Tag: south korea

Promoting Free Trade—Sort Of

The U.S. and South Korean governments have agreed to changes in the free trade agreement negotiated by the Bush administration. The president rightly lauded the FTA as a good deal for Americans:

“This agreement shows the U.S. is willing to lead and compete in the global economy,” the president told reporters at the White House, calling it a triumph for American workers in fields from farming to aerospace.”

Approving the FTA has taken on added urgency after the European Union negotiated a similar accord with the South. Once that agreement takes effect, Europeans would have better access than Americans to the world’s 13th largest economy. Protectionism is always foolish, but especially so when one’s competitors are promoting open markets.

The accord also offers important geopolitical benefits. With much nervousness in the U.S. and throughout East Asia over an increasingly assertive China, Washington should work to break down barriers to Americans trading with China’s neighbors. Already Koreans do more business with China than the U.S. While the FTA won’t reduce the appeal of products from next door China in South Korea, it will allow American producers to compete more freely in that market.

The president deserves credit for pushing the agreement forward, but he also needlessly held up ratification by two years. Moreover, his “fix” punishes American consumers. As the official government fact sheet explains:

Car Tariff Elimination: The 2007 agreement would have immediately eliminated U.S. tariffs on an estimated 90 percent of Korea’s auto exports, with remaining tariffs phased out by the third year of implementation. The 2010 supplemental agreement keeps the 2.5 percent U.S. tariff in place until the fifth year. At the same time, Korea will immediately cut its tariff on U.S. auto imports in half (from 8 percent to 4 percent), and fully eliminate that tariff in the fifth year.

Truck Tariff Elimination: The 2007 agreement would have required the United States to start reducing its tariff on Korean trucks immediately and phase it out by the agreement’s tenth year. The 2010 supplemental agreement allows the United States to maintain its 25 percent truck tariff until the eighth year and then phase it out by the tenth year – but holds Korea to its original commitment to eliminate its 10 percent tariff on U.S. trucks immediately.

That is, the Obama administration forced a delay in the reduction of U.S. auto tariffs. This obviously hurts Korean exporters, but the highest price will be paid by American consumers. The provision is simply a special interest payoff to the auto industry, which already has benefited from a big federal financial bail-out. So much for bringing “change” to Washington.

Free trade is good for Americans. That means bringing down foreign trade barriers. It also means bringing down U.S. trade barriers.

Beijing Key in Controlling North Korea’s Recklessness

Shortly after unveiling a new uranium enrichment facility, North Korea has shelled a disputed island held by the Republic of Korea.  A score of South Koreans reportedly were killed or wounded.

These two steps underscore the North’s reputation for recklessness.  Unfortunately, there is no easy solution: serious military retaliation risks full-scale war, while intensified sanctions will have no impact without China’s support.

Instead, the U.S. should join with the ROK in an intensive diplomatic offensive in Beijing.  So far China has assumed that the Korean status quo is to its advantage.  However, Washington and Seoul should point out that Beijing has much to lose if things go badly in North Korea.

The North is about to embark on a potentially uncertain leadership transition.  North Koreans remain impoverished; indeed, malnutrition reportedly is spreading.  With the regime apparently determined to press ahead with its nuclear program while committing regular acts of war against the South, the entire peninsula could go up in flames.  China would be burned, along with the rest of North Korea’s neighbors.

The U.S. also should inform Beijing that Washington might choose not to remain in the middle if the North continues its nuclear program.  Given the choice of forever guaranteeing South Korean and Japanese security against an irresponsible North Korea, or allowing those nations to decide on their own defense, including possible acquisition of nuclear weapons, the U.S. would seriously consider the latter.  Then China would have to deal with the consequences.

Beijing’s best option would be to join with the U.S. and South Korea in offering a package deal for denuclearization, backed by effective sanctions, meaning the cut-off of Chinese food and energy assistance.  Otherwise, Beijing might find itself sharing in a future North Korean nightmare.

President Obama Represents UAW Rather Than U.S. in Korea Trade Talks

This has been a tough month so far for President Obama and his policies.

After the “shellacking” that he, his party, and his domestic policies suffered at the hands of American voters last week, his international economic policies were no more popular among his counterparts at the G20 summit this week in Seoul, South Korea.

