WASHINGTON — October 12, 2011 — The American Manufacturing Trade Action Coalition (AMTAC) expressed
deep disappointment at the 278 to 151 vote by the U.S. House of Representatives to pass H.R. 3080,
the U.S.-Korea Free Trade Agreement Implementation Act.
“The Korean FTA is a bad deal for U.S. manufacturing,” said AMTAC Executive Director Auggie
Tantillo.
“A likely decline in textile output almost certainly means the loss of U.S. textile jobs,”
Tantillo added as he noted that the U.S. International Trade Commission admits that U.S. textile
output is expected to decline as a result of the agreement.
“If the United States wants to create more jobs through trade, we should be negotiating free
trade agreements with countries like Britain, Italy or Germany. These countries not only have
large populations with the financial capability to buy U.S.-made goods in significant quantities,
but they also have a recent historical track record of not raising non-tariff barriers to buying
U.S. exports,” Tantillo said.
“Instead, the U.S. government has been negotiating trade deals with low-cost producers in
Asia like Korea and with communist Vietnam as a part of the proposed Trans-Pacific Partnership
(TPP),” Tantillo continued.
“As the high U.S. trade deficit in manufacturing shows, deals like approving China’s
accession to the World Trade Organization, the Korean FTA, and the proposed TPP with Vietnam are
almost all about producing in Asia and selling to the Carolinas or the Midwest rather than the
other way around,” Tantillo pointed out.
“As U.S. trade deficits with many of our Asian trade partners have skyrocketed in recent
years, it is no coincidence that that the Federal Reserve reported that the “Total Index” of U.S.
industrial production grew by just a measly 1.74 percent between January 2001 and January 2011. In
contrast, U.S. industrial output grew by 50 percent during the decade before,” Tantillo further
elaborated.
“If Congress were truly serious about creating more American manufacturing jobs and boosting
exports to Asia, it would swiftly pass legislation to discourage Chinese currency manipulation
instead of adopting flawed trade deals,” Tantillo stressed.
“Congressional intervention to stop illegal export subsidies like undervalued currency would
open doors to lucrative markets abroad that have been effectively closed to U.S. manufacturers
thanks to cheating on trade by China and others. In addition, addressing the currency manipulation
problem would help keep China from running roughshod over American manufacturers in the U.S.
market. If American manufacturing were given a level playing field, output and exports would
rise. That’s what would create more jobs,” Tantillo concluded.
A letter sent to the U.S. House of Representatives and Senate outlining AMTAC’s reasons for
opposing the Korean FTA is appended below.
AMTAC URGES “NO” VOTE ON KORUS
October 7, 2011
Dear Member of Congress:
The American Manufacturing Trade Action Coalition (AMTAC) urges you to vote NO on the
U.S.-South Korea Free Trade Agreement (KORUS). The agreement was submitted to Congress on
October 3, and a vote is expected in both the House and Senate on Wednesday, October
12.
AMTAC strongly opposes KORUS for three main reasons:
- the agreement is flawed in concept;
- the terms of the agreement are unfavorable to key industries such as textiles; and,
- the textile and apparel provisions in the agreement are unlikely to be adequately
enforced.
These problems are why as many as an estimated
40,000 U.S. jobs
are expected to be lost in the first seven years after implementation just as a result of
textile concerns with the agreement.
If Congress is serious about creating jobs, passing trade-law enforcement measures like the
stalled anti-currency manipulation legislation, strengthening our “buy American” laws, and
eliminating trade distortions caused by foreign border-adjusted taxes should be targeted instead.
(1) KORUS IS A CONTINUATION OF A JOB-DESTROYING U.S. TRADE POLICY
KORUS replicates a fatal flaw contained in almost every free trade agreement (FTA) that the
United States has implemented:
our FTA partners can (and do) sell more to us than we to them. During the lifetime or our
existing FTAs, the United States has run a cumulative $2.1 trillion deficit with our free trade
partners. [1] <#_ftn1> This flaw drives up the U.S. production shortfall manifested in
our trade and current account deficits that have destroyed so many middle-class American
jobs.
