After nearly two years, the Obama administration has finally reached a deal with Korea on changes to the free trade agreement negotiated by the Bush Administration. If ratified, this would be the largest trade agreement since NAFTA.
The bright spot is the 2007 deal remains largely intact. The US-Korea FTA would abolish 95 percent of tariffs on all industrial and consumer goods within three years, and remove most of the lingering 5 percent within a decade. Korea is the world’s 13th largest trading partner and as the American economy continues to struggle, this deal will be an important component to long-term recovery.
Unfortunately, there are some trouble spots in the new agreement, specifically as it relates to tariffs on Korean automobiles. The original 2007 agreement would have eliminated U.S. tariffs on most Korean auto imports, while the remaining tariffs would have been phased out over three years. The new agreement now keeps the remaining tariffs in place an additional two years. Even worse, the new agreement keeps in place the astounding 25 percent U.S. tariff on Korean pickup truck imports. According to the U.S. fact sheet:
The 2007 agreement would have required the United States to start reducing its tariff on Korean trucks immediately and phase it out by the agreement’s tenth year. The 2010 supplemental agreement allows the United States to maintain its 25 percent truck tariff until the eighth year and then phase it out by the tenth year – but holds Korea to its original commitment to eliminate its 10 percent tariff on U.S. trucks immediately.
As stated many times on this site, tariffs are taxes and keeping them in place, no matter how temporary, harms consumers.
It is a disgrace that the Obama administration has held this agreement hostage, one that benefits almost all sectors of the economy, to appease just one sector- Detroit automakers and their protectionist unions. Nonetheless, the net gains from this agreement far outweigh the negatives and Congress should move quickly to ratify. Now if only we could get Colombia and Panama done…