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FTA, KORUS FTA and challenges of the labor movement

FTA, KORUS FTA, and Challenges of the Labor Movement

Lee Chol
Deputy Director
Policy Department of the Federation of Korea Trade Unions

1. Preface

Currently, the most serious issue in Korean society is none other than Korea-US Free Trade Agreement (KORUS FTA). In his 2006 New Year’s Address, President Roh Moo-hyun declared to press ahead with KORUS FTA and made it one of the two top priorities of this government in addition to resolution of socio-economic bipolarization. Despite the gravity of this issue, the Korean government embarked on KORUS FTA negotiation on February 3 without any consultations with civic society groups and interest holders. In contrast to the positive attitudes of both countries’ negotiators towards FTA, most Korean people were suspicious when they heard the news regarding FTA. The Korean public raised their voice over from procedural matters of the negotiation, which was why the commencement of the FTA negotiation had to be decided so recklessly and hastily, to substantial matters that the KORUS FTA is not a solution guaranteeing the future of the Korean economy. Now, most Korean people perceive the KORUS FTA was decided too hurriedly and has been pursued too thoughtlessly and unilaterally.

I am going to provide in this writing laborers’ perspectives towards the KORUS FTA; what lies in its core, why it is so problematic, and what kinds of consequences it will bring about. In addition, although not perfect, I am going to show how the Korean labor movement should respond to the KORUS FTA and deal with its challenges.

2. The Background of FTA Emergence and Changes in Its Nature

What lies behind the movement of pursuing FTA conclusions, which were set in motion in the 1990s’, is the flaws of the WTO multilateralism. Since the 1990’s, as the number of WTO member countries has been on the rise, narrowing down differences in opinions among member countries has become difficult and “free rider” problems occurred as a result of the negotiation slowed down trade liberalization negotiations based on multilateralism. Consequently, as trade standards in such areas as service, investment, competition policy, intellectual property rights (IPR), environment and labor had not been established, countries intended to dominate multilateral agenda by concluding a bilateral FTA. Besides that, motivation to strengthen economic and security alliances in the cumbersome and intricate international dynamics also contributed to prompt FTA conclusions. As well recognized, the continuous expansion of the EU was to keep the US unilateralism in check and FTAs with countries outside economic blocs was pursued by the US as strategic security measures.

Before the 1990s, trade expansion with market access had been the primary goal of pushing for an FTA. Accordingly, the main target of FTA were manufactured goods and the core contents of FTA were reducing or eliminating tariffs and related issues such as the rule of origin and anti-dumping measures. However, since the 1990s, the goal of FTA has been inducing FDI and economic restructuring in line with neo-liberal globalization, rather than market access. Naturally, FTAs pursued and concluded these days go beyond the elimination of tariffs to include investments, services, and IPR and the scope and extent are becoming more extensive and intensifying. In other words, the current FTA is not simply a “trade” agreement, rather it is encompassing the whole range of the economy, putting the trade of services and investments before the trade of goods. Also, the fact that the FTA negotiation scope goes beyond the WTO standards should be paid attention to.

3. The Strategy, Essence and Real Meaning of the US FTA Pursuit

Since the 1980’s, the US has pushed ahead with a trade policy called “Triple Track”, which pursues bilateral, regional and multilateral trade negotiations at the same time in order to spread trade liberalism. Among the three, the US has preferred multilateral trade negotiations guaranteeing the treatment of Most Favored Nations. However, continually stalemated multilateral negotiations and needs to respond to regionalism represented by the European Union prompted the US to carry out bilateral and regional negotiations. Recently, through the FTA, the US has been pushing for “competitive liberalism” by inducing the neighboring countries of its trade partners to conclude a FTA with it in a competitive manner while demanding its trade partners to open their markets.

The FTA singed with US is in essence disproportionate. While the US demands a comprehensive FTA that goes beyond a trade strategy, it is able to propose a selective and differentiated market access schedule according to the rule of origin related to its sensitive industrial sectors and product lines.

