Judging the Pros and Cons of Trade Agreements

• Expanding trade can bring benefits

A i h l d li b fi f h ?• At issue: what rules deliver benefits for whom?

• Starting in early ‘90s U S launched an• Starting in early 90s, U.S. launched an experiment - a new model of trade pacts

• Shifted from the multilateral GATT, which covered only trade in goods (tariffs, quotas) to expansive international commercial agreementsexpansive international commercial agreements

WWII-1990sWWII 1990s “Bretton Woods” Era

The Bretton Woods Era

GATT 1947 IMF World Bank

• Trade in goodsTariffs and quotas

• Gold standard • Finance rebuilding of• Tariffs and quotas • Short-term trade floats Europe & Japan

(early 1990s to present day)

C t Gl b li ti ECorporate Globalization Era

NAFTAWTO

(binding dispute settlement)

NAFTA, CAFTA,“Free Trade”

settlement) Agreements

GATT

It’s Not Really About Trade, but Rather a System of EnforceableRather a System of Enforceable

Global Governance• “Each Member shall ensure the conformity of its

laws, regulations and administrative procedures with its obligations as provided in the annexedwith its obligations as provided in the annexed Agreements.”

Bi di Di t R l ti N D P N• Binding Dispute Resolution, No Due Process, No Outside Appeal, Trade Sanctions

• We are writing the constitution for a single global economy."

Renato Ruggerio first Director General of WTO-Renato Ruggerio, first Director General of WTO

The 3 “Leftover” Bush Free Trade A (FTA ) i h KAgreements (FTAs) with Korea,

Colombia and Panama Are Based on the “NAFTA-CAFTA Model”

• Special rights and privileges for foreign investors

• Expansive service sector rules (financial deregulation, ‘market access’ rights that promote concentration)access rights that promote concentration)

• Procurement rules ban “Buy America”, “Buy Local”•• Limits on safety standards & inspection for imported

food/products

E i i h di i d d• Expansive patent rights - medicines, seeds and more

• Powerful enforcement

NFU Has Reviewed the Outcomes of this Model:

NFU 2010 “Trade Reform” PolicyWHEREAS f i d li i h f il d li• WHEREAS, past unfair trade policies have failed to live up to their proponents’ promises, placing an undue burden on America’s family farmers and ranchers; andWHEREAS i J l 2005 th C t l A i F• WHEREAS, in July 2005 the Central American Free Trade Agreement (CAFTA) passed by only two votes and the North American Free Trade Agreement (NAFTA) passed by a close margin in November 1993; andpassed by a close margin in November 1993; and

• WHEREAS, since the passage of NAFTA over 38,000 U.S. small farms have gone under, overall U.S. farm income has continued to decline and the U S tradeincome has continued to decline and the U.S. trade deficit has grown to over $400 billion under this agreement; and

How Does Korea FTA Measure Up t NFU 2010 “T d R f ” P lito NFU 2010 “Trade Reform” Policy

• “WHEREAS, the CAFTA agreement allows foreign investors to completely bypass domestic courts to challenge state local andcompletely bypass domestic courts to challenge state, local and national environmental protections; and”The Korea FTA has identical foreign investor privileges including empowering foreign firms to challenge U.S.including empowering foreign firms to challenge U.S. laws in UN and World Bank tribunals to demand taxpayer compensation for domestic policies they claim undermine their expected future profits. There are 270

SKorea corporate entities now in the U.S. that would be empowered to use these tribunals against U.S. laws.

“WHEREAS th NAFTA/CAFTA t d t t t d• “WHEREAS, the NAFTA/CAFTA trade agreement structure does nothing to guarantee the safety of the food imported from these countries is equivalent to that of the United States; and”The Korea FTA has the same rules.The Korea FTA has the same rules.

• WHEREAS, past free trade agreements and pending agreements do nothing to address currency manipulation which puts U Sdo nothing to address currency manipulation which puts U.S. producers at an economic disadvantage; andThe Korea FTA has no currency measures, but is one of only three countries that the U.S. Treasury has officiallyonly three countries that the U.S. Treasury has officially cited as a currency manipulator.

• WHEREAS, polling data shows that NAFTA-style trade policies areWHEREAS, polling data shows that NAFTA style trade policies are opposed by a majority of voters across all demographics; andStill true… see tea party site www.nouskoreanafta.org

• WHEREAS, the passage of NAFTA caused approximately 880,000 lost jobs in the United States and the passage of CAFTA caused approximately 1 million lost jobs in the United States; andE th U S I t’l T d C i i j t th t thEven the U.S. Int’l Trade Commission projects that the Korea FTA will increase the U.S. trade deficit, identifying 7 losing manufacturing sectors (autos, high end electronics steel other transportation equipment andelectronics, steel, other transportation equipment and more). EPI projects 159,000 jobs lost in the first five years.

