Monday, February 6, 2006

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An FTA that makes economic and political sense

Most of the free-trade agreements put forward by the Bush administration over the past five years have made a lot of foreign policy sense, but have been pretty marginal in terms of their economic impact.

Last week, however, the U.S. and South Korea announced that they intended to negotiate an FTA over the course of this year. USTR representative Rob Portman said, "This is the most commercially significant free trade negotiation we have embarked on in 15 years," and he's not lying -- you'd have to go back to the start of NAFTA for an FTA that would have as big an economic impact.

Kudos to Portman for finally taking up the ROK's offer to negotiate. I'm also intrigued whether this was timed to prod the EU, India, and Brazil into moving forward on Doha.

posted by Dan on 02.06.06 at 01:59 PM


Be prepared for prosperous ROK farmers setting themselves on fire if their massive agricultural subsidies and tariffs are cut at all. No joke.

posted by: John Thacker on 02.06.06 at 01:59 PM [permalink]

Sadly, Mr. Thacker isn't joking. Nothing can motivate a Korean Backlash--as opposed to the Korean Wave--like touching their farm subsidies and tariffs. I've seen rather amazing images on Ex-pat blogs who are based out of Korea at the kind of public outrage that it can cause.

Interesting prospect, but I'd hazard a guess that it won't be done this year.

posted by: Yagij on 02.06.06 at 01:59 PM [permalink]

Be prepared for prosperous Us farmers setting their congressman on fire if their massive agricultural subsidies are cut.

At least in effigy....

posted by: Don Stadler on 02.06.06 at 01:59 PM [permalink]

Do you mean to prod these countries to Doha round or individual FTAs? There are many who argue that individual FTAs of USA with a country or with a group of countries are bad and surely against multi-lateral trade. I do not know what is right or wrong here, but do think that over all American leadership and business interests would prefer to have individual FTAs since those are determined as more profitable to USA. If it is indeed the case (some expert needs to confirm that - individual FTAs are better for America than multilateral, global deals); then I guess USA will rather prefer FTA with India, Brazil than active participation of these countries in Doha round.

posted by: Umesh Patil on 02.06.06 at 01:59 PM [permalink]

Of course the decision about South Korea had something to do with Doha. The mantra for the entire Bush administration has been "competitive liberalization."

You guys won't move forward with Doha? We'll push on FTAA. Brazil balks on FTAA? We'll move forward on CAFTA. Doha still looks doubtful? We'll keep moving forward on bilaterals with Middle Eastern countries and Australia and Thailand and now South Korea.

That's the pitch and I think it is a good one. The United States believes in free trade and we're not going to let anyone hold us hostage.

After a year as Zoellick's speechwriter, I got really sick of making that case, but that doesn't change the fact that South Korea is a smart way to push the whole thing forward especially after December's tepid Doha meeting.

posted by: David Mastio on 02.06.06 at 01:59 PM [permalink]

The South Korea FTA will also help bolster the case for the administration's fast track authority by showing they can use fast track--which will expire in June 07--to negotiate a commercially-meaningful FTA. It is also part of the competitive liberalization model David Mastio referenced, though that model has not been nearly as successful as hoped--the FTAs don't appear to have done much to push Doha forward and they haven't succeeded in getting FTA partners to fall in line with the U.S. Countries like Thailand and Chile, with FTAs either done or in the pipeline, have joined the G-20 group that have pushed the U.S. and EU on agriculture and other issues. Having said that, new USTR Portman has made some decent proposals on agriculture trade at the WTO.

posted by: Chris on 02.06.06 at 01:59 PM [permalink]

So how many manufacturing jobs in the Rustbelt will this destroy?

Does the federal government really think we can build Wal-Marts as fast as we destroy manufacturing jobs?

"Paint brushes are in Aisle 14."

Now that is a job worth having!

posted by: save_the_rustbelt on 02.06.06 at 01:59 PM [permalink]


Who needs lousy manufacturing jobs when we have $9.00-an-hour jobs at Wal-Mart!

"Wal-Mart to Open About 1,500 New Stores
Feb 07 10:04 PM US/Eastern
Email this story

AP Business Writer

Wal-Mart Stores Inc. plans to open more than 1,500 stores in the U.S.........."

posted by: save_the_rustbelt on 02.06.06 at 01:59 PM [permalink]

I think David Mastio's answer does make sense even after all the qualifications mentioned by Chris.

Granted all across the board agreements of WTO (effectively FTAs with many countries at once) are better than FTA; but such multilateral ones are more cumbersome than individual FTA's.

And countries like USA, Germany and Japan can use IT / Process / Laws for maintaining different FTAs with different countries. Most of the countries in the world will not have that ability - to run concurrently so many FTA's effectively. Each FTA is different than the other even though the eventual goal is no tariff on both sides for exchanged goods and services. For example, corruption is one obvious culprit for India if India were to apply different rules depending on individual FTAs. But may be this aspect of implementation is not that important.

posted by: Umesh Patil on 02.06.06 at 01:59 PM [permalink]

Speaking of multilateral FTAs, note that CAFTA isn't quite in effect yet since Costa Rica hasn't ratified it. And we're still waiting for the recount in the Costa Rican presidential race between pro-CAFTA (slight lead) and anti-CAFTA opponents.

posted by: John Thacker on 02.06.06 at 01:59 PM [permalink]

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