U.S.-South Korea Free Trade Agreement

by David Trumbull

April 7, 2006

Two weeks ago in this space we examined the explosion in the number of free trade agreements the U.S. is partner to. As recently as 2003 the U.S. had three of these entangling foreign alliances. The most well known was NAFTA, our free trade agreement with Mexico and Canada. If the Administration is successful in obtaining, by June of next year when trade promotion authority expires, deals with all the countries we are currently negotiating with, we shall, in 2008, have free trade agreements in place with 30 nations.

On February 2, 2006, the U.S. and South Korea announced they would begin negotiations after a mandatory 90-day waiting period. According to the U.S. Trade Representative, Ambassador Rob Portman:

"[This] agreement would be largest U.S. FTA in 15 years...Korea is the world's 10th largest economy with an annual GDP rapidly approaching $1 trillion and our 7th largest export market...Two-way goods trade between the U.S. and Korea was valued at about $72 billion in 2005. Major U.S. exports to Korea include agriculture products, aircraft, machinery, and organic chemicals. Major imports include cars, telecommunications equipment and electrical machinery...New and pending FTA partners, taken together, would constitute America's third largest export market and the third largest economy in the world."

But how will these deals be received in some of the "red states" such as South Carolina and North Carolina where manufacturing job losses due to imports have already devastated many communities? I'm thinking, as it is my industry, particularly of textile jobs.

South Korea is the sixth largest source of U.S. textile and apparel imports as measured by quantity (square meter equivalents, or sme). In 2005 Korea shipped to the U.S. 2 billion sme of textiles and apparel which was 4 percent of all U.S. imports of textile and apparel. Not only is Korea a major source of textile and apparel imports, it is, unlike many of the other apparel producing countries we have FTAs with, a major yarn and fabric producer. South Korea is the 5th largest source of yarn and fabric imports. In 2005 Korea shipped 1.7 billion sme of these textile products, which was 5.7 percent of all U.S. textile imports.

And it's not just jobs in the Carolinas that are on the line. Products from South Korea compete directly with yarn and fabric produced in Massachusetts by companies such as Duro Industries in Fall River and Ames Textile Corporation in Lowell, as well as The Moore Company in Westerly, Rhode Island, and Warren Corporation in Stafford Springs, Connecticut.

We all know one rule of economics: "free" is never free. There will be a cost, not only in lost U.S. jobs due to imports, but also in the shift from import duties to other sources of revenue for the government. Revenue from duties on all imports from South Korea total nearly a billion dollars annually out of the total $23 billion annual of tariff revenue, making imports from South Korea the fifth largest source of import duties. That money must be gotten from somewhere. And the question is: when will this become a major issue for the average American voter? Perhaps in time for the 2008 elections?

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