Labor Union's Position Paper on the Korea-US FTA

Why We Oppose the KORUS FTA - KCTU Position Paper on KORUS FTA

January, 2011 

General Principle 

1. Korean Confederation of Trade Union (KCTU) has great concerns about the bilateral and regional FTAs which are currently expanding in number across the world. We believe that the analysis that FTAs are bad for some industries while good for others is a somewhat narrow perspective. This is because they reduce or greatly remove the ability of governments from relatively less developed countries to pursue independent policies to meet economic and social needs and sustainable social and economic development. In addition while the provisions of FTAs systematically strengthen the rights and privileges of corporations they do not include provisions which support the democratic control of foreign investors. 

2. The KORUS FTA privilege the rights and benefits of transnational corporations over the rights of workers, consumers and the general public. We believe that the proposed KOR-US Free Trade Agreement is harmful not only for the Korean workers and working families, but for the workers and working families in the U.S. as well, since the KORUS FTA follows the ‘failed model’ of NAFTA. And it is highly likely that the agreement will have huge negative impacts on small and medium-sized manufacturing enterprises (SMEs) in the two countries, damaging the manufacturing base and worsening already unsecure employment. 

3. The KORUS FTA will systematically encourage offshoring, or global outsourcing. The “Rule-of-Origin” provisions of KORUS FTA allow up to 65% foreign content of the value of vehicles eligible for tariff-free treatment, using the Net-Cost- Method. Thus, the agreement will encourage transnational corporations(TNCs) to outsource their production to neighboring low-wage countries such as China and Mexico. This will eventually result in the breakdown of domestic manufacturing industry and unsecure employment. 

4. The experience of NAFTA demonstrates the negative impact of FTA on employment. We know that when NAFTA was being negotiated, the US, Canada and Mexican governments made many promises to their citizens - such as creation of jobs and better living standards, just as the Korean and US governments are promising today. However, 15 years of NAFTA has shown that the reality is far from what was promised. In the course of 15 years, NAFTA has eliminated more than 1 million jobs in just the US and increased irregular part-time jobs particularly in service sectors, which pay 23% to 77% less than the jobs that were replaced. 

5. Like the NAFTA, KORUS FTA also includes the notorious Investor-State Dispute provision in the Investment Chapter, which ensure private foreign investors to demand cash payment from governments for actions that could be seen to violate privileges endowed by the agreement. This is one representative example of the way KORUS FTA dramatically protect the rights of industries in a way that undermines the ability of governments to carry out policies for public interest including public services, the environment, public health and education. 

6. The American subprime mortgage crisis in 2007-09 demonstrates once more the danger of financial deregulation and urgent need of financial control. However, KORUS FTA allows all types of financial instruments including financial derivatives which are considered to trigger financial crisis in 2007-09. It will limit governments from prudently regulating financial sectors to avoid another economic crisis. 

7. The KORUS FTA will be also harmful for the sustainable relations between two nations. Many ordinary people in the South Korea believe that the US government put political pressure for getting more economic interests and concessions from the South Korean government during the FTA negotiations, even using very difficult times for South Korea when military tension of Korean peninsula highly increased in 2010. Therefore it will rise ‘anti-US sentiment’ and result in dealing negative impact on Korea US relations. We are also concerned that the agreement will promote confrontation between geographical forces and result in increasing military tension in our region between US-Japan-South Korea and China-North Korea-Russia. 

8. Therefore we call upon elected representatives, citizens and workers to oppose the KORUS FTA. We do not need NAFTA-style FTA. We need more equitable and fairer trade agreement to create decent jobs and ensure the authority of each government to carry out policies to meet social and economic needs. 

The Impact on the Manufacturing Industry and Employment 

KORUS FTA is a “Job-Killing” Pact, NOT a “Job-Creating” one. 