• THEREFORE BE IT RESOLVED, NFU shall support fair trade and advocate that the structure of future andtrade and advocate that the structure of future and pending trade language and other acts allows U.S. agriculture to be a net exporter as a result of the agreement [Korea FTA is projected by ITC to increase g j yU.S. trade deficit]; controls currency manipulation [no currency provisions]; elevates labor standards in countries with lower standards [Korea FTA contains Bush’s BAN on use of Int’l Labor OrganizationBush s BAN on use of Int l Labor Organization Conventions in implementing labor chapter]; equalizes food safety standards to those of the U.S. [Korea FTA has same NAFTA-CAFTA SPS rules] ; increases globalhas same NAFTA CAFTA SPS rules] ; increases global competitiveness [ITC projects 7 losing U.S. industrial sectors]; and decreases the loss of jobs in the United States [AFL-CIO, Teamsters, Steelworkers, Machinists, CCommunications Workers, IBEW and other building trades, other unions oppose Korea FTA because of job loss threats]; and

THEREFORE BE IT RESOLVED, National Farmers Union will continue to advocate for the TRADE Act to determine if past agreements signed by previous administrations are being honored and to verify that market accessprevious administrations are being honored and to verify that market access promised to United States farmers is being granted.”

– TRADE Act sets forth an alternative model for U S trade pactsTRADE Act sets forth an alternative model for U.S. trade pacts that would benefit farmers, workers & consumers, not only big multinational corporations

– Fight against Korea FTA led by TRADE Act sponsors in Cong.

K FTA t i l d H A i lt C itt– Korea FTA opponents include House Agriculture Committee Ranking Member Rep. Collin Peterson.

– Finance Chair Baucus wouldn’t support after Obama failed to get fix on Korean over-30-month US beef ban

– The union, enviromental, consumer group and other TRADE Act supporters are working for Korea FTA defeat

But…What about the Claims that the Korea FTA Will Improve Market AccessKorea FTA Will Improve Market Access

for U.S. Agricultural Products?• Proponents focus on tariff cuts in the Korea FTA text as

proxies for more market access

• USDA & USTR advertise Korea FTA tariff cuts, ie.– Elimination of the 25% Korean tariff on U.S. pork over 3 years – Elimination of the 40% Korean tariff on U.S. beef over 15 yearsElimination of the 40% Korean tariff on U.S. beef over 15 years

• The tariff cuts are then used to estimate increases in sales. “The International Trade Commission estimatessales. The International Trade Commission estimates U.S. beef exports to South Korea could increase by $600 million to $1.8 billion under the FTA” (www.usda.gov/wps/portal/usda/usdahome?contentidonly=true&contentid=2008/04/0106.xml)

BUT…will a Trade Pact’s Tariff Cuts Really Translate Into Improved MarketReally Translate Into Improved Market

Access for U.S. Ag Products?GENERALGENERAL• Whether tariffs cuts in an FTA text translate into real export

gains relies on other factors:– exchange rate manipulationg p– transportation, increasing fuel costs – lower farm gate prices from competitors– AND, who gets the benefits (producers or processors)

d d th “ l f i i ” (ROO)depends on the “rules of origin” (ROO)

• These factors can result in an outcome where additional market access on paper (tariff cuts) lead to little-to-no actual increase inaccess on paper (tariff cuts) lead to little to no actual increase in sales for producers

SPECIFIC• December 2010 Obama “Supplemental” Korea FTA talks: delay

Korean pork tariff cuts in exchange for delay in auto tariff cuts, no beef fix and no currency mechanism

NAFTA Promises vs. Reality“U S b f t t M i t d t d t th“U.S. beef exports to Mexico are expected to expand to more than

200,000 metric tons by the end of the 10-year transition period.”-USDA in 1993 on NAFTA

USDA's Promised Beef Exports to Mexico under NAFTA

250

150

200

of m

etric

tons

50

100

Thou

sand

s o

0USDA's Promised 2004 Exports Actual 2004 Exports

In fact, U.S. annual beef exports only met USDA's promised level in 4 of the 16 years since NAFTA

What happened??pp

• As is occurring now with the Korea FTA, during g , gNAFTA, farmers were also given lists of tariff cutsfor products as evidence of new market access they would get from NAFTA

