[ Issues ]

International Trade and Investment

U.S.-Korea Free Trade Agreement (KORUS FTA)

On April 30, 2007, the Bush administration announced that it had reached agreement with Korea on a free-trade deal. This trade agreement was subsequently signed by the governments of the two countries on June 30.

The UAW and our progressive allies strongly denounced this proposed agreement, which would be the largest free-trade deal since the North American Free Trade Agreement (NAFTA). The UAW is especially concerned that this agreement would pose a huge threat to automotive production and jobs in the United States.

Korea is the fifth largest producer and third largest exporter of vehicles in the world. In 2006, U.S. imports of Korean automotive products into the United States were valued at $12.4 billion, while U.S. exports of similar products to Korea amounted to just $751 million. The net result was an $11.6 billion U.S. automotive trade deficit.

In 2006, Korea exported about 700,000 vehicles to the United States. But the United States was only allowed to export approximately 5,000 vehicles to Korea.

Historically, Korea has kept its market almost completely closed to U.S.-built automotive products. This has been accomplished through a combination of tariff and nontariff barriers. Despite previous agreements and memoranda of understanding between the United States and Korea in 1995 and 1998 in which Korea promised to eliminate its barriers to imports of automotive products, the Korean market still remains essentially closed to any significant import competition. Korea’s market has the lowest level of import penetration of any major automotive-producing economy in the world.

Unfortunately, the proposed KORUS FTA will increase access by Korean automotive producers to the U.S. market, while allowing Korea to keep its market closed to U.S.-built vehicles and auto parts. The net result will be a surge of automotive imports from Korea and the loss of tens of thousands of additional auto jobs in the United States.

The proposed FTA would immediately eliminate the 2.5 percent United States tariff on the vast majority of Korean-produced vehicles and auto parts. In addition, the 25 percent U.S. tariff on light trucks would be phased out over 10 years. It will be relatively easy for Korean automakers to ramp up production for export to the United States In fact, the government of Korea has stated that it expects the proposed FTA to generate a $1 billion annual increase in its auto trade surplus with the United States.

The proposed KORUS FTA contains no guarantees or mechanisms for the United States to gain substantially greater access to the Korean auto market. It does not require Korea to eliminate all current nontariff barriers, nor does it establish effective and enforceable mechanisms for addressing future nontariff trade barriers. The UAW also is concerned that the KORUS FTA will not effectively end the Korean government’s ongoing efforts to use automotive safety, emission and other technical standards as a tool to discriminate against imported automotive products.

The proposed KORUS FTA creates an Automotive Working Group to address regulatory issues and other nontariff barriers that may arise in the future. However, the working group has no real enforcement power to address such barriers, but only to provide its views in order to “promote good regulatory practices.” The trade agreement also contains a “promise” by Korea that it is not governmental policy to discourage the purchase or use of U.S. automotive goods. There is no effective mechanism to ensure compliance with this “promise.”

The Bush administration has touted the dispute resolution provisions of the KORUS FTA as containing “an innovative process for settling disputes on auto-related measures.” But the FTA would do little more than expedite slightly the usual joint committee review and arbitration process. The dispute panel consists of only governmental representatives who may or may not have sufficient automotive knowledge and experience. The special dispute resolution procedures do not allow for participation by nongovernmental parties, including unions.

Even if an arbitration panel should rule in favor of the United States under this dispute resolution procedure, the only relief that is provided is that we would be allowed to reinstate (i.e., “snapback”) our former 2.5 percent tariff on autos. However, the “snapback” provision does not apply to the 25 percent pickup truck tariff. Thus, the remedy provided by this tariff provision is largely toothless, since it does not apply to the most important U.S. tariff concession.

In addition, the remedy provided under the “snapback” provision is ill-equipped to address the long-standing problem of Korea using a variety of tariff and nontariff barriers to keep its market closed to U.S. automotive producers. If, as expected, Korea continues to use the same tactics to keep its automotive market closed, re-imposing U.S. tariffs at pre-FTA levels will do nothing to redress the damage already inflicted on American automotive companies and their workers.

On June 29, 2007, House Democratic leaders issued a trade policy statement in which they expressed their opposition to the proposed U.S.-Korea FTA. This statement highlighted the huge automotive trade imbalance with Korea, and the failure of this agreement to require Korea to open its market to U.S.-built automotive products. In September, the International Trade Commission (ITC) released a report which supported the UAW’s position that this trade deal would lead to a significant increase in our automotive trade deficit with Korea.

