As everyone has probably heard by now, U.S. and Korean negotiators were able to work out a deal on an FTA. Reuters reports:
The United States and South Korea have reached a deal on auto issues that have blocked congressional approval of a free trade agreement for three years, sources familiar with the talks said on Friday.
A few thoughts.
1. Negotiations Are Often Unsatisfying
This kind of deal-making always leaves a lot of principled people unhappy. Scott Lincicome is glad that a deal was reached, but is a little annoyed that the last minute dealing was more anti-trade than free trade:
The vast majority of my issues stem from the "deal" that the negotiators achieved to reach an agreement. It appears that, as noted above, a major breakthrough in the negotiations was that, instead of immediately eliminating its 2.5% tariff on (non-truck) passenger vehicles from Korea, the US will maintain it for 5 years and then eliminate it. Of course, this "achievement" comes at a price: according to National Journal, Korea's 8% tariff on similar American cars will no longer be eliminated immediately and instead will be halved, with the remaining 4% eliminated pursuant to the same 5 year schedule.
He also notes:
The Obama administration sat on a signed-and-completed multi-billion dollar free trade agreement for two years, just so that they could re-open it and increase tariffs at home and abroad - to make the agreement less free. If this is a "victory," then what's the point of all those other nasty tariff reductions?
Similar stuff form Don Boudreaux here.
So that's the criticism from free traders. How about fair traders? This is from Congressman Mike Michaud:
“We had what I thought was a productive meeting just a few weeks ago at the White House on changes we’d like to see in the agreement. At the time, we told the President that we believe the agreement as it exists now has several fundamental problems that go beyond the issues with beef and autos.
“But after talking to Ambassador Kirk today, I learned that these concerns were not addressed. I had hoped for more from this White House, which campaigned on a need to change the way we negotiate trade agreements so that they truly benefit American workers and businesses. The deal reached today, while beneficial to the auto industry, falls far short of that goal.
“Moving forward, I will continue to reach out to the Administration and work with them, especially on the Trans-Pacific Partnership. But when it comes to this deal, I will work with allies on Capitol Hill to do whatever I can to defeat it. We need to finally live up to what the American people have been demanding for years – a substantial departure from the past, not a continuation of its mistakes.”
Similar stuff from Lori Wallach here.
On the other hand, these people all liked it.
Whichever side you are on, there is a lot to weigh and balance with an agreement such as this (just like with any piece of legislation). It's certainly not complete free trade, but it does reduce a lot of tariffs, so that should make free traders happy (even if they wanted more and sooner). And it's got some enforceable labor and environment standards in there, so that should make fair traders happy. As with any agreement or legislation, the goal is to put together majority support for it (in both countries!). We seem to have that at the moment with the current mix of provisions, although just barely and it all feels a bit precarious.
2. How Much Will All This Help U.S. Auto Exports?
Autos were a big deal. The White House fact sheet says:
The United States and Korea have reached an agreement that makes more job-creating export opportunities in a more open and fair Korean market for America’s auto companies and auto workers. The agreement improves market access for U.S. auto companies by addressing ways Korea’s system of automotive safety standards have served as a barrier to U.S. exports. Similarly, the agreement addresses proposed Korean environmental standards that could serve as a barrier to U.S. exports – striking a balance that respects our shared desire to reduce the environmental impact of automobiles, but alleviates a real burden placed on American auto companies importing smaller volumes into Korea. Progress was made in several additional areas of automotive policy including on regulatory transparency and an acceleration of tariff reductions on electric cars that will encourage the development of green auto technologies.
Autos were also the subject of a separate fact sheet here.
I find this part particularly interesting because one of the long-standing criticisms of the U.S. trade negotiating position in relation to automobiles is that U.S. car-makers don't make products that Korean and other foreign consumers want. In a nutshell, they make big cars and trucks, whereas foreign consumers want small cars. So now we may have a good test. It appears that Korean tariffs and taxes on cars have been reduced for U.S. car-makers, and regulations eased. Given that, will U.S. car-makers now be able to increase their exports of automobiles to Korea? What are the implications if they cannot?
3. The Impact of Investor-State Dispute Settlement
A while back, Global Trade Watch helpfully pointed out a number of potential investor-state claimants who might bring a case as a result of a U.S.-Korea FTA. The question now is, how long before the first of these cases comes along? And when the cases do come, what will the political impact be, in both the U.S. and Korea?
Some day, under some agreement, there will be a big, controversial investor-state case against the U.S. where the claimant actually wins. It may be that until that happens, the U.S. will continue with its current approach to the issue (as long as our trading partners accept it, which may not always be the case). But the more of these agreements that are in force, the greater are the chances of such a case coming along. There's no way to predict how it will all unfold, if and when that case comes, and it seems to me that it's hard to gauge the future of investor-state until this occurs. (The same probably applies to many other countries, possibly including Korea.)
