President elect Obama may be on the path to making a major change in US trade policy, and that's making East Asian countries extremely nervous. A particular point of tension is already developing between the United States and the Republic of Korea.
The Bush administration signed the Korea-US Free Trade Agreement on June 30, 2007, but the agreement has as yet to pass through either the US Congress or Korean National Assembly. Opposition is strong in both countries although the groups in opposition differ. Korean farmers are concerned that the agreement will allow an avalanche of cheap food into the country, while in the Unites States opposition has been strongest in the automotive sector. As negotiated the agreement would phase out the current tariff (2.5%, 25% on pickups) immediately on vehicles with engines smaller than 3000 cc, and over the next three years for larger vehicles. While the agreement would require the Koreans to drop their tariff (8%) on American vehicles, auto imports into Korea represent a miniscule percentage of auto sales in the country.
What the agreement would do though is allow Korean and other Asian companies a platform to attack the pickup sector, undermining one of Detroit's few bright spots.
This is where the Obama administration comes into the picture. Obama's Korea adviser, Frank Jannuzi, has stirred up trouble with the Koreans over a call to renegotiate the auto section of the agreement.
``It cannot be a good thing that the United States exports 5,000 automobiles a year to Korea and Korea exports 700,000 automobiles here. And the price for this is not paid, with all due respect, by politicians. It's paid by American workers,'' Jannuzi said last week at a Washington conference organized by the Korea Economic Institute. ``So, we need to do some work.''
Senator Obama has said that the KORUS FTA does not ensure effective market access for certain key manufacturing and agricultural products, the advisor said.
``And he cannot support it in its current form. That said, there is no denying that Senator Obama supports free trade. He is not a protectionist. He wants to deepen the U.S.-Korean economic relationship. And I personally hope that we will find ways to move forward on the trade agenda under the Obama administration.
``I am not an economic specialist. But it doesn't take one to understand the importance of the U.S.-ROK economic relationship. It is the seventh largest trading relationship that the United States has in the world. We need to do more to cement our economic ties which are in fact mutually beneficial.''
The Korean government is not amused, and has ruled out a renegotiation of the agreement.
This should be interesting, and a real test. The current Korean government is unlikely to back down on this, and Obama is likely to be forced to decide whether to fold or scuttle the agreement. Which will he choose?