• But those tariff cuts were eliminated when Mexico devalued the peso 50% shortly after NAFTA went into effect

• U.S. exports to Mexico of “NAFTA winners” beef pand pork in the first three years of NAFTA were 13% and 20% lower, respectively, than beef and pork exports in the three years before NAFTA

Perils of Currency Manipulation:U.S. Beef and Pork Export to Mexico, Before and After NAFTAU.S. Beef and Pork Export to Mexico, Before and After NAFTA

300

1991-1993 Average 1994-1996 Average

200

250

150

00

illio

ns o

f Dol

lars

50

100

M

0

Beef PorkSource: USDA Foreign Agricultural Service's Global Agricultural Trade System inflation adjusted to 2011 dollars with CPI U RSSource: USDA Foreign Agricultural Service s Global Agricultural Trade System, inflation-adjusted to 2011 dollars with CPI-U-RS

Despite calls from NFU and many others to discipline currency manipulation in all U.S. trade agreements, this FTA contains no

i i t t K f i l tiprovisions to prevent Korea from manipulating its currency to negate tariff cuts…

The Korea FTA does not provide pfor any penalties - or a mechanism for tariff adjustments to restore the

ti t d k t ifnegotiated market access- if one party deliberately undervalues its currencycurrency

That's a SERIOUS Problem: Korea has a History of Currency Devaluation Undervaluation of Korean Won Against U S DollarDevaluation, Undervaluation of Korean Won Against U.S. Dollar

60%

80%

atio

n

20%

40%

or O

verv

alua

-20%

0%

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

rval

uatio

n o

-60%

-40%

rcen

t Und

er

1998: Currency Undervalued by over 50%

-80%

Per

Sources: Jeong and Mazier, "Exchange Rate Regimes and Equilibrium Exchange Rates in East Asia," Revue économique, 2003. (1982-2000 data)

1986-1988: Currency Undervalued by over 60%

Korean Currency ManipulationKorean Currency Manipulation• Korea is 1 of only 3 nations (also China, Taiwan) that

h b l d th T D t’ li t fhave ever been placed on the Treasury Dept’s list of currency manipulators. (Korea’s late 1980’s devaluation = 60% and late 1990’s = 50%)

• In its Feb. 2011 semi-annual “Report to Congress on Int’l Economic & Exchange Rate Policies” Treasury expressed concern Korea was again intervening toexpressed concern Korea was again intervening to keep the won at a deflated exchange rate. (Called for Korea to move to a “greater degree of exchange rate flexibility and less intervention” and noted won now 5-20% belowand less intervention and noted won now 5 20% below equilibrium value.)

(http://www.treasury.gov/resource-center/international/exchange-ratepolicies/Documents/Foreign%20Exchange%20Report%20February%204%202011.pdf)

Prospects for new Korean market access even “winning” agricultural sectors could well turn g ag cu tu a secto s cou d e tu

out to be completely hollow

If the Korean won were again devalued by 50% after FTA implementation:

• The elimination of the 25% Korean tariff on U.S. pork over 3 years will be transformed into a net increase in the effective tariff rate of 25% – U.S. pork would become 25% more expensive in Korea.

• The elimination of the 40% Korean tariff on U.S. beef over 15 years will be transformed into a net increase in the effective tariff rate of 10% – U.S. beef would become 10% more expensive in Korea.

• The elimination of the 20% Korean tariff on U.S. chicken over 10 yrs will be transformed into a net increase in the effective tariff rate of 30% – U.S. chicken would become 30% more expensive in Korea.p

And, then there is the missing side f h IMPORTS d ROOof the story… IMPORTS and ROO

• Whether a farmer benefits from a trade agreement, even if there is no currency devaluation, depends on exports increasing more than imports increase and rules ofmore than imports increase and rules of origin (ROO) that benefit the producer, not only processorsy p

• The USDA, USTR and Farm Bureau sales pitches in favor of the FTA only focus on export side, as if imports did not exist…

Here WE Go Again: NAFTA Promises, K FTA P iKorea FTA Promises

“U.S. beef exports to Mexico are expectedU.S. beef exports to Mexico are expected to expand to more than 200,000 metric tons by the end of the 10-year transition y yperiod.”

-USDA in 1993 on NAFTA

“U.S. beef exports to South Korea could increase by $600 million to $1 8 billionincrease by $600 million to $1.8 billion under the FTA.”