The worse problem of the FTA with the US will be that FTA negotiations will bring about a far-reaching, neo-liberal restructuring to the nation. More specifically, the US will demand a massive deregulation in important and delicate public policy areas such as finance, pharmaceuticals, education, and broadcasting. In the case of Singapore, the US called for market opening, privatization of key public companies, and abolition of capital control measures of the financial authorities. In the case of Australia, some critical national systems such as Pharmaceutical Benefits Scheme and the quarantine system collapsed and when it came to the government procurement system, the US request was reflected significantly, forcing the Australian government to give up its industrial policies for Australian companies.

4. The Problems and Consequences of the KORUS FTA

1) Non-democratic trade negotiation procedures: pursued recklessly without thorough preparations

The current KORUS FTA negotiation has grave procedural problems. With regard to the pursuit of the negotiation, the Korean government was passive in collecting opinions of interest holders or civic society groups who were thought to incur damage of the FTA. For example, although the government held a public hearing one day before the negotiation, since it already decided to begin the negotiation, the public hearing was none other than a formality, only to conform itself to “Regulations on the Procedures of Concluding Free Trade Negotiation” (Presidential Decree), rather than to collect the public opinions based on the law. Understandably, the public hearing was called off amid an angry backlash of the interest holders. In other words, the procedure to seek the public approval was omitted. This omission seriously goes against the spirit of Constitution or the principal of democracy that “Sovereignty rests with the people” and undermines the justice of the negotiation.

Already some five or six years ago, the US analyzed in detail various ripple effects that the KORUS FTA might bring about in preparation for the KORUS FTA negotiations. Since then, the US government has garnered opinions and requests of many interest groups in the US including industrial associations, farmers’ groups and labor unions. Compared to the efforts made by the US government, the attitude and preparation of the Korean government for FTA negotiations is too meager.

In addition, the government is not disclosing relevant information regarding the KORUS FTA negotiation process such as the draft of KORUS FTA document and the result of the first round of FTA negotiations. Korean people’s right to know is being denied. What’s worse, the government has failed to come up with measures to counter damage of the KORUS FTA. In last April, “Law on Trade Adjustment Assistance for Manufacturing Industry” was passed in the National Assembly. However, this law puts too strict restrictions on those who incur damage and its assistance is too small, falling short of living up to the original intention of the law.

2) Exceptionally comprehensive extent and poisonous clauses of KORUS FTA

“Our two organizations (the US-Korea Business Council and the American Chamber of Commerce in Korea) support an FTA with Korea that is comprehensive in scope and fully consistent with the World Trade Organization’s (WTO’s) framework for liberalized trade. ...... We want to emphasize the importance of concluding a comprehensive FTA with Korea that excludes no product, service, or sector.”
 US-Korea Business Council, American Chamber of Commerce in Korea, [US-Korea FTA Position Paper], 2006

The US says an FTA with Korea should be the most comprehensive one it has ever concluded, namely, it should be “NAFTA+α”. Not only manufacturing and agricultural industries but also all services such as financial, law, broadcasting, accounting, consulting, insurance and travel services should be subject to liberalization. Moreover, the US insists every trade-related issue such as investments, IPR, market access, competition policy, labor, and environment that affects trade pattern, nature and its results should be subject to the FTA. In other words, KORUS FTA should become a substantial agreement that covers the whole range of economic activities. In this regard, KORUS FTA can indeed be called a comprehensive “Korea-US economic integration agreement”. What’s worse, if so-called “US-style FTA” elements, which are hard to find in FTAs concluded among EU members and developing countries, are included in the KORUS FTA, Korea’s public policies or systems will be forced to meet the American standards rapidly.

The KORUS FTA has various poisonous clauses. The problematic clauses are about; elimination of non-tariffs trade barriers as well as tariffs trade barriers, negative list approach, definition of investment, definition of expropriation and compensation, National Treatment and MFN treatment, prohibition on compulsory implementation of the obligations, and investor-to-state lawsuit. In particular, the investor-to-state lawsuit has a possibility of breaching the Constitution in that it enables a transnational company to file complaints with a third party, a civic organization, against the laws, systems and practices of a country that stand in the company’s way of seeking profits and the government has to obey the rulings of this civic organization known for its secrecy.