Even the sympathetic editors at the New York Times declared in a front-page (print edition) headline this morning: “Obama’s Economic View Is Rejected on World Stage: China, Britain and Germany Challenge U.S.—Trade Talks with Seoul Fail, Too.”

The other leaders at the summit were right to reject the president’s demands that China be singled out for its currency policies, as I’ve written before, and the South Korean government was right to reject his demands for changes in the U.S.-Korea trade agreement that has been waiting for more than three years for congressional approval.

Although not perfect, the U.S.-Korea agreement is a solid step forward. As my Cato colleague Doug Bandow wrote in a recent study, the agreement would sharply reduce trade barriers between our two nations while deepening our commercial and security ties with a key democratic ally in the Asian Pacific.

The Koreans rightly refused to substantially alter the sections of the agreement relating to automobiles. The agreement would eliminate tariffs on all automobile trade between the two countries. Ford, Chrysler, and the United Auto Workers union oppose the deal, claiming that it does not address non-tariff barriers that allegedly hinder U.S. exports to the Korean market.

As I posted in this space a few days ago, there are perfectly normal market reasons why Americans buy a lot more Korean cars than vice versa. The real agenda of Ford, Chrysler, and the UAW is not to gain greater access to the Korean market, but to prevent any greater access of their Korean competitors to the U.S. market.

The talks in Seoul this week reportedly foundered on the specific U.S. demand that Korea relax its emission and mileage standards so that U.S. automakers can more easily modify their cars for the Korean market. How ironic. It has become part of the Democratic mantra on trade that agreements must strengthen the environmental and labor standards of our trading partners. Yet here U.S. negotiators were strong-arming the Korean government to weaken its own standards while the Obama administration seeks to impose higher mileage and emission standards on cars sold in the United States.

There is still time to save the U.S.-Korea agreement and to present it to the potentially more trade-friendly Congress that will convene in January. But for now, President Obama has chosen to serve the narrow interests of two domestic automakers and their union rather than the overall economic and strategic interests of the American people.

Upcoming G20 Summit in Seoul Raises Stakes for U.S.-Korea Trade Deal

The next G20 Summit, to be held November 11-12 in South Korea, is right around the corner. For free traders, the summit has taken on added meaning because of the promise President Obama made during the most recent G20 Summit held last June in Toronto to advance the U.S.-Korea free trade agreement (FTA):

The last time I was in Korea, I said that I would be committed to moving [the FTA] forward. And today I indicated to President Lee that it is time that our United States Trade Representative work very closely with his counterpart from the ROK to make sure that we set a path, a road, so that I can present this FTA to Congress…. I want to make sure that everything is lined up properly by the time that I visit Korea in November. And then in the few months that follow that, I intend to present it to Congress. It is the right thing to do for our country.

We agree, Mr. President. To help policymakers understand the high stakes and potential gains of the agreement, Cato Senior Fellow Doug Bandow has authored the new Cato Trade Briefing Paper, “A Free Trade Agreement with South Korea Would Promote Both Prosperity and Security,” released today.

A preview of Doug’s analysis also was published yesterday in the Daily Caller, under the title “South Korea Free Trade Agreement Key to Prosperity and Security.”

America’s Alliances: Frayed, but not Disappearing

National Journal’s Paul Starobin asks at the National Security Experts blog “Are America’s Alliances Fraying?” Starobin notes that two normally reliable allies, Brazil and NATO member Turkey opposed an additional round of sanctions against Iran. Meanwhile, President Obama has failed to persuade Europeans to provide large numbers of troops to Afghanistan. “Is the ability of Washington to assemble coalitions on behalf of its global objectives starting to ebb?” Starobin asks. “Are our alliances fraying – and if so, why? Does this trend have to do with our flailing economy, with inept diplomacy, or with some other set of factors?”

Excerpts from my response:

It is hardly newsworthy when one of America’s allies bucks Uncle Sam. It has become an almost daily occurrence.


But just because the United States has had difficulty keeping its allies in line doesn’t mean that it can’t assemble a coalition to deal with common challenges. It all depends on whether the parties agree on the nature and severity of the threat, and on the best means for mitigating it. In this context, the multinational naval task force operating off the Horn of Africa has had great success beating back piracy in the region. The countries that choose to participate agree that piracy poses a threat to their commercial interests, and are willing to band together in a loose coalition – and not as part of a formal, permanent alliance – in order to deal with the challenge. Their contributions are generally consistent with their interests; the benefits seen as in line with the costs.

