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Con: Korean trade pact retains many one-sided barriers against American products and should be scuttled

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Alan Tonelson
January 8, 2011
EDITOR’S NOTE: The writer is addressing the question, Should Congress approve free-trade pact with South Korea?

President Obama’s pursuit of free trade with South Korea evidently assumes that, if at first you don’t succeed, try the same failed approach again and again.


In fact, this latest attempt to promote American growth and employment by opening long-closed foreign markets to U.S. goods and services is even less excusable than pacts like NAFTA or the numerous trade expansion deals with China.


After all, the American deficits, debts, job destruction and growth losses resulting from these deals were long masked by bubbles in technology spending, housing and credit itself. With these reckless options just about gone, the still-mounting costs of past agreements plus those certain from the Korea pact represent the difference between a slumping and a recovering economy.


The key to transforming trade policy toward Korea and the rest of the world lies not in correcting individual blunders made by American negotiators—though these keep hogging the headlines and mar the Korea agreement as thoroughly as its predecessors.


For example, although the pact eliminates or slashes most Korean tariffs, Seoul can still use its value-added tax system to rig markets. Korea’s 10 percent VAT will still impose a hidden tariff on all American products bound for Korea, and its VAT rebate for exports will still provide a hidden subsidy for Korean goods bound for the United States.


Longtime Korea deal opponents Ford Motor Co. and the United Auto Workers union praised the final agreement and its automotive provisions. But these are worse than the auto-related terms won by Europe in its own recent Korea trade pact.


And although in certain cases Washington can retaliate if Seoul breaks its word on dismantling auto trade barriers, retaliation is not mandatory. It’s left to the discretion of American officials still generally obsessed with currying favor even from allies like Korea that desperately need U.S. military protection.


Still, the Korea deal’s biggest flaw is one that has plagued American trade policy overall for decades. It’s the belief that clever enough U.S. negotiators drafting tight enough wording can produce meaningful gains for U.S.-based producers in targeted countries.


Yet individual foreign government practices are not the principal obstacles to greater American success in global markets. Instead, the main problems are national, economy-wide systems of protection operated by U.S. competitors that simply can’t be tackled piecemeal.


These systems are run secretively and informally by largely unaccountable bureaucrats. Their tactics adjust constantly to new circumstances. They reflect deeply held political and cultural attitudes about business-government relationships that contrast sharply with America’s.


Perhaps most important, many of these mercantile systems have produced spectacular successes. Indeed, they have enabled practitioner countries to avoid the worst of the recent global downturn and get big head starts on recovery.


Korea and its Asian neighbors are prime examples illustrating why similar U.S. market-opening efforts in this region have flopped so spectacularly for so long. Because American businessmen and officials struggle even to identify their predatory trade practices, let alone eliminate them, these countries keep racking up enormous trade surpluses with the United States.


Therefore, they also keep denying Americans jobs and growth, fueling the nation’s still-dangerously bloated debts, and delaying real recovery for reasons having nothing to do with free trade or free markets.


The United States must use trade policy to help cure the country’s economic ills. But President Obama must change the clearly losing game of futilely trying to open markets in countries whose economies are clearly incompatible with America’s.


Instead, he must focus on enabling American domestic industries and their employees recapturing the biggest market that’s genuinely available to them—the literally hundreds of billions of dollars of sales in their own domestic backyard that they’ve lost to predatory foreign competition, and to a Washington preoccupation with export fantasies typified by the Korea free trade agreement.


Alan Tonelson is a research fellow with the U.S. Business and Industry Council. Readers may write to him at USBIC, 512 C Street NE, Washington, D.C. 20002.

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