The disparity in market opportunities is immense for several reasons. South Korea’s
population is less than one-sixth of the United States. Its GDP of $986.3 billion is less
than 7 percent of the U.S. GDP of $14.6 trillion in 2010.[2] <#_ftn2>
Despite the South Korean economy’s smaller size, it is an export superpower in many important
industries such as autos, electronics, and textiles. With respect to textiles, South Korean has a
highly sophisticated, vertically integrated industry that is a world-class manufacturer of even the
most technical products. In 2010, South Korea was America’s 8th largest supplier of textiles and
apparel by volume. For just yarns and fabrics, the largest component of the U.S. industry, South
Korea is America’s 2nd largest source of imports.
In addition, South Korea has a long history of unfair trading practices. Currently, there are
16 antidumping and countervailing duty orders in place against U.S. imports of goods from South
Korea.
Moreover, despite its obligations under the World Trade Organization (WTO), South Korea has
been hostile to imports. It has raised non-tariff barriers for those goods where there is sizeable
Korean production, autos being the prime example.
We would also note that while KORUS will give South Korean goods duty-free entry into the
U.S. market, U.S. exports to South Korea will still be subjected to a 10 percent Value Added Tax
(VAT). Through their VAT system, South Korea will be allowed to maintain what amounts to a
permanent 10 percent tariff on U.S. exports to their market. Moreover, South Korea has complete
freedom to raise their VAT rate above the current 10 percent at any point in the future. It was a
major error on the part of our negotiators not to address this inequity as part of KORUS, as border
taxes are another persistent example of foreign practices that place domestic companies at a
competitive disadvantage.
Finally, the agreement is geographically disadvantageous to the United States. South Korea
faces roughly the same logistical challenges as its other Asian competition when it exports to the
United States. In contrast, the United States must ship its exports of manufactured goods several
thousand miles across the Pacific Ocean to a market where our competitors in China and Japan are
right next door.
The disparity in market opportunity is one reason why the United States ran a $10 billion
trade deficit with South Korea in 2010. Of that total, the U.S. ran a $10.6 billion deficit in
motor vehicles and motor vehicle parts and a $600 million deficit in textiles and apparel. [3]
<#_ftn3> It is also why the U.S. textile industry and some other sectors expect
few export opportunities for their products under KORUS.
In the face of these unfavorable factors, KORUS will eliminate U.S. tariffs on 95 percent of
current trade in industrial products within three years of implementation of the agreement while
not guaranteeing reciprocal U.S. access to the South Korean market for key industrial products such
as autos and textiles.
With South Korea’s current capabilities as a major producer and exporter of industrial
products, its close proximity to China, and its traditional hostility to imports, KORUS will hurt
U.S. manufacturers and exacerbate our trade deficit.
No wonder the Economic Policy Institute predicts the KORUS agreement will increase the total
U.S. trade deficit with South Korea by about $16.7 billion annually and displace approximately
159,000 American jobs within the first seven years after it takes effect.
(2) KORUS’S TEXTILE CHAPTER HURTS U.S. TEXTILE MANUFACTURERS
The United States International Trade Commission (USITC) estimates that U.S. textile and
apparel output will decline by the largest percentage of any sector as a result of KORUS and cites
expected increases in U.S. imports from South Korea as the driving factor.
According to the U.S. International Trade Commission’s initial analysis of entering into an
agreement with South Korea, “The largest gains for Korean exports to the United States are
anticipated in textiles, apparel, and leather goods, and other manufacturing (e.g., chemicals and
allied products, electronics, and transportation).”[4] <#_ftn4> Various studies cited
in the 2007 USITC report on KORUS uniformly predict declines in U.S. textile and apparel output
ranging from 0.4 to 1.5 percent.[5] <#_ftn5>
AMTAC estimates that 9,300 to 12,300 U.S. textile and apparel manufacturing jobs are expected
to be lost in the first seven years after implementation as result of flaws in the textile chapter
of KORUS. Moreover, because U.S. government figures show that approximately three additional jobs
are lost to the U.S. economy for each textile job that is eliminated, the total estimated job loss
climbs to nearly 40,000. It is also important to note that these figures do not account for job
losses as a result of a likely surge in illegal Chinese transshipments via South Korea, which we
expect to be significant.
