Monday, November 15, 2010

The real reason the South Korea Free Trade Agreement went down

Barack Obama was just too darn cool to try to pass the free trade agreement that the Bush administration had negotiated and left in a file drawer for Obama's team. No, Obama has to do everything new and fresh and better. He couldn't be like Bill Clinton and pass NAFTA which had been negotiated by the George H.W. Bush administration and could only pass with the help of massive GOP support. So Obama tried to tinker with the deal and ended up getting a big raspberry from the South Koreans who preferred the deal they had already signed up for.

Stephen Spruiell explains what the reason was behind the changes that Obama had wanted to make in the South Korean FTA. Forget the smokescreen that anti-free trade Democrats try to tell us about their concern for environmental standards in the other country. That has nothing to do with this FTA because the secret truth is that South Korea's environmental standards are higher than ours and thus our trucks won't compete.
Do you want to know why? This one is actually funny.

Korea used to be one of the most protected automobile markets in the world. But it has gradually done away with most of the high tariffs and import restrictions that shut out foreign cars and trucks. An 8 percent tariff on cars and a 10 percent tariff on trucks remain, but the U.S.-Korea Free Trade Agreement would remove them immediately with respect to U.S. cars and trucks. As for our own markets, the ratification of the agreement would require us to immediately remove a 2.5 percent tariff on Korean cars, but would give us ten years to phase out a 25 percent tariff on Korean trucks. So it seems like Detroit is getting the better of this deal. What’s not to like?

Here’s the punch line: U.S. automakers, their unions, and their allies in government — including most Democrats and Barack Obama — think Korea’s fuel-economy and environmental standards are too high. They are arguing that these standards act as a non-tariff barrier to cars and trucks made in U.S. factories, because, gosh darn it, we just don’t make cars and trucks that clean and green over here.

Americans who favor free trade abroad and less regulation at home are left to scratch our heads: Should we be angry because Obama is holding up a market-opening agreement over such an obvious red herring? It’s the only excuse he has for wanting an even more one-sided deal for the Detroit automakers, who want the car tariff to be phased out gradually, like the truck tariff. Or should we be popping champagne corks because Obama has finally found an environmental regulation he doesn’t like?

All this time, the Democrats have told us that one of the biggest reasons they object to trade liberalization is that it causes countries to engage in a “race to the bottom,” particularly when it comes to labor and environmental standards. In 2007, U.S. trade ambassador Susan Schwab cut a deal with Democrats in Congress in which she agreed to incorporate every single one of their demands for labor and environmental standards into four new trade agreements: deals with Peru, Panama, Colombia, and Korea. But only the Peru deal got a vote. Democrats reneged on the other three, inventing new concerns after Schwab addressed their old ones.

But seriously, reflect on the absurdity of their complaint about the Korea deal. Korean environmental standards are too high? Next thing you know they’ll be objecting to a trade deal because the country in question just doesn’t have enough sweatshops.
Just one more example of how economic policy is skewed out of all logic because of how the Democrats catering to their unions.