Alliances are no different, or, at least, they shouldn’t be. Alliances are supposed to be sustained by interests. (British Foreign Secretary Lord Palmerston’s observation that “nations have no permanent friends or allies, they only have permanent interests” has been repeated so many times that it has become cliched). And yet, the United States has maintained its commitment to NATO, South Korea and Japan in recent months, even as it is obvious that the parties do not share common interests. The alliances have become an end in and of themselves, instead of the means to an end.


When she presented the Obama administration’s national security strategy late last month, Secretary of State Hillary Clinton declared that NATO was one of several global commitments that was “embedded in the DNA of American foreign policy.”

Hardly. While a bipartisan consensus in Washington is enamored of Europe’s dependence upon the United States, most Americans tire of defending our wealthy European allies who are eminently capable of defending themselves. The resentment has only grown as these same allies have shown precious little enthusiasm for supporting the United States in its hour of need in Afghanistan.


We have created a class of wealthy and secure allies who lack the capability, but most importantly the will, to act on their own behalf, let alone in the service of the world’s policeman.

Read the full response here.

Hotel Afghanistan: We Can Check Out but Never Leave

The U.S. remains stuck in Iraq, as the country moves toward a potentially messy and not so democratic (lots of disqualified parliamentary candidates, etc.) election.  Iran’s refusal to back away from its nuclear program has intensified calls for an American military strike – which, Sarah Palin assures, would even help the president politically.  North Korea unsurprisingly is showing reluctance to rejoin international talks over its nuclear program: renewed proposals for a U.S. military build-up in South Korea and even war against the North are likely to follow.  And then there is Afghanistan.

Even though President Barack Obama talks about deadlines and drawdowns, there is little in present policy to suggest that the U.S. will be able to leave Afghanistan in even the mid-term.  Afghan President Hamid Karzai certainly doesn’t think so.  He figures on U.S. military support for at least another decade, with continuing international financial support for years after that.

Reports the Associated Press:

Afghan President Hamid Karzai warned Thursday that foreign troops must stay in his country for another decade, as world powers agreed on an exit map including a plan to persuade Taliban fighters to disarm in exchange for jobs and homes.Divisions emerged between the U.S. and its partners over Kabul’s willingness to offer peace to Taliban leaders who once harbored al-Qaida, instead of the more limited deal for lower-ranking fighters emphasized by the Americans.

All agree that reconciliation means bringing on board what Mark Sedwill, NATO’s newly appointed civilian chief in Afghanistan, called “some pretty unsavory characters.”

The conference was called to help the U.S. and its allies find a way out of the grinding Afghan war amid rising U.S. and NATO casualties and falling public support. NATO has agreed to accelerate the training of Afghan security forces and gradually transfer more combat responsibility to them.

“With regard to training and equipping the Afghan security forces, five to 10 years will be enough,” Karzai told the BBC. “With regard to sustaining them until Afghanistan is financially able to provide for our forces, the time will be extended to 10 to 15 years.”

It sounds a bit like the Afghan equivalent of the Eagles’ Hotel California.  Defeat or bribe the Taliban and keep Karzai in power, and we will have “won” – but we still won’t be able to leave.  And the Afghan government, assuming it achieves a modicum of honest competence, will still have little incentive to meet even President Karzai’s distant check-out date.  Who in Kabul will want to do without abundent Western cash 10 or 15 years from now?

In 2001 the U.S. had a simple, important, and achievable mission in Afghanistan:  disrupt al-Qaeda and oust the Taliban.  American military forces succeeded.  Alas, we’ve spent the succeeding eight years attempting to build a nation state where none exists.  It’s time to draw down our forces and again focus on combatting terrorists.

Time to Lose the Trade Enforcement Fig Leaf

During his SOTU address last week, the president declared it a national goal to double our exports over the next five years.  As my colleague Dan Griswold argues (a point that is echoed by others in this NYT article), such growth is probably unrealistic. But with incomes rising in China, India and throughout the developing world, and with huge amounts of savings accumulated in Asia, strong U.S. export growth in the years ahead should be a given—unless we screw it up with a provocative enforcement regime.

The president said:

If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. But realizing those benefits also means enforcing those agreements so our trading partners play by the rules.

Ah, the enforcement canard!

