U.S.-Korea trade deal is bad for both countries

There have been massive demonstrations against this trade agreement in Korea. Koreans share the sentiment shown in polling of the American people: opposition to more damaging trade deals. And this is before any of the actual fallout from this particular agreement’s financial deregulation and foreign investor tribunals has occurred. Rather than improving our countries’ relations, this deal is highly likely to have a detrimental effect on how people in the two countries consider the other.
 

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If you read the Korean press, you would know that many in Korea view this trade deal as humiliating and unfair. First of all, in order to finalize this bad deal in the latter part of 2010, negotiators from both countries took advantage of the time when military tensions between South and North Koreas had reached a new all-time peak since the Korean War. People in Korea wonder: Is this trade pact the price that Korea pays for its defense?
 
Second, the deal’s “investor-state” enforcement mechanism empowers foreign investors to skirt domestic courts and seek cash compensation from both countries’ taxpayers for regulatory costs before foreign tribunals. This will undermine national sovereignty and important public policies in both countries. And the mechanism is unnecessary for nations that have well-established judicial systems. Koreans ask: Why should this be imposed on us when the U.S.-Australia Free Trade Agreement, another deal between advanced nations, did not include such an offensive dismissal of the domestic legal system? Reckless lawsuits filed by multinational corporations operating in either country will only harm the Korea-U.S. relationship.
 
Moreover, this trade deal will have a negative impact on the middle-class in the U.S. and Korea. This is a lose-lose deal that will destroy jobs in both countries. How can that be? The deal is expected to increase the overall U.S. trade deficit, which would lead to net job loss in the U.S. But it is the deal’s low domestic content requirement that would encourage both U.S. and Korean corporations to offshore jobs to low-wage countries.
 
Under the agreement, up to 65 percent of the content of many products, including cars, can come from countries other than the U.S. and Korea – but the resulting products would still be considered “American” or “Korean” and receive duty-free treatment. This explains why the Korean auto workers union opposes the deal. While more “Korean” cars are projected to be sold into the U.S. under the deal, up to 65 percent of the value of inputs to those cars could come from other countries, such as China, displacing Korean workers in the supply chain.
 
This trade deal could also contribute to another economic crisis. The provisions in the agreement that deal with banks and securities were concluded prior to the global crisis. They reflect the past era of reckless deregulation, limiting many regulatory policies both of our countries seek to employ as we reregulate. For instance, the pact forbids both countries from banning risky financial products and services. As a result, Korean regulators would be bound not to limit entry of derivatives, such as the now-infamous “collateralized debt obligations” and “credit default swaps,” that caused the crisis and increase the chances of future crises. This issue cuts deep in Korea, where the millions who suffered horrible economic hardships after the 1997 Asian financial crisis were still recovering when the latest crisis hit.
 
It is important to remember that this trade deal is based on the NAFTA-model, which has caused massive job loss in the U.S. manufacturing sector. Now, at the behest of multinational corporations, it seems that many U.S. lawmakers want to make the same mistake again – and export that mistake to Korea.
 
It is my sincere hope that a fair trade agreement can be negotiated between our countries in the future that would benefit both of our economies and thus help advance the strong alliance between Korea and the U.S. The deal that the U.S. Congress is expected to consider in the coming weeks is not such an agreement.
 
Chun Jung-bae is a member of the National Assembly of the Republic of Korea, where he was formerly the floor leader, and a member of the Supreme Council of the Democratic Party of Korea.