-USDA in 2008 on Korea FTA

U.S. Ag Sectors ITC Projects Could Gain from Korea FTA g j

Vegetables, fruit, nuts

Other animal products

Beverages, tobacco products

90%

100%

Other meat products

Dairy products

Other food products

70%

80%

Other meat products

40%

50%

60%

Beef

10%

20%

30%

0%

10%

Source: U.S. International Trade Commission, "U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects," 2007, Table 2.3. Data shown is average of low and high scenario predictions.

Same Promises Being Made on Korea vs.R lit f U S B f E t U d FTAReality of U.S. Beef Exports Under FTAs

• IMPORTS: The U.S. deficit in rade of cattle and beefIMPORTS: The U.S. deficit in rade of cattle and beef with the existing 17 FTA countries increased from $1.3 billion in 1989 to over $2.1 billion in 2008, and the cumulative U.S. trade deficit generated over thisthe cumulative U.S. trade deficit generated over this period with the 17 FTA countries was $37.6 billion

RULES OF ORIGIN N FTA t i t• RULES OF ORIGIN: Non-FTA countries can export their live cattle to a participating FTA country, with the resulting beef shipped to the U.S. duty free under th FTA d t FTA “ b t ti l t f ti ”the FTA due to FTA “substantial transformation” rules of origin that facilitate transshipment of cattle

R-CALF Opposes Korea FTApp“The U.S.-South Korea FTA is touted by agribusiness interests as being particularly beneficial to U.S. cattle producers… But, as currently written, it is designed to benefit U.S. beef packers at the y , g pexclusion of U.S. cattle producers…

Like all previous FTAs, it incorporates an inappropriate rule of origin that e g would allow cattle imported from neighboringorigin that, e.g., would allow cattle imported from neighboring China, which controls the third largest cattle herd in the world, to be slaughtered in South Korea and the resulting beef would then be eligible for duty-free export to the United Statesbecause the standard for determining a product’s origin remains thebecause the standard for determining a product s origin remains the country where the product was last substantially transformed.

Given the perpetual nature of FTAs, this deficiency presents a fcompelling threat to the economic well-being of independent

U.S. cattle producers.” -July 2010 Letter to Pres. Obama

More on Problems for Producerswith Beef Trade under Korea FTAwith Beef Trade under Korea FTA• The Korea FTA also allows a U.S. packer to import

live cattle for immediate slaughter from Canada andlive cattle for immediate slaughter from Canada and Mexico and export the resulting beef duty-free to Korea as if the beef was of U.S. origin - with a USDA grade stamp.g

• Under this scenario, U.S. cattle producers would not realize benefits from increased export sales. The pbenefits flow exclusively to U.S. beef packers.

• Moreover, the cattle and other products entering theMoreover, the cattle and other products entering the U.S. are no longer required to meet identical U.S. safety requirements, thus jeopardizing the reputation of the U.S. as a supplier of safe food products.

U.S. Ag Sectors ITC Projects Could Lose from Korea FTA

Hay, alfalfa, clover, nursery products,nursery trees, fresh flowers, foliage,

tobacco, spices, extracts

Soybeans, canola, peanuts, flaxseed,mustard, rapeseed, safflower, sesame,

sunflower

Wheat

Rice

0 10 20 30 40 50 60

Cotton

Millions of dollars

Source: U.S. International Trade Commission, "U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects," 2007, Table 2.3. Data shown is average of low and high scenario predictions.

Farm Bureau Study Claiming Korea FTA Gains is Deeply Flawed

Sadly, AFBF study that claims U.S. agriculture would gain by $1.8 billion is, well, not reliable…

• Assumes that imports will not increase at all – the figure is gross exports

• Arbitrarily assumes 10% increase in U.S. share of Korean agricultural k t f EVERY U S f dit dl f h th th imarket – for EVERY U.S. farm commodity regardless of whether there is

demand in Korea for such products or there are lower prices competitors

• Assumes 10% gain in rice market, but Korean rice tariffs do not change d FTA d i t d b l i di t d t d li b ITCunder FTA and rice trade balance is predicted to decline by ITC

• Projects gains in sectors that U.S. Int’l Trade Commission says will see worsening trade balances – one-third of projected gross export gains are in

t th t ITC ill lsectors that ITC says will lose.

NAFTA-style Korea FTA Conflicts with Every Element of NFU’s 2010 “Trade Reform” PolicyElement of NFU s 2010 Trade Reform Policy

Helping to defeat the NAFTA-style trade deal withHelping to defeat the NAFTA-style trade deal with Korea is the first step in realizing the TRADE Act-based alternative U.S. trade agreement model NFU

t d i It 2010 T d R f P lisupported in Its 2010 Trade Reform Policy