For example, if only the result is considered in the case of Metalclad Corporation, the Mexican government ironically had to pay 16.7 million dollars in compensation to Metal clad, even though a geological audit showed its facility would contaminate the local water supply.

Also, UPS is accusing the Canada Post that its nationwide network is anti-competitive. If UPS wins the case, it means that the post office of every country that concluded an FTA with the US will face a possibility of being filed against, and further more, every network industry and public utilities services such as electricity, railway, and water supply may face lawsuits for non-competitive reasons, throwing the whole nation into a turmoil.

In the point that a country’s judicature is trusted to a third, civic organization, “the investor-to-state lawsuit” is very likely to violate the Constitution and is equivalent to undermining socio-economic democracy in that it threatens social rights such as environmental right and health right guaranteed by the Constitution.

3) Neo-liberal catastrophe: deepening of bipolarization and deterioration of basic rights including labor rights

Up to date, the Rho Moo-hyun administration’s economic policy faithfully followed the path of neo-liberal reform and market opening. The most salient problem that such policy has brought about is bipolarization of Korean society and continuation of labor-excluding production system. The KORUS FTA policy is regarded as the final product of the administration’s economic policy that pursued market-oriented principles and growth as top priorities. Accordingly, it is very likely that the KORUS FTA policy is to strengthen the existing economic system based on neo-liberal doctrine and further deepen bipolarization of the Korean society. In addition, the Korean government insists on the reform by an external shock. In short, the external shock means restructuring. There can be no gainsaying that this, in general, leads to bipolarization. Furthermore, the US FTA policy has been targeting active introduction of market principles such as deregulation, privatization of public enterprises, etc. It is widely known that inequality of the U.S.-modeled economic system is much worse than Europe or East Asia. Canada and Mexico, which concluded an FTA with the United States 12 years ago are good examples.

The KORUS FTA is expected to have serious impacts on labor including labor market. First of all, it will further aggravate wage gap between the skilled and unskilled workers. Unskilled labor-intensive production, which would have a comparative advantage because of liberalization of trade, will increase and in turn, demand for unskilled labor will also increase. Subsequently, demand for skilled labor will decrease, and this will narrow down the wage gap between the skilled and unskilled workers. However, in case of Korea, if demand for unskilled workers is replaced with that for irregular workers, the wage for the unskilled workers will not increase and this will not be effective in reducing income inequality.

In addition, the FTA will expand irregular workers and deepen bipolarization of labor. It will drive workers in the industry of comparative disadvantage into jobless state and in turn it will make them irregular workers. When the FTA pulls down the commercial price in regular sector, workers in regular sector will be replaced with irregular workers. Then supply of irregular workers will increase, and the wage will decline. Accordingly, income inequality and poverty can be worsened.

Strong restructuring measures to be brought about by the KORUS FTA will result in a great number of laid-off workers. The shock of unemployment will not be absorbed in the process of restructuring but will be prolonged, which will lead to overall fall of wage and deterioration of working conditions. In sum, we can conclude that the right to live and labor rights will be destroyed by restructuring and labor flexibility.

Expected destructive effects of the KORUS FTA do not stop here. Indiscriminate opening of agriculture will ruin Korean agriculture, break down farmers’ right to live, and destroy food sovereignty that means people’s control of and right to access to overall food including land and seed. Industrialization of medical services and commercialization of hospitals, expansion of private medical insurance and reduction of national health insurance, and rise of drug price will deteriorate people’s right to health. Opening of education sector will also further destroy public education by making education as a means of profit making, and will seriously impair right to education by causing a sharp rise in education costs and inequality. In financial sector, free movement of transnational capitals will allow financial speculation and tremendous transfer of wealth. In case of intellectual rights, strengthening of patent rights and copyrights will damage the public’s right to access to information. Privatization of public services such as water, electricity, gas, etc. will lead to a rise in price and quality deterioration governed by the logic of profit-making. Degradation of environmental standards will intensify environmental devastation. Removal of legal protection measures for labor will expand unstable labor and put workers in the state of non-rights. In addition, in other fields covered by the KORUS FTA such as culture, broadcasting, etc., capital rights and opportunities will expand but people’s living standard and rights will be reduced. In particular, devastation of right to live and retreat of basic rights will negatively influence women while expanding low-wage women workers, and in turn this will deepen poverty and aggravate women’s double burden in both work and housekeeping.

