Crisis may speed up big trade deals
Korea Herald
Crisis may speed up big trade deals
10 August 2011
By Shin Hyon-hee
Although a dreary outlook for the U.S. economy coupled with a rating cut has triggered mayhem throughout the world’s stock markets this week, it may serve as a catalyst for free trade agreements, experts said Wednesday.
A spate of grim economic figures stoked fears of a “double-dip” recession. The world’s largest economy grew at an annual rate of less than 1 percent in the first half of the year, its jobless rate is stuck at 9.1 percent and consumer spending fell in June for the first time in nearly two years.
The U.S. Federal Reserve now sees its economy remaining feeble for another two years but its $600-billion bond-buying bucket is already exhausted. The Fed would need further measures other than promising rock-bottom interest rates to bring the economy back ― such as trade deals ― experts say.
“For the U.S., the weak dollar means stronger export competitiveness,” said Kwak Soo-jong, a senior researcher at Samsung Economic Research Institute. “The current situation can stimulate competition in the manufacturing sector given lower prices of American products.”
Pending U.S. agreements with Korea, Colombia and Panama would benefit the U.S. economically and strategically, said the Brookings Institution, a Washington-based think tank.
“Carefully developed accords will boost U.S. exports significantly, especially in the key automotive, agricultural and commercial services sectors,” the organization said in a paper, adding to other benefits such as the enhancement of diplomatic ties and new investment opportunities.
Korea and the U.S. signed a deal in 2007 but legislatures of both countries have yet to approve it. President Barack Obama had sought its ratification before a summer recess begins on Aug. 6, but lawmakers got caught up in a partisan brawl over raising the federal debt ceiling.
If ratified, the pact would be the largest for the U.S. since the North American FTA with Canada and Mexico, which went into effect in 1994. Korea has seven free trade partners in effect with the European Union being the largest.
“For the U.S., the only means it could lean on right now is exports,” said Ko Hee-chae, a senior researcher at the Korea Institute for International Economic Policy.
“The slump has squeezed consumer spending and the government budget. The deal can be a good tool to invigorate sentiment despite a decline in Korea’s share in U.S. exports compared with the past.”
Upon implementation, tariffs on 95 percent of U.S. consumer and industrial exports will be eliminated within five years, data show.
U.S. Secretary of State Hillary Clinton said the tariff removal alone would boost U.S. exports by more than $10 billion and help the Korean economy expand by 6 percent.
“Whether you’re an American manufacturer of machinery or a Korean chemicals exporter this deal lowers the barriers to reaching your customers,” she said last month in Hong Kong.
According to the U.S. Chamber of Commerce’s estimates, failing to enact the deal with Korea will cause the U.S. to lose $35 billion in exports and 345,000 jobs.
U.S. Congress is now moving to pass the long-stalled deals next month as it made progress on the debate over a controversial worker aid program, which provides aid to workers who lose their jobs or suffer hours and pay cut as a result of increased imports and foreign competition.
The Trade Adjustment Assistance has been one of the lingering hurdles. The Obama administration is behind the trade deals but demands the extension of the 40-year-old program alongside it. Republicans have called for a separate legislative process.
“We believe we have a framework for an agreement that will allow us to approve and have a vote on TAA very quickly when Congress convenes in September and to move forward with passage of the FTAs at the same time,” Ron Kirk, the U.S. Trade Representative, told the Bretton Woods Committee last month in Washington.