These positive developments greatly decreased the likelihood that Congress will approve the U.S.-Korea FTA. Nevertheless, UAW activists need to remain vigilant and to keep up the pressure on representatives and senators to oppose this dangerous trade deal.

Action

U.S.-Colombia Free Trade Agreement

The Bush administration has also negotiated a free-trade deal with Colombia. The UAW and a wide range of progressive groups are vigorously opposed to this flawed trade agreement. Colombia continues to lead the world in murders of trade unionists. More than 2,000 trade unionists have been murdered in Colombia since 1991, including more than 400 since President Alvaro Uribe took office in 2002. Fewer than 2 percent of the perpetrators of these murders have been brought to justice, indicating the inability or unwillingness of the Uribe government to end the killing. The majority of these murders have been committed by paramilitary groups, some of which have been linked to high-ranking members of the Uribe government.

The UAW stands in solidarity with Colombian workers and will continue to oppose this FTA until concrete progress is made in Colombia to: 1) end the violence and threats against trade unionists; 2) bring the perpetrators of the violence to justice; 3) sever the ties between the paramilitary groups and the government, and 4) ensure that Colombian workers can exercise their rights to organize and bargain collectively, free from threats and intimidation.

Action

Other Bilateral Free-Trade Agreements

Through the first seven years of the Bush administration, the United States trade representative has negotiated numerous other bilateral free-trade agreements, including deals with Peru and Panama. Because the economies of Peru and Panama are so small, and because they do not have any major automotive or manufacturing industries, the trade deals with these countries did not pose any significant threat to the jobs of UAW members and other American workers. In addition, at the insistence of House Democratic leaders, the administration modified these trade deals to include internationally recognized worker rights and environmental protections. For both of these reasons, the UAW has not opposed the Peru and Panama free-trade deals. Late in 2007, Congress approved the Peru trade agreement. It is expected to take up the Panama trade deal this year.

Meanwhile, the Bush administration is negotiating a free-trade agreement with Malaysia, and has announced it expects to reach a deal by June. A free-trade deal with Malaysia could adversely affect the U.S. manufacturing sector and UAW members. The U.S. bilateral trade deficit with Malaysia through the first half of 2007 stood at $10.2 billion, with a significant portion of this deficit being in automotive products. Many of the world’s major auto producers, including Ford, Chrysler, Honda, Toyota, Nissan, Hyundai and Kia, operate export production facilities in Malaysia.

Unfortunately, the Malaysian labor movement is relatively weak and the IMF affiliate (Metal Industry Employees’ Union) represents a small percentage of the workers in the auto sector. Thus, there is a real danger that a free-trade deal with Malaysia could lead to a surge in automotive exports from Malaysia to the United States. This could put the jobs of thousands of UAW members at risk.

Action

Extension of Trade Promotion Authority (Fast Track)

When Congress granted President Bush fast-track negotiating authority in 2002, it opened the door to the negotiation of a series of NAFTA-style trade agreements that have promoted the interests of multinational corporations and imposed tremendous downward pressure on the standard of living of working families in the United States. That fast-track authority expired in July 2007, but the Bush administration is pushing for its extension in order to negotiate and implement further bilateral and global trade deals.

The fast-track procedures that set the rules for Congress to consider trade agreements – preventing any amendments and limiting time for debate – ease the way for flawed agreements to win approval. Because the Bush administration has repeatedly demonstrated its commitment to trade policies that benefit only multi-national corporations, not working families, the UAW strongly opposes any renewal of trade promotion authority for this administration.

Action

World Trade Organization (WTO) and Global Trade Negotiations

In 2001, the World Trade Organization (WTO) launched a new round of trade liberalization negotiations –the so-called Doha Development Agenda. These negotiations were designed to revise the rules of international trade and investment, including those for industrial products and services, to promote global economic development.

Not surprisingly, the agenda of the Bush administration in these negotiations has been focused entirely on the interests of multinational corporations, not working families. Worker rights and environmental protections are not even being discussed. Furthermore, the UAW is deeply concerned that these negotiations could undermine U.S. anti-dumping rules and other trade remedies. And there is also a danger that these negotiations could lead to the elimination U.S. automotive tariffs, including our 25 percent tariff on imported pickup trucks, while other countries are allowed to continue a variety of tariff and nontariff barriers that effectively exclude U.S.-built automotive products from their markets.

Fortunately, the Doha WTO negotiations appear to have deadlocked because of disagreements over agricultural issues and other matters. As a result, it appears that there will not be any agreement in the near future. However, the UAW and our trade allies need to remain vigilant and to closely monitor these trade talks. We must continue to voice our strong opposition to any WTO agreement that simply benefits multi-national corporations, and sacrifices the interests of working families.