5. Our demands, responses and tasks

There have been so many ills such as non-existence of objectives, lack of democracy and proper preparation in working out commercial treaties that have a great deal of impact on the national economy, and similar problems are occurring in the process of promoting the KORUS FTA. Recently, the first round of the KORUS FTA negotiation has been concluded. But there have been growing controversies on its results like when the beginning of the FTA negotiation was declared. Aside its undemocratic procedure in promoting the KORUS FTA, it is widely argued that first round is failure and its result is full of problems differently from the government’s expectations. To solve these problems, what do we need to demand? The answer to this question is well stipulated in the Joint Declaration on the Proposed Korea-US FTA by the labor unions representing both countries. Demands below made by the labor unions of the two countries are still valid.

First, we ask our governments to carry out a full assessment, with adequate participation by labor unions and civil society groups, of the economic and social impact of the standard FTA on workers in both countries. In particular, the evaluation must assess the impacts a “standard FTA” would have on worker rights; employment; wages; public services, including heath care and education; cultural diversity; and food security. The assessment report should be submitted to the U.S. Congress and the Korean National Assembly, and should be released to the public in the two countries.

Second, both governments should rescind their agreement to keep the documents relating to FTA negotiations secret for 3 years after conclusion of the FTA, and instead adopt a transparent and democratic process.
Third, the governments should ensure that the trade and economic cooperation process between the two countries does not follow the negative model of NAFTA, the Korea-Chile FTA, and other existing FTAs. In particular trade rules should not undermine public health and safety, workers’ rights, the environment, essential public services and fair economic development in order to protect the rights of corporations.

Fourth, a precondition to deepened trade and economic cooperation between the U.S. and Korea must be the ratification of the core ILO conventions, beginning with conventions 87 and 98, and the immediate implementation of the ILO Freedom of Association Committee recommendations to the two countries.

Fifth, we ask our governments to call a moratorium on the current FTA talks and work to create a labor-friendly model of trade and economic cooperation through adequate consultations with labor unions and civil society groups.

Then, what are our tasks to be done through our struggle on the KORUS FTA?

First of all, we need to battle on to protect our universal rights securing workers and people’s survival against neo-liberal globalization which is expanding and deepening by applying stronger and broader free trade regulation and scope through a FTA. To do this, we must make a clear case that neo-liberal globalization has given birth to destructive results even though the Korean government drummed ever since that it is the only way for the Korean economy to survive.

Second, the KORUS FTA is not a simple trade agreement, but one to make it possible for capital to ask expand market and remove all the regulations disturbing profit making across states. So to block this out, we need to create solidarity across sectors. In addition, active international solidarity is also needed. Since the KORUS FTA is the final completion of neo-liberal globalization, resistance against it should be internationalized.
Third, recognizing that the KORUS FTA is not a battle between ‘one state (Korea) and another (US)’ revolving around trade, but one between ‘transnational financial capital trying to attain much higher liberalization and people’s universal rights’, we need to continue making our struggle against the KORUS FTA contribute to strengthening fronts against neo-liberalism.

Fourth, in close connection with counter-globalization movements being created around the world, we need to continue our struggle to expand rights of peoples of East Asia as well as the world while putting forward a counter-proposal. A driving force by which peoples’ struggle around the world against neo-liberal globalization could further develop and advance while foiling the WTO ministerial conference, has sustained in that such movement didn’t unfold in a way to protect its own industry and rights of a specific sector but it moved to the direction to actively look for a counter-proposal to leap beyond neo-liberal globalization.

Fifth, while expanding labor’s social and civic rights through active participation by labor unions, we need to search a counter-development path by arranging a socially-integrated and universal welfare policy in order to secure that benefits of growth can lead to improvement of distribution, as well as by creating democratic industrial relations in which voluntary devotion for work transpires.

 source: KCTU