The KORUS FTA is advertised for the solution of employment crisis by both governments. The President Orbama announced that the Korea deal will create more than 70,000 jobs in the U.S. just after concluding supplemental agreement on December 3rd, 2010. Also, the Lee Myung-bak Government also argued that the Agreement will create around 335,000 jobs in South Korea for the next 10 years after its taking effect. However, in contrast to the expectation of both governments, the concluded KORUS FTA will not solve the employment crisis in both countries. The Korea US Free Trade Agreement(KORUS FTA) is meant to prioritize the protection of the rights and benefits of transnational corporations. Therefore, it is highly likely that the agreement will have huge negative impacts on small and medium-sized manufacturing enterprises (SMEs) in the two countries, damaging the manufacturing base and worsening already unsecure employment. FTA to Encourage Overseas Outsourcing and Damage Domestic Manufacturing Industry The KORUS FTA will systematically encourage offshoring, or global outsourcing. The “Rule-of-Origin” provisions of KORUS FTA allow up to 65% foreign content of the value of vehicles eligible for tariff-free treatment, using the Net-Cost- Method. Thus, the agreement will encourage TNCs to outsource their production to neighboring low-wage countries such as China and Mexico. This will eventually result in the breakdown of domestic manufacturing industry and unsecure employment. 

The majority of Korean manufacturing companies are small-scale businesses, and the subcontracting practices between small manufacturing companies and large conglomerates in Korea are disadvantageous to SMEs. Moreover, productivity gap between small and large companies is rising. In this context, the KORUS FTA is expected to aggravate already vulnerable Korean manufacturing sector, dealing damages to domestic small and medium-sized parts and materials manufacturers. Therefore, there is a high chance that small businesses become smaller, while resources are concentrated in a few large companies. The Agreement will cause not just a trade imbalance between the two countries in a short term, but also a devastating impact on the manufacturing basis, forcing small and medium-sized manufacturers to go bankruptcy and resulting in massive restructuring. 

In addition, the Investment Chapter of the KORUS FTA bans performance requirements. Examples of performance requirements include a technology transfer, obligation to use a certain percentage of local products, succession of employment, succession of collective agreements and obligation to hire a certain percentage of local people. This means that if the FTA increases foreign direct investment, the government cannot implement policies aimed at promoting domestic employment. Moreover, most of the global investment has recently been carried out via portfolio investment such as acquiring corporations or buying stocks. Therefore, foreign investment has come to have little to do with employment. In contrast, corporate acquisition is likely to result in massive restructuring, thus decreasing employment. 

Export Increase does not Guarantee Employment Increase 

So-called “Growth without Employment” is one of the distinctive features that characterize the era of financial globalization. The US and Korean governments have been arguing that the FTA will increase bilateral trade and create employment in both countries. However, it has already become a myth that increase in export and trade lead to a rise in employment. As for Korea, the added-value inducement coefficient of export has continuously decreased from 0.711 in 1993 to 0.600 in 2007. Meanwhile, the import inducement coefficient of export has risen from 0.367 in 2000 to 0.400 in 2007, as the Korean economy has become growingly dependent on imported parts and materials. This means that an increase in export leads to a rise in import, while employment remains relatively unchanged. The cause of this phenomenon is that large export companies have raised overseas outsourcing, while the inter-industrial effects of export industries have been reduced. As of 2005, export industries accounted for only 20 percent of overall jobs. The FTA provisions regarding Government Procurement, Rules of Origin and Investment will accelerate the trend of “Growth without Employment.” 

The U.S. is no exception for the trend of “Growth without Employment”. Under the North American Free Trade Agreement(NAFTA), more than a million U.S. jobs were displaced from 1993 to 2004. And according to Economic Policy Institute economist Rob Scott, the implementation of the KORUS FTA will eliminate around 159,000 American jobs.

In Conclusion, the KORUS FTA is not a “Job-Creating” FTA, but “Job-Killing” Pact. It should be emphasized that the experiences of NAFTA shows us that employment crisis cannot be solved through trade and export increase to overseas market. 

Basic Labor Rights Guaranteed Poorly in both Countries 

The guarantee of basic labor rights by the two governments is poor and many key international labor standards have not been observed. Even though stable, decent-wage jobs are replaced with temporary, precarious ones, the governments are overlooking these problems. Thus, working conditions for workers in the two countries are worsening. Workers are being forced to work more with less pay, and many of working families are thrown under the poverty line. Moreover, migrant workers are facing severe exploitation, as they are deprived of their rights. The two governments have not ratified the ILO Conventions Nos. 87 and 98, which are core international labor standards for the freedom of association. This shows that labor rights are poorly guaranteed in these countries. Labor laws of the US and Korea must be revised to guarantee workers basic labor rights widely, including right to collective bargaining and right to collective action, so that workers of both countries can equally enjoy the potential benefits of trade.