Letter to Ron Kirk, Ambassador of the United States Trade Representative - US-Korea Free Trade Agreement

Letter

U.S. Sen. Sherrod Brown (D-OH) and U.S. Reps. Marcy Kaptur (OH-9), Dennis Kucinich (OH-10), Tim Ryan (OH-17), Betty Sutton (OH-13), and Marcia Fudge (OH-11) sent a letter this week to U.S. Trade Representative Ambassador Ron Kirk urging him to consider a number of issues, including the American auto industry, domestic content requirements, and trade law enforcement, before moving forward on any U.S.-Korea Free Trade Agreement (FTA).

"We continue to fear that the proposed U.S.-Korea Free Trade Agreement will, over time, harm the auto industry and its workers…we remain concerned that this agreement does not do enough to shift the imbalanced trade in the auto sector and will put too many American jobs at risk," the members wrote. "The challenge before your Administration is how to promote trade and exports, along with better working conditions, the protection of American innovation, and the rule of law. With American families suffering a double blow from the economic recession and unfair trade around the globe, we believe the Administration needs to do more than simply put forward these pending trade agreements and speak more loudly at the World Trade Organization and G20."

"Until a strategy is employed and a track record demonstrated on these and similar issues, the public's and Congress' appetite for more trade accords will remain minimal," the members continued.

"Existing free trade agreements like NAFTA and CAFTA have only led to factory closures and the destruction of good-paying manufacturing jobs in Ohio and across our country," Sen. Brown said. "Before we proceed with any free trade agreement with Korea, President Obama and Ambassador Kirk must work to protect the American automobile industry, including domestic suppliers, and the Ohio men and women that make up our state's industrial backbone. This Administration must also commit to enforcing existing trade laws, including those relating to currency manipulation, before Congress can move forward."

"Our number one priority must be job creation, but another NAFTA-style deal will merely result in the loss of more manufacturing jobs. This flawed agreement, by failing to ensure that U.S. automakers will be able to sell more than a handful of cars in the South Korean market, fails to move trade policy in the direction of job creation," Rep. Kaptur said.

"The Korea trade deal, drafted in the same flawed NAFTA/CAFTA tradition, is a bad deal for American manufacturers and workers. The deal only requires that 35% of a product be produced in Korea and that means 65% of the content of any product can be funneled through from China, where they don't play by the rules," said Rep. Sutton. "The deal also fails to address the unfair advantage that Korea, a known currency manipulator, will enjoy at the expense of our manufacturers and workers. At a time when we should be focused on getting people back to work, this Korea trade deal will cost us more jobs."

The full letter is below.

Ambassador Ron Kirk
United States Trade Representative
600 17th Street NW
Washington, DC 20508

Dear Ambassador Kirk:

As the Obama Administration finalizes text of the proposed U.S.-Korea Free Trade Agreement to submit to Congress, we write to urge consideration of the following issues in implementing legislation and the Statement of Administrative Action (SAA):

Autos:

In the last two years, President Obama has worked tirelessly with Congress and the auto industry to restructure GM and Chrysler. Had we not chosen to invest in our automakers, we would have seen millions more jobs lost. Suppliers would have fallen like dominoes through Ohio, Michigan, and across the country. But we averted that and the auto industry is rebounding. According to the administration, the auto industry has added more than 75,000 jobs since GM and Chrysler emerged from bankruptcy -- the fastest job growth in autos since 1999.

However, we continue to fear that the proposed U.S.-Korea Free Trade Agreement will, over time, harm the auto industry and its workers. While the Supplemental Agreement on auto provisions between the United States and South Korea, announced in December, would enable each American automaker to export 25,000 cars each year, for four years, exempt from onerous Korean regulations, we remain concerned that this agreement does not do enough to shift the imbalanced trade in the auto sector and will put too many American jobs at risk. South Korea has the lowest level of import penetration of any developed country at just 4.4 percent of Korean auto sales. In 2009, the United States exported fewer than 6,000 American cars to Korea. That same year, Korea sent 476,000 to the United States.

We encourage you to consider applying benchmarks in the implementing legislation, in order to measure U.S. auto import penetration of at least 20 percent in the Korean auto market. This would be a significant increase in foreign market access. If the agreement does not enable tangible improvement in export conditions to South Korea, we should retain specific authority to withdraw our tariff concessions in the auto sector.

Domestic Content

Ohio is an auto supplier state, with jobs in steel, glass, and rubber dependent on a vibrant auto sector. But the U.S.-Korea FTA rules-of-origin allow these vehicles to contain just 35 percent Korean (and U.S.) content, and up to 65 percent foreign content. The low 35 percent threshold for South Korean content would increase the incentive for other nations, such as China, to expose this loophole in the U.S.-Korea FTA to source more content from other countries, and even evade U.S. antidumping or countervailing duties. In 2009, 38 percent of the 2009 U.S. auto trade deficit with Korea was in auto parts. Therefore such a low domestic content requirement would be harmful to our domestic auto parts and supply chain because those parts can be sourced from anywhere over the world, including China. This puts downward pressure on our auto suppliers. In contrast, the European Union recognized the importance of ensuring strong domestic content by obtaining a 55 percent content provision in the EU-Korea FTA. We understand that there is little the Administration can achieve at this time to address this issue, given negotiations concluded in December. But this cannot be a precedence-setting threshold for domestic content, and we encourage you to consider addressing this low domestic content threshold by demanding higher content provisions in negotiations of the Trans-Pacific Partnership.

Trade Enforcement:

Our trade laws were set up to establish a level playing field, but unfortunately, history shows that many of our trading partners find ways to circumvent these laws in order to obtain an unfair advantage in trade. This has led to record-breaking trade deficits, which accelerate the decimation of manufacturing jobs.

In the U.S.-Korea FTA, there are provisions that obligate the United States to notify Korea of an antidumping or countervailing duty application and afford Korea a meeting regarding the application prior to any investigation. We are very concerned that diplomatic interference could result in a suspension of trade remedy procedures. We encourage you to, in the implementation process, clarify that these provisions are not intended to depart from current law and procedures.

We are also concerned that the enforcement of the U.S.-Korea agreement will be especially challenging given that Korean port of Busan is a known hub for Chinese goods, including steel products, textiles, and furniture. U.S. Customs officials have uncovered numerous instances of illegal transshipment from China when cargo was exported through the port of Busan. This is particularly worrisome when it comes to circumventing quotas placed on Chinese imports.

Finally, the U.S.-Korea FTA does not address currency manipulation despite the fact that the Korean government has repeatedly intervened in the value of the won. A lower exchange rate will make Korea's exports cheaper and U.S. imports more expensive, potentially making any new market access to Korea through the FTA meaningless. We strongly urge you to address this shortcoming in the FTA.

Moving Forward

The challenge before your Administration is how to promote trade and exports, along with better working conditions, the protection of American innovation, and the rule of law. With American families suffering a double blow from the economic recession and unfair trade around the globe, we believe the Administration needs to do more than simply put forward these pending trade agreements and speak more loudly at the World Trade Organization and G20.

Until a strategy is employed and a track record demonstrated on these and similar issues, the public's and Congress' appetite for more trade accords will remain minimal.

Thank you for your consideration of these issues, and please contact us if you have any questions.

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