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On free trade, Democrats and Bush can’t even agree on facts

International Herald Tribune

On free trade, Democrats and Bush can’t even agree on facts

By Daniel Altman

24 July 2007

Free-trade agreements can create new opportunities for consumers and exporters, but making them law isn’t always easy.

In the United States, President George W. Bush has a fight on his hands as Democrats, who now have control of Congress, question his already-signed trade pact with South Korea.

But how can the two sides reach a compromise, when they can’t even agree on the facts?

Consider the views of two insiders: Representative Sander Levin of Michigan, a senior Democrat on the Ways and Means Committee, and Ambassador Karan Bhatia, a deputy U.S. trade representative appointed by Bush.

Levin has maintained that the deal would be unfair to U.S. automakers. According to him, vehicles account for more than 80 percent of the U.S. trade deficit with South Korea. The new agreement, he said, would do little to change that situation.

"This is essentially maintaining a totally unsatisfactory, one-way status quo," he said in a recent interview by telephone.

But the Bush administration disagrees.

"Frankly, I don’t think that the free trade agreement is going to do anything but benefit the American manufacturers," Bhatia said by telephone as well.

"What the free trade agreement can do, and what I believe it has done, is address all of the various tariff and nontariff barriers that historically have precluded the American nameplates from selling effectively into Korea," he said.

The United States and South Korea have agreed to eliminate their car tariffs, which are 2.5 percent and 8 percent respectively.

Nontariff barriers have been more contentious, though.

Levin cited factors ranging from emissions standards to unfavorable tax treatment and regulatory discrimination to explain why American nameplates sold fewer than 5,000 cars in South Korea last year, while Korean companies shipped about 700,000 to the United States.

Bhatia countered that most of these issues have indeed been addressed.

South Korea has agreed to accept cars that meet California’s strict emissions standards, he said, and the same taxes would soon apply to American cars as to 90 percent of South Korean cars. He also said that Seoul had promised to inform U.S. producers of regulatory changes at the same time as South Korean manufacturers - something that has not happened in the past.

Levin also accused insurance companies of being prejudiced against foreign cars, putting them automatically into the risk category with the highest premiums.

Bhatia demurred, saying, "After a substantial amount of due diligence, we’ve come to a different understanding of what’s going on there." However, he did not offer further details.

Bhatia added that the United States did not have a huge amount of leverage with South Korea, because producers there were moving much of their production to the United States. For the same reason, he said, trading advantages accorded to South Korean producers might be irrelevant in a few years.

Again, Levin took issue. "That is so fallacious," he said, "because first of all, one of the companies is thinking of opening another plant in the United States, but that isn’t for sure. And no way would it cover 700,000 vehicles."

Even the process of negotiation is up for debate.

Levin says that Susan Schwab, the U.S. trade representative, told him personally that the 25 percent U.S. tariff on trucks - an issue Levin said belonged in the World Trade Organization’s global talks - had to stay on the bargaining table so that the South Koreans would agree to discuss rice imports.

But then the South Koreans took rice off the table, and the truck tariff stayed.

Bhatia disputed that version of events.

"The notion that there is a particular tradeoff here is truly not accurate," he said. "Having done these negotiations with the Koreans and others, I can tell you it’s an across-the-board approach. We would have liked to have seen expanded access in rice, but rice really is sort of sui generis because there is a World Trade Organization process that governed rice opening in Korea."

More crucially for the future of the pact, a behind-the-scenes deal that the White House and congressional Democrats reached in May seems to be in trouble.

That deal appeared to allow for the incorporation of labor and environmental standards in free trade agreements, in exchange for an easier path through Congress for the pacts being negotiated with Panama, Peru, Colombia and South Korea. But Levin said any quid-pro-quo did not include the South Korean deal.

"We made it clear at that press conference that this approach did not apply to Colombia or to Korea," he said. "We haven’t gone back on anything."

A spokesman for the U.S. trade representative, speaking on condition of anonymity because of the sensitivity of the issue, fired back in an e-mailed response to questions:

"The agreement unquestionably applies to all four free trade agreements. That’s the reason why, working with Congress, we revised all four free trade agreements to incorporate the new labor and environmental provisions that Democrats sought. Now all four need to be approved."

Nancy Pelosi, the Democratic speaker of the House, did say in May that the closed-door deal "doesn’t mean that this paves the way for trade agreements where we have other obstacles."

Yet that remark, too, is open to interpretation.