Action

Worker Rights

For many years the UAW and other unions have insisted that worker rights and environmental protections be included in the core text of trade agreements, and enforced just like the commercial provisions of those agreements. In our judgment, this is the only way to ensure that international trade will gradually improve the environment and the standard of living of working families throughout the world, instead of leading to a vicious race to the bottom in which nations compete on the basis of who has the worst wages, benefits and working conditions and the worst environmental degradation.

The Bush administration and Congressional Republicans, along with their business allies, have staunchly resisted efforts to include worker rights and environmental protections in trade deals. However, after the Democrats regained control of the House and Senate following the 2006 elections, House Democratic leaders strongly pressured the Bush administration to change its position. Because the administration and the business community were anxious to see progress on the Peru, Panama and other trade deals, in the end the Bush administration acquiesced in this Democratic demand. On May 10, 2007, House Democratic leaders announced an agreement with the Bush administration to include worker rights and environmental protections in pending and future trade deals. Under this agreement, the internationally recognized core worker rights will be included in the text of trade deals, enforceable just like commercial provisions.

The UAW and the AFL-CIO hailed this important breakthrough. It achieved one of the key trade policy objectives that the labor movement has long sought. At the same time, House Democratic leaders provided assurances that this agreement on worker rights did not represent a green light for the trade deals with Korea and Colombia, or for an extension of fast-track trade negotiating authority. These assurances were made public when the House Democratic leaders issued a trade policy statement on June 29, 2007, expressing their opposition to the Korea and Colombia trade deals, and indicating that their legislative priorities did not include an extension of fast track.

Action

NAFTA, China PNTR and Trade Deficits -The Need for Different Trade Policies

The U.S. trade deficit set yet another record in 2006, the sixth record year in a row. The overall trade deficit reached approximately $775 billion, while the deficit in goods alone was about $840 billion. The trade deficit with our NAFTA partners, Mexico and Canada, reached $140 billion. And the trade deficits with China and Japan climbed to more that $220 billion and $85 billion respectively. The deficit with the European Union hit $125 billion. Despite the decline in the value of the dollar (which helps our exports and makes imports more expensive), the figures for the first nine months of 2007 indicate that the United States is continuing to run a very large overall trade deficit, as well as large deficits with all of these major trading partners.

The United States trade deficit in automotive products reached $144.7 billion in 2006, up 5.5 percent from 2005. Our auto trade deficit reached $57.9 billion with Japan, $44.4 billion with our NAFTA partners, Mexico and Canada, and $11.6 billion with Korea. The figures for the first nine months of 2007 show that, despite the drop in the dollar’s value, the United States is still running extremely large automotive trade deficits with all of these nations.

NAFTA and permanent normal trade relations (PNTR) with China have contributed greatly to these ballooning trade deficits. So have the trade policies of the Bush administration, which have focused on negotiating NAFTA-style free-trade deals, while ignoring the rights of workers and the serious trade imbalances with our largest trading partners. As a result of these failed trade policies, millions of American workers in the manufacturing sector have lost their jobs, and production for a growing range of products has been outsourced. This has contributed significantly to the huge structural changes that have taken place in the overall domestic economy and the automobile industry in particular. These changes have caused real pain for millions of workers and their families: fewer manufacturing jobs, declining wages, erosion of health care and retirement benefits, increasing poverty, devastated communities and dramatic increases in income inequality.

During the 14 years that NAFTA has been in place, U.S. trade deficits with Canada and Mexico have soared, and the auto trade deficit has more than tripled. Many companies have shifted production to Mexico at the cost of hundreds of thousands of U.S. jobs. In addition, companies have used the threat of relocating to Mexico to wring concessions in wages and benefits from American workers. The NAFTA side agreements on labor and environment have proven to be completely ineffective. And corporations have used the NAFTA rules on investment to challenge government laws, regulations and policies that protect public health and safety. For all of these reasons, the UAW continues to believe that NAFTA must be renegotiated to fix the many problems in this flawed trade agreement.

Permanent normal trade relations with China have been in place for 7 years. Instead of strengthening the ability of the United States to resolve trade problems with China, it has triggered a ballooning of the United States trade deficit with China. The Bush administration has refused to file cases against China in the WTO, and failed to take action to enforce China’s commitments to follow WTO rules. The administration has even rejected cases under U.S. trade laws that identified China’s denial of workers rights and its currency manipulation as unfair trade practices.

