Manufacturers Dismayed At Passage Of Korean Free Trade Agreement
WASHINGTON — October 12, 2011 — The American Manufacturing Trade Action Coalition (AMTAC) expressed
deep disappointment at the 278 to 151 vote by the U.S. House of Representatives to pass H.R. 3080,
the U.S.-Korea Free Trade Agreement Implementation Act.
"The Korean FTA is a bad deal for U.S. manufacturing," said AMTAC Executive Director Auggie Tantillo.
"A likely decline in textile output almost certainly means the loss of U.S. textile jobs," Tantillo added as he noted that the U.S. International Trade Commission admits that U.S. textile output is expected to decline as a result of the agreement.
"If the United States wants to create more jobs through trade, we should be negotiating free trade agreements with countries like Britain, Italy or Germany. These countries not only have large populations with the financial capability to buy U.S.-made goods in significant quantities, but they also have a recent historical track record of not raising non-tariff barriers to buying U.S. exports," Tantillo said.
"Instead, the U.S. government has been negotiating trade deals with low-cost producers in Asia like Korea and with communist Vietnam as a part of the proposed Trans-Pacific Partnership (TPP)," Tantillo continued.
"As the high U.S. trade deficit in manufacturing shows, deals like approving China's accession to the World Trade Organization, the Korean FTA, and the proposed TPP with Vietnam are almost all about producing in Asia and selling to the Carolinas or the Midwest rather than the other way around," Tantillo pointed out.
"As U.S. trade deficits with many of our Asian trade partners have skyrocketed in recent years, it is no coincidence that that the Federal Reserve reported that the "Total Index" of U.S. industrial production grew by just a measly 1.74 percent between January 2001 and January 2011. In contrast, U.S. industrial output grew by 50 percent during the decade before," Tantillo further elaborated.
"If Congress were truly serious about creating more American manufacturing jobs and boosting exports to Asia, it would swiftly pass legislation to discourage Chinese currency manipulation instead of adopting flawed trade deals," Tantillo stressed.
"Congressional intervention to stop illegal export subsidies like undervalued currency would open doors to lucrative markets abroad that have been effectively closed to U.S. manufacturers thanks to cheating on trade by China and others. In addition, addressing the currency manipulation problem would help keep China from running roughshod over American manufacturers in the U.S. market. If American manufacturing were given a level playing field, output and exports would rise. That's what would create more jobs," Tantillo concluded.
A letter sent to the U.S. House of Representatives and Senate outlining AMTAC's reasons for opposing the Korean FTA is appended below.
AMTAC URGES "NO" VOTE ON KORUS
October 7, 2011
Dear Member of Congress:
The American Manufacturing Trade Action Coalition (AMTAC) urges you to vote NO on the U.S.-South Korea Free Trade Agreement (KORUS). The agreement was submitted to Congress on October 3, and a vote is expected in both the House and Senate on Wednesday, October 12.
AMTAC strongly opposes KORUS for three main reasons:
These problems are why as many as an estimated 40,000 U.S. jobs are expected to be lost in the first seven years after implementation just as a result of textile concerns with the agreement.
If Congress is serious about creating jobs, passing trade-law enforcement measures like the stalled anti-currency manipulation legislation, strengthening our "buy American" laws, and eliminating trade distortions caused by foreign border-adjusted taxes should be targeted instead.
(1) KORUS IS A CONTINUATION OF A JOB-DESTROYING U.S. TRADE POLICY
KORUS replicates a fatal flaw contained in almost every free trade agreement (FTA) that the United States has implemented: our FTA partners can (and do) sell more to us than we to them. During the lifetime or our existing FTAs, the United States has run a cumulative $2.1 trillion deficit with our free trade partners. [1] <#_ftn1> This flaw drives up the U.S. production shortfall manifested in our trade and current account deficits that have destroyed so many middle-class American jobs.
The disparity in market opportunities is immense for several reasons. South Korea's population is less than one-sixth of the United States. Its GDP of $986.3 billion is less than 7 percent of the U.S. GDP of $14.6 trillion in 2010.[2] <#_ftn2>
Despite the South Korean economy's smaller size, it is an export superpower in many important industries such as autos, electronics, and textiles. With respect to textiles, South Korean has a highly sophisticated, vertically integrated industry that is a world-class manufacturer of even the most technical products. In 2010, South Korea was America's 8th largest supplier of textiles and apparel by volume. For just yarns and fabrics, the largest component of the U.S. industry, South Korea is America's 2nd largest source of imports.
In addition, South Korea has a long history of unfair trading practices. Currently, there are 16 antidumping and countervailing duty orders in place against U.S. imports of goods from South Korea.
Moreover, despite its obligations under the World Trade Organization (WTO), South Korea has been hostile to imports. It has raised non-tariff barriers for those goods where there is sizeable Korean production, autos being the prime example.
