement was signed in 2006 and approved by Colombia's Congress in 2007. Colombia currently ranks 27th among the U.S.'s trading partners. U.S. goods exported to Colombia totaled $9.5 billion in 2009, while imports of Colombian goods totaled $11.3 billion.

Leading U.S. export categories include machinery ($2.2 billion), mineral fuel oil ($1.2 billion), electrical machinery ($818 million), organic chemicals ($645 million), and plastics ($535 million). U.S. exports of agricultural goods to Colombia totaled $907 million in 2009.

On the import side, the five largest import categories, as of 2009, were mineral fuel and crude oil ($6.7 billion); precious stones and metals - principally gold ($1.2 billion); spices, coffee, tea ($723 million); other special imports - mostly low-valued shipments ($519 million); and live trees and plants, including cut flowers ($516 million).

Panama: The United States signed its trade promotion agreement with Panama in 2007. Panama is currently the nation's 56th largest trading partner with exports totaling $4.4 billion and imports totaling $304 million.

Leading export categories to Panama include mineral fuel (oil) ($1.5 billion), machinery ($436 million), electrical machinery ($371 million), aircraft ($236 million), and other low-value shipments ($191 million).

Imports were primarily agricultural products including fish and seafood, sugar, edible fruits and nuts, coffee, and bananas.

Terms of the Treaties
Under the proposed KORUS FTA, nearly 95 percent of bilateral trade in consumer and industrial products would become duty-free within three years of the date the treaty is enacted. The net remaining tariffs would be eliminated within 10 years. The U.S. International Trade Commission estimates this reduction of Korean tariffs and tariff-rate quotas on goods alone would add $10 billion to $12 billion to the annual U.S. gross domestic product and around $10 billion to annual merchandise exported to Korea.

For agricultural products, the U.S.-Korea pact would immediately eliminate or phase out tariffs and quotas on a wide range of products and will result in nearly two-thirds of Korea's agricultural imports from the United States becoming duty-free at the time of ratification. Finally, the treaty has been predicted to provide U.S. service providers with greater and more secure access for international delivery services and would open the Korean market to foreign legal consulting services. The treaty is also expected to provide improved treatment of U.S. financial services providers.

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