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Guest blog: Good outcome for a bad deal

Guest blog: Good outcome for a bad deal

Napoleon always said he liked lucky generals. He would have loved Barack Obama. The president is so lucky that he now has the South Koreans doing the dirty work of saving him from committing political suicide by signing a Free Trade Agreement (FTA) that would likely further increase both the U.S. trade deficit and the U.S. unemployment rate.

Reports from Seoul yesterday said the deal was essentially done and that Obama and South Korean President Lee Myung-bak would meet their self-imposed deadline by inking the deal today (Thursday). But no, the Koreans, who have been relentlessly promoting this deal as essential to both Korea’s future economic well-being and its national security, suddenly said they couldn’t agree to a small increase in imports of U.S. beef or a slight relaxation of emissions rules for imports of small numbers of foreign auto imports.

Since, like China, South Korea already manipulates its currency and imposes a myriad of subtle bureaucratic regulations and informal agreements that make the Korean market one of the most closed in the world, one might wonder why Seoul couldn’t agree to these two U.S. requests which would in no way result in any significant increase in Korean imports from the United States. But Obama should really thank his lucky stars for South Korea’s economic paranoia because it may save him from his administration’s own worst instincts.

I know we’re all supposed to be free traders and that opposition to anything labeled free trade is strictly taboo. But really, does anyone truly believe that we have anything like free trade with South Korea? This is a country that, as a matter of policy encourages the infringement of foreign intellectual property, and whose courts routinely annul the Korean patents of foreign based companies.

Yes, the proposed deal would significantly reduce Korean tariffs and facilitate foreign investment in Korea and contains strong language on the protection of intellectual property. But if the courts won’t enforce the language what is the point? And tariffs are not the real barriers to foreign penetration of the Korean market, especially since the Korean government can and does manipulate its currency to offset the effect of any tariff reductions. As for facilitating foreign investment in Korea, why do we especially want to do that when we need investment in the United States? Moreover, the proposed deal on investment as presently constituted actually allows the U.S. branches of Korean companies to take disputes over U.S. regulatory rulings and impacts out of the American legal system by appealing to the World Bank and the International Court.

Isn’t that something? The United States has consistently refused to join the International Criminal Court on grounds of protecting national sovereignty, but was just on the verge of signing a trade deal that would enable foreign companies to evade the sovereignty of the U.S. legal system in certain disputes. I wonder if the Republicans who have been promoting the deal understand that.

But sovereignty is not really the main point; that would be jobs. Here, the deal fails utterly. Of course, there are lots of studies by the various think tanks around Washington. Not surprisingly they only prove that while figures don’t lie, liars figure.

If you are for the deal, you can easily find a computer model that will confirm your view and vice versa. So let me put it in the words of one of the Korean negotiators whom I know and to whom I posed the question of whether, honestly between friends, he thought the deal would significantly increase U.S. exports to Korea or U.S. employment. His answer was an immediate "no." And no one who knows anything about doing business in Korea believes otherwise.

So let’s hope Obama’s lucky streak keeps holding, at least until he gets out of South Korea.

Clyde Prestowitz is president of the Economic Strategy Institute and author of The Betrayal of American Prosperity.