One highly sensitive market where South Korea competes head-to-head with U.S. producers in
the U.S. market is in industrial textiles, a sector with employment of more than
25,000.
U.S. industrial textile manufacturers are particularly concerned about this agreement and its
impact on the extended domestic supply chain for coated and laminated membranes used in industrial
and military applications such as fuel cells, oil booms, rapidly deployable shelters/tents, radar
attenuating covers, safety and protective gear, and many more advanced applications, including
automotive fabrics. Many companies participating in this supply chain also support the military
needs of our warfighters. Their ability to innovate and responsively supply the military is
dependent on an overall healthy domestic market and industry.
Our principal concerns with the text include (1) accelerated tariff phase-outs that do not
give U.S. producers time to adjust, (2) non-reciprocal tariff phase-outs that favor the South
Korean textile industry in key products, and (3) exclusion of certain textile components from the
rule of origin.
The aforementioned reasons and others are why, as the auto provisions of KORUS were being
reopened, AMTAC and other industry associations made a request to the Obama administration in
August 2010 that they also reopen the textile and apparel chapter of the agreement to fix the
problems therein. Textile concerns, however, were never raised with South Korea and these
damaging provisions remain unchanged.
Problematic Accelerated Tariff Phase-Outs
Contrary to the precedent established in the NAFTA, 86 percent of textile and apparel product
lines are duty free immediately under KORUS and an additional 10 percent will be duty free on
January 1 of Year 5 of the agreement. This is the first time a large number of sensitive products
from a country with a large, sophisticated textile industry have received immediate access to the
U.S. market. Tariff phase-outs for sensitive products have traditionally been a key part of trade
agreements in order to give companies time to adjust business models and minimize large-scale
potential job displacement. For example, South Korea exports of polyester fiberfill have entered
the United States under anti-dumping orders for the past 15 years. This dumping case passed two
sunset reviews, the last of which was successfully completed prior to the end of the KORUS
negotiations. Nevertheless, KORUS immediately removes the U.S. duty on polyester fiberfill,
defeating the purpose of the anti-dumping rule and defying logic of equitable trade negotiations.
In the U.S. technical textile market, South Korea has emerged as the number one exporter of
advanced textile reinforcements, and this sensitive tariff line is scheduled for immediate tariff
phase out. U.S. industrial textile producers have already lost significant market share to
South Korean manufacturers, and this FTA will do significant harm to the industrial textile
industry and greatly diminish the sustainability of our fragile domestic supply base.
Socks are another sensitive product where most tariff lines go to zero immediately. South
Korea was the 6th largest exporter of socks to the United States in 2010 by volume, shipping more
than 152 million pair.
Non-Reciprocal Tariff Phase-Outs
The agreement also provides South Korea with a more generous and expedited tariff elimination
schedule than what is afforded U.S. producers and exporters for certain products. One example is
para-aramid fiber, which is used to produce tough, flame-retardant fabrics for industrial and
military applications including body armor. Under KORUS, South Korea will be allowed to export
aramids to the United States with immediate duty free treatment. U.S. producers do not get duty
free access to the Korean market as South Korea is allowed to phase out its tariff to be duty free
on January 1 of Year 5. This puts U.S. manufacturers at a direct disadvantage.
Job-Destroying Loopholes in Rule-of-Origin
The rule of origin is a critical element of any free trade agreement because it defines which
products qualify for preferential treatment and whether countries not party to the agreement will
receive benefits. The KORUS contains a “yarn forward” rule of origin. While we support a basic yarn
forward rule, certain specific exemptions to the product origin rules under KORUS are very
problematic.
In essence, the rule applies only to the component that determines the tariff classification
of the apparel or home furnishing good (in other words, the main or essential fabric) plus certain
visible lining fabrics. Applying origin rules in this manner means that key component yarns,
threads and fabrics are not adequately covered under the rule of origin and therefore do not have
to be of U.S. or South Korean origin. This conflicts with the majority of our recent agreements
including CAFTA-DR, Peru, Colombia and Panama which apply the yarn forward rule beyond just the
essential character fabric.