One of the more persistent myths about trade is that we don’t adequately enforce our trade agreements, which has given our trade partners license to cheat.  And that chronic cheating—dumping, subsidization, currency manipulation, opaque market barriers, and other underhanded practices—the argument goes, explains our trade deficit and anemic job growth.

But lack of enforcement is a myth that was concocted by congressional Democrats (Sander Levin chief among them) as a fig leaf behind which they could abide Big Labor’s wish to terminate the trade agenda.  As the Democrats prepared to assume control of Congress in January 2007, better enforcement—along with demands for actionable labor and environmental standards—was used to cast their opposition to trade as conditional, even vaguely appealing to moderate sensibilities.  But as is evident in Congress’s enduring refusal to consider the three completed bilateral agreements with Colombia, Panama, and South Korea (which all exceed Democratic demands with respect to labor and the environment), Democratic opposition to trade is not conditional, but systemic.

The president’s mention of enforcement at the SOTU (and his related comments to Republicans the following day that Americans need to see that trade is a two way street – starts at the 4:30 mark) indicates that Democrats believe the fig leaf still hangs.  It’s time to lose it.

According to what metric are we failing to enforce trade agreements?  The number of WTO complaints lodged? Well, the United States has been complainant in 93 out of the 403 official disputes registered with the WTO over its 15-year history, making it the biggest user of the dispute settlement system. (The European Communities comes in second with 81 cases as complainant.)  On top of that, the United States was a third party to a complaint on 73 occasions, which means that 42 percent of all WTO dispute settlement activity has been directed toward enforcement concerns of the United States, which is just one out of 153 members.

Maybe the enforcement metric should be the number of trade remedies measures imposed?  Well, over the years the United States has been the single largest user of the antidumping and countervailing duty laws.  More than any other country, the United States has restricted imports that were determined (according to a processes that can hardly be described as objective) to be “dumped” by foreign companies or subsidized by foreign governments. As of 2009, there are 325 active antidumping and countervailing duty measures in place in the United States, which trails only India’s 386 active measures.

Throughout 2009, a new antidumping or countervailing duty petition was filed in the United States on average once every 10 days.  That means that throughout 2010, as the authorities issue final determinations in those cases every few weeks, the world will be reminded of America’s fetish for imposing trade barriers, as the president (pursuing his “National Export Initiative”) goes on imploring other countries to open their markets to our goods.

Rather than go into the argument more deeply here, Scott Lincicome and I devoted a few pages to the enforcement myth in this overly-audaciously optimistic paper last year, some of which is cited along with some fresh analysis in this Lincicome post.

Sure, the USTR can bring even more cases to try to force greater compliance through the WTO or through our bilateral agreements.  But rest assured that the slam dunk cases have already been filed or simply resolved informally through diplomatic channels.  Any other potential cases need study from the lawyers at USTR because the presumed violations that our politicians frequently and carelessly imply are not necessarily violations when considered in the context of the actual rules.  Of course, there’s also the embarrassing hypocrisy of continuing to bring cases before the WTO dispute settlement system when the United States refuses to comply with the findings of that body on several different matters now.  And let’s not forget the history of U.S. intransigence toward the NAFTA dispute settlement system with Canada over lumber and Mexico over trucks.  Enforcement, like trade, is a two-way street.

And sure, more antidumping and countervailing duty petitions can be filed and cases initiated, but that is really the prerogative of industry, not the administration or Congress.  Industry brings cases when the evidence can support findings of “unfair trade” and domestic injury.  The process is on statutory auto-pilot and requires nothing further from the Congress or president. Thus, assertions by industry and members of Congress about a lack of enforcement in the trade remedies area are simply attempts to drum up support for making the laws even more restrictive.  It has nothing to do with a lack of enforcement of the current rules.  They simply want to change the rules.

In closing, I’m happy the president thinks export growth is a good idea.  But I would implore him to recognize that import growth is much more closely correlated with export growth than is heightened enforcement.  The nearby chart confirms the extremely tight, positive relationship between export and imports, both of which track similarly closely to economic growth.

U.S. producers (who happen also to be our exporters) account for more than half of all U.S. import value.  Without imports of raw materials, components, and other intermediate goods, the cost of production in the United States would be much higher, and export prices less competitive.  If the president wants to promote exports, he must welcome, and not hinder, imports.