At the same time, China has been following a national automotive industrial policy that conflicts with many of its WTO commitments. As a result, China is well on its way to becoming the world’s largest automotive manufacturer, and a producer of its own brands of vehicles and parts for the world market. China already exports significant quantities of auto parts to the United States, and we expect it to begin exporting vehicles to the U.S. market in the near future. The U.S. auto trade deficit with China has ballooned since China PNTR was approved. If nothing is done, we expect it to grow even worse in the coming years. To correct this situation, the administration and Congress need to insist that China live up to its WTO commitments, including dismantling its national automotive industrial policy. They also need to insist that China stop its violations of internationally recognized worker rights and its currency manipulation.

The UAW fully supports efforts to negotiate international trade and investment agreements that promote economic development and the interests of working families. Unfortunately, the free-trade agreements negotiated over the past two decades contain no such rules. Instead, they have focused on promoting the interests of multi-national corporations. This so-called free-trade agenda has allowed multinational corporations to avoid the whole range of domestic laws and regulations – the minimum wage, the rights of workers to organize and bargain collectively, safe and healthy workplaces – that we believe are important to promote the common welfare and temper the worst excesses of globalization. It is time to end this destructive course. It is time for Congress and the administration to pursue a new trade agenda that puts the interests of working families above those of multinational corporations.

Action

Currency Manipulation

International trade will not lead to higher living standards for workers in all countries if governments manipulate their currencies to artificially pump up their exports and hold down their imports. Many of our important trading partners are using currency manipulation to gain unfair trade advantages.

The most extreme example of this is China. The Chinese government controls the value of its currency to provide a further significant price advantage for exports and disadvantage for imports. Most estimates of the undervaluation of China’s currency, and the advantage for Chinese products over those made in the United States, fall into a range of 25-40 percent. Similarly, manipulation of the value of the yen by the Japanese government, and its significant undervaluation, makes automotive and other products made in Japan far more competitive than they would be if the exchange rate were not manipulated.

Because currency manipulation prevents the establishment of a level playing field for American exports and domestic production, an equitable trading system must have rules to prevent currency manipulation from contributing to large and persistent trade imbalances. In the absence of such rules, Congress and the Bush administration need to take immediate steps to bring pressure to bear on China and Japan to stop their harmful currency manipulation.

In 2007 the UAW supported legislation sponsored by Reps. Tim Ryan, D-Ohio, and Duncan Hunter, R-Calif., (H.R. 782), and Sens. Debbie Stabenow, D-Mich., and Jim Bunning, R-Ky., (S. 796) that contained meaningful measures to combat currency manipulation. Subsequently, Sens. Max Baucus, D-Mont.; Chuck Grassley, R-Iowa, and Chris Dodd, D-Conn. introduced other measures to address this significant problem. Unfortunately, Congress failed to complete action on any of these measures before it adjourned at the end of the year. Thus, during 2008 the UAW and other unions will be urging Congress to pass tough legislation to force China and Japan to stop manipulating their currencies to gain unfair competitive advantage.

Action

Trade Adjustment Assistance

Hundreds of thousands of workers lose their jobs each year due to foreign trade and thereby become eligible for Trade Adjustment Assistance (TAA) benefits. Unlike other programs for dislocated workers, the TAA program is an “entitlement,” so workers have a right to the promised benefits of training and extended income support. The Bush administration, however, has fought for caps on TAA funding (effectively eliminating the “entitlement” status of the program) and has proposed numerous changes in the regulations governing the program making it harder for workers to qualify for benefits.

Too many workers have seen their jobs disappear due to increased imports, lost exports, or foreign investments by their employers. Too many of these workers have been forced to take lower-paying jobs with inferior benefits because they have not been able to receive the full range of education, training and income support that the TAA program is supposed to provide. Thus, the TAA program must be further expanded to fulfill its goal of ensuring a better future for workers who lose their jobs due to trade.

In the fall of 2007 House and Senate Democratic leaders put forward legislation to reauthorize and expand the TAA program. These bills contained a number of key improvements that have long been sought by the UAW and other unions, including:

• Increasing funding for the TAA program so it can serve more workers who are adversely affected by trade.

• Streamlining the procedures for workers to receive TAA benefits.

• Expanding the TAA program to cover workers in the public sector and service industries.

•Improving the training benefits.

• Expanding and reforming the health care tax credit so it can help more laid-off workers obtain affordable health insurance coverage.

In November 2007 the House approved this important TAA legislation. However, at the time this paper was written it was unclear whether the Senate would be able to pass this measure, or whether it would be blocked by Republicans. If this bill is not enacted, the UAW will be working with our allies during 2008 to get the necessary votes to pass this TAA reform legislation in the Senate.

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