Under KORUS, components including sewing thread, pocketing and narrow fabrics, all of which
are in plentiful supply from U.S. producers, are allowed to come from anywhere. This allows third
parties, such as China, to benefit without making any market concessions of their own. Domestic
producers of these types of component yarns and fabrics provide thousands of U.S. jobs, which will
be put into jeopardy if KORUS is implemented.
(3) HIGH LIKELIHOOD OF MASSIVE CUSTOMS FRAUD DUE TO INADEQUATE ENFORCEMENT
PROVISONS
In addition to the flaws in the textile chapter of KORUS, there is strong evidence that
Customs’ ability to enforce this agreement will be ineffective.
Due to South Korea’s history of transshipment paired with significant cross-border investment
with China, upgraded customs enforcement provisions are essential to prevent large-scale customs
fraud under KORUS. China already exports nearly $4 billion annually in textiles and apparel
to South Korea, and South Korea was labeled by U.S. Customs as a major transshipment point for
Chinese exporters when quotas were in place.[6] <#_ftn6>
Instead of strengthening enforcement, however, the customs language in KORUS was
significantly weakened compared to other high risk agreements such as the Singapore
FTA.
Key enforcement provisions that were dropped under KORUS include the ability for U.S. Customs
to (1) seize goods from repeat offenders, (2) reduce South Korea’s access if it does not enforce
the rules of the agreement, and (3) deny fraudulent companies import privileges for several
years.
The substandard customs provisions in the KORUS leave the U.S. textile industry and its
workers vulnerable to large-scale illegal imports from China through South Korea. As a
result, the industry fully expects Chinese textile exporters to be a primary beneficiary of KORUS.
In addition to its direct threat to the U.S. market, the specter of increased illegal
transshipments likely to be generated by KORUS represents a significant attack on the hemispheric
textile production structure encouraged by U.S. policy for the past three decades.
The KORUS threatens to damage the Western Hemisphere because South Korea’s textile and
apparel exports are expected to surge and displace orders currently being sourced in the
region. When finished product orders are lost by manufacturers in the Western Hemisphere,
U.S. mills also lose the orders for the yarns and fabrics that go into garments and made-up
articles.
The potential loss of business is enormous. As a result of trade preference programs and the
NAFTA/ CAFTA/Peru FTAs, nearly two million textile and apparel workers in those regions produce
garments, home furnishings, and the textile components incorporated into those products. The
U.S. textile and apparel industry is a critical link in the supply chain. We export more than $12
billion a year to our preferential partners in the Western Hemisphere, predominantly in components
such as yarns, threads, and fabrics. This trade accounts for more than 60 percent of total
U.S. textile and apparel exports.
CONCLUSION
AMTAC urges Members of Congress to vote NO on KORUS
due to the expedited tariff reductions, lack of reciprocity in certain key product areas
and overall negative impact on U.S. companies and jobs. Congress should prioritize fixing
U.S. trade policy, stopping manufacturing job loss, and closing the trade deficit before
considering any new trade deals including KORUS.
Thank you for your consideration in this matter. If you have any questions, please do
not hesitate to contact us.
Sincerely,
Auggie Tantillo
Executive Director
American Manufacturing Trade Action Coalition
[1] <#_ftnref1> Trade deficit figures calculated from U.S. International Trade
Commission statistics for Domestic Exports FAS minus Imports for Consumption Value.
[2] <#_ftnref2> CIA World Factbook. Official Exchange Rate GDP.
[3] <#_ftnref3> U.S. International Trade Commission, DATAWEB. Total Exports
minus General Imports for All Commodities, DOC Automotive HTS10 List, and Textiles and Apparel HTS
Chapters 50-63.
[4] <#_ftnref4> http://www.usitc.gov/publications/docs/pubs/332/pub3452.pdf
[5] <#_ftnref5> http://www.usitc.gov/publications/pub3949.pdf
[6] <#_ftnref6> CBP (July 10, 2008). “CBP Charges More Than 1,000
Containers of Illegal Textile Shipments to China’s Quota Levels.” Press release.
http://www.cbp.gov/xp/cgov/newsroom/news_releases/archives/2008_news_releases/july_2008/07102008_3.xml
Posted on October 18, 2011
Source: AMTAC
