As negotiators wrapped up the ambitious Trans-Pacific Partnership, a similar trade agreement with South Korea offers lessons on the benefits and frustrations with managed trade.
More than three years since the South Korea-United States Free Trade Agreement came into effect, the results are mixed. American exports rose to a record $44.5 billion last year, up 6.8 percent from 2013. Yet the U.S. trade deficit with Seoul is at record levels, too.
Although South Korea is Washington state’s sixth-largest trading partner, exports to that nation have actually fallen during the past three years even as they have risen dramatically overall.
KORUS, as the pact is known, has vigorous defenders as well as detractors. But it offers a cautionary example of what such deals can accomplish as negotiators have concluded the biggest of all, the Trans-Pacific Partnership.
Like TPP and NAFTA, KORUS is not actually “free trade” but a managed trade agreement. Proponents hope to achieve the same good outcome, lowering barriers, but these deals are complex, dense and produce more losers than advocates wish to acknowledge.
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The landscape has come a long way from true free trade, one of the goals of American foreign policy after World War II. U.S. leaders believed the beggar-thy-neighbor policies of the prewar years had helped give rise to extremism and war. Back then, America was also the largest exporter and manufacturing nation.
These aspirations became real through successive rounds of the General Agreement on Tariffs and Trade. Yet another acronym: GATT.
Starting with 23 nations in 1947, the process sought two large goals: lowering tariffs and having every participant play by the same rules. By the Uruguay Round in 1994, GATT had 123 signatories and laid the groundwork for today’s World Trade Organization.
GATT was never perfect. Compromises were required, including allowing war-devastated Japan and South Korea, to use tariffs, subsidies and other self-interested measures to build their economies into powerhouses. American agriculture kept its own privileges, too.
But GATT’s goals and accomplishments were relatively transparent and, as its framers hoped, provided one of the foundations of this long stretch of peace among major nations.
As the economic benefits of GATT began to exhaust themselves and with the rise of the European Union, the other Washington turned to managed trade agreements. The first was with Canada, then NAFTA, including Mexico. The United States now has these pacts in place with 20 nations.
To their advocates (and I backed NAFTA in the early 1990s), these agreements recognize the reality of more complicated globalization, maximizing trade benefits and creating jobs, although some disruption is inevitable.
They are meant to soothe multilateral disputes and address advanced issues such as services and intellectual-property protection. And they are allowed under the World Trade Organization.
These agreements, supported by both Republican and Democratic administrations, are the foundation of so-called neoliberalism.
Critics (and I see their points more clearly now) see the deals as benefiting global corporations much more than workers, and causing significant job destruction and environmental problems.
Which brings us back to KORUS.
In a prepared statement, the office of U.S. Trade Representative Michael Froman said, “The U.S.-Korea trade and investment relationship is substantially larger and stronger than in 2011, and KORUS has contributed to a strong and successful 2014 for American exporters.”
It pointed to four rounds of tariff reductions and eliminations, better intellectual-property protection, more transparency in Seoul’s regulatory system and improved access for services exports.
Froman’s office states, “Overall, U.S.-Korea goods and services trade has risen from $126.5 billion in 2011 to $145.2 billion in 2014.”
Agriculture makes up the majority of Washington goods sold to South Korea, and cherry exports have risen from $40 million in 2011 to $116 million last year.
On the other hand, critics question the official data and claim the trade deficit has cost 75,000 U.S. jobs. South Korea continues to be a currency manipulator. Concerns continue that Seoul is practicing protectionism.
And improvements in the regulatory climate did not prevent South Korea from taking two years to approve Microsoft’s acquisition of Nokia’s devices unit.
But the success or disappointment of KORUS can’t be seen in isolation. South Korea’s economy has been struggling. Exports have plunged. The biggest reason is China’s economic troubles. China is South Korea’s largest trading partner.
KORUS, like TPP, is also a geopolitical act, trying to reinforce American alliances. But one could question why the United States pays to maintain nearly 30,000 troops in South Korea more than 60 years after the end of the Korean War.
South Korea has one of the world’s most advanced economies, a modern military and the implicit protection of Beijing, which has said it will not allow a war on the Korean Peninsula.
One thing that’s clear is the post-World War II American economic infrastructure for the world has reached its limits.
And managed trade agreements will only take us so much further — and will not necessarily provide the benefits and jobs promised.
Nearly 7 million well-paying American manufacturing jobs have been lost since 1979, even though the labor force has grown by nearly 51 million. Many factors are to blame, including automation and offshoring of jobs.
But the big culprit was China’s entry into the World Trade Organization. Beijing doesn’t play by the old American-driven GATT rules. Most critically, it requires companies wishing to do business there to locate significant manufacturing, and now research, facilities in the country.
Perhaps the most important “free trade” agreement we lack is one with China.