Pact keeps barriers in place

Opinion: January 7, 2011 at 12:00a.m.

By Alan Tonelson

McClatchy-Tribune

WASHINGTON

President Obama’s pursuit of free trade with South Korea evidently assumes that, if at first you don’t succeed, try the same failed approach again and again.

In fact, this latest attempt to promote American growth and employment by opening long-closed foreign markets to U.S. goods and services is even less excusable than pacts like NAFTA or the numerous trade expansion deals with China.

After all, the American deficits, debts, job destruction and growth losses resulting from these deals were long masked by bubbles in technology spending, housing and credit itself. With these reckless options just about gone, the still-mounting costs of past agreements plus those certain from the Korea pact represent the difference between a slumping and a recovering economy.

Individual blunders

The key to transforming trade policy toward Korea and the rest of the world lies not in correcting individual blunders made by American negotiators — though these keep hogging the headlines and mar the Korea agreement as thoroughly as its predecessors.

For example, although the pact eliminates or slashes most Korean tariffs, Seoul can still use its value-added tax system to rig markets. Korea’s 10 percent VAT will still impose a hidden tariff on all American products bound for Korea, and its VAT rebate for exports will still provide a hidden subsidy for Korean goods bound for the United States.

Longtime Korea deal opponents Ford Motor Co. and the United Auto Workers union praised the final agreement and its automotive provisions. But these are worse than the auto-related terms won by Europe in its own recent Korea trade pact.

And although in certain cases Washington can retaliate if Seoul breaks its word on dismantling auto trade barriers, retaliation is not mandatory. It’s left to the discretion of American officials still generally obsessed with currying favor even from allies like Korea that desperately need U.S. military protection.

Still, the Korea deal’s biggest flaw is one that has plagued American trade policy overall for decades. It’s the belief that clever enough U.S. negotiators drafting tight enough wording can produce meaningful gains for U.S.-based producers in targeted countries.

Yet individual foreign government practices are not the principal obstacles to greater American success in global markets. Instead, the main problems are national, economy-wide systems of protection operated by U.S. competitors that simply can’t be tackled piecemeal.

These systems are run secretively and informally by largely unaccountable bureaucrats. Their tactics adjust constantly to new circumstances. They reflect deeply held political and cultural attitudes about business-government relationships that contrast sharply with America’s.

Korea and its Asian neighbors are prime examples illustrating why similar U.S. market-opening efforts in this region have flopped so spectacularly for so long. Because American businessmen and officials struggle even to identify their predatory trade practices, let alone eliminate them, these countries keep racking up enormous trade surpluses with the United States.

Obama must focus on enabling American domestic industries and their employees recapturing the biggest market that’s genuinely available to them — the literally hundreds of billions of dollars of sales in their own domestic backyard that they’ve lost to predatory foreign competition, and to a Washington preoccupation with export fantasies typified by the Korea free trade agreement.

Tonelson is a research fellow with the U.S. Business and Industry Council. Distributed by McClatchy-Tribune.