[Viewpoint] Is Korus FTA in trouble in D.C.?

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[Viewpoint] Is Korus FTA in trouble in D.C.?

For months now senior administration officials have been reassuring the business community and Asia experts in Washington that the administration will be able to pass the Korea-U.S. free trade agreement in Congress this year.

There is broad consensus among the internationalists in the administration that the Korus FTA is critical to U.S. Asia strategy. Strategically the agreement would further cement the U.S.-Korea alliance and ensure that Asia’s emerging economic architecture remains firmly linked to trans-Pacific trade rather than a Sino-centric bloc within East Asia.

Economically, the agreement would set the standard for high quality trade liberalization needed to reduce tariff and nontariff barriers to U.S. goods and services (and of course to Korean goods and services coming to the United States). Politically, the Korus FTA is a litmus test of President Barack Obama’s pledge to double U.S. exports and create more jobs in the United States.

As a candidate, Obama opposed the free trade agreement. His economic and foreign policy advisors had to look down with embarrassment or change the subject whenever trade came up in conversation, because virtually all of them privately supported the agreement. Austan Goolsbee, who just resigned as the chairman of the White House Council of Economic Advisers, was almost fired from the Obama campaign in 2008 when it leaked that he had told a Canadian diplomat that the President was only pretending to be protectionist because he needed the Democratic Party’s strong union base for the election.

When I appeared in public debates against the Obama team while working as an advisor for the McCain campaign in 2008, the easiest target to attack was their candidate’s opposition to the Korus FTA because I knew that privately they all agreed with McCain on that issue. I suspect that even Obama did.

To the enormous relief of these same advisors, President Obama became a strong supporter of the free trade agreement after visiting Korea in November 2009 and being profoundly moved by President Lee Myung-bak’s passionate exposition on the importance of U.S.-Korea ties, not to mention exhortations from virtually every other ally in the region for the United States to return to its traditional free trade agenda. While the subsequent negotiations were tough, they were substantive and there was a strong sense in the administration that the White House really wanted and needed the agreement for the strategic, economic and political reasons everyone understood.

All of a sudden the debate on the agreement in Washington seems to have shifted. The Republican-controlled House of Representatives has asked Obama to submit the Korus FTA together with the Panama and Columbia free trade agreements. While some pundits worried that the new Tea Party Republicans who came to office in 2011 might be protectionist because they are populist, this turns out not to be the case.

The Republicans easily have the votes to pass the Korus FTA even if the White House cannot muster a majority of Democrats in the House. That is essentially how Bill Clinton passed Nafta in 1993 - with Republican help. But now the White House is balking at submitting Korus for ratification. Why? Because its Democratic allies in Congress are insisting that the Republicans also agree to Trade Adjustment Assistance (TAA) as a condition for moving forward with KORUS.

TAA, which was introduced in legislation in 1974, essentially amounts to a bribe to labor unions unhappy with free trade deals. It provides workers the opportunity to apply for 156 weeks of financial aid if they can demonstrate that they lost their jobs or some income because of foreign competition.

Union workers have always been best organized and instructed on how to collect TAA and the Democratic-controlled Congress put a generous amount of TAA funding in the stimulus package at the request of the union bosses in 2009. That funding runs out in February 2011 and the unions are demanding that more TAA funding be approved before the administration submits the Korus and the other free trade agreements for ratification.

Republicans are adamantly opposed to this TAA condition and have now upped the ante by threatening to hold off confirmation hearings for Commerce Secretary-nominee John Bryson until the administration submits Korus and the other two trade pacts without any strings attached.

Republicans oppose TAA because they do not believe the government owes extended compensation because of competition in the market place, particularly since the determination of damages is so imprecise and exploitable by the 6.9 percent of private sector workers in unions.

More important still is the huge battle between the Republican House and the White House over legislation needed to raise the debt ceiling so that the Treasury Department can borrow more money to keep the government running. Republicans are insisting that there be substantive budget cuts as a condition for approving an increase in the debt ceiling, and an increase in TAA funding runs completely counter to that demand. At the end of the day, as important as Korus is politically in Washington, it pales in comparison with the show-down over the national debt, which will be one of the central issues of the 2012 presidential campaign.

The U.S. business community is probably more amenable to accepting TAA as a condition for passing Korus and may prevail on the Republican Congress to accept a token increase. On the other hand, if Obama stands firm on the demand for TAA, he may win the battle of convincing unions to organize for him in the 2012 election, but he will risk losing the larger war with Republicans over who is better able to create new economic growth and jobs.

He will also put at risk the White House claim that the United States is “back in Asia” - not to mention the ability of the United States to negotiate future trade agreements. In terms of political, strategic and economic interests, therefore, the burden is on the administration to find a way forward on the Korus FTA.

*The writer is a senior advisor and the Japan chair at the Center for Strategic and International Studies in Washington, D.C.

By Michael Green
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