We would also note that while KORUS will give South Korean goods duty-free entry into the U.S. market, U.S. exports to South Korea will still be subjected to a 10 percent Value Added Tax (VAT). Through their VAT system, South Korea will be allowed to maintain what amounts to a permanent 10 percent tariff on U.S. exports to their market. Moreover, South Korea has complete freedom to raise their VAT rate above the current 10 percent at any point in the future. It was a major error on the part of our negotiators not to address this inequity as part of KORUS, as border taxes are another persistent example of foreign practices that place domestic companies at a competitive disadvantage.
Finally, the agreement is geographically disadvantageous to the United States. South Korea faces roughly the same logistical challenges as its other Asian competition when it exports to the United States. In contrast, the United States must ship its exports of manufactured goods several thousand miles across the Pacific Ocean to a market where our competitors in China and Japan are right next door.
The disparity in market opportunity is one reason why the United States ran a $10 billion trade deficit with South Korea in 2010. Of that total, the U.S. ran a $10.6 billion deficit in motor vehicles and motor vehicle parts and a $600 million deficit in textiles and apparel. [3] <#_ftn3> It is also why the U.S. textile industry and some other sectors expect few export opportunities for their products under KORUS.
In the face of these unfavorable factors, KORUS will eliminate U.S. tariffs on 95 percent of current trade in industrial products within three years of implementation of the agreement while not guaranteeing reciprocal U.S. access to the South Korean market for key industrial products such as autos and textiles.
With South Korea's current capabilities as a major producer and exporter of industrial products, its close proximity to China, and its traditional hostility to imports, KORUS will hurt U.S. manufacturers and exacerbate our trade deficit.
No wonder the Economic Policy Institute predicts the KORUS agreement will increase the total U.S. trade deficit with South Korea by about $16.7 billion annually and displace approximately 159,000 American jobs within the first seven years after it takes effect.
(2) KORUS'S TEXTILE CHAPTER HURTS U.S. TEXTILE MANUFACTURERS
The United States International Trade Commission (USITC) estimates that U.S. textile and apparel output will decline by the largest percentage of any sector as a result of KORUS and cites expected increases in U.S. imports from South Korea as the driving factor.
According to the U.S. International Trade Commission's initial analysis of entering into an agreement with South Korea, "The largest gains for Korean exports to the United States are anticipated in textiles, apparel, and leather goods, and other manufacturing (e.g., chemicals and allied products, electronics, and transportation)."[4] <#_ftn4> Various studies cited in the 2007 USITC report on KORUS uniformly predict declines in U.S. textile and apparel output ranging from 0.4 to 1.5 percent.[5] <#_ftn5>
AMTAC estimates that 9,300 to 12,300 U.S. textile and apparel manufacturing jobs are expected to be lost in the first seven years after implementation as result of flaws in the textile chapter of KORUS. Moreover, because U.S. government figures show that approximately three additional jobs are lost to the U.S. economy for each textile job that is eliminated, the total estimated job loss climbs to nearly 40,000. It is also important to note that these figures do not account for job losses as a result of a likely surge in illegal Chinese transshipments via South Korea, which we expect to be significant.
One highly sensitive market where South Korea competes head-to-head with U.S. producers in the U.S. market is in industrial textiles, a sector with employment of more than 25,000.
U.S. industrial textile manufacturers are particularly concerned about this agreement and its impact on the extended domestic supply chain for coated and laminated membranes used in industrial and military applications such as fuel cells, oil booms, rapidly deployable shelters/tents, radar attenuating covers, safety and protective gear, and many more advanced applications, including automotive fabrics. Many companies participating in this supply chain also support the military needs of our warfighters. Their ability to innovate and responsively supply the military is dependent on an overall healthy domestic market and industry.
Our principal concerns with the text include (1) accelerated tariff phase-outs that do not give U.S. producers time to adjust, (2) non-reciprocal tariff phase-outs that favor the South Korean textile industry in key products, and (3) exclusion of certain textile components from the rule of origin.
The aforementioned reasons and others are why, as the auto provisions of KORUS were being reopened, AMTAC and other industry associations made a request to the Obama administration in August 2010 that they also reopen the textile and apparel chapter of the agreement to fix the problems therein. Textile concerns, however, were never raised with South Korea and these damaging provisions remain unchanged.
Problematic Accelerated Tariff Phase-Outs
Contrary to the precedent established in the NAFTA, 86 percent of textile and apparel product lines are duty free immediately under KORUS and an additional 10 percent will be duty free on January 1 of Year 5 of the agreement. This is the first time a large number of sensitive products from a country with a large, sophisticated textile industry have received immediate access to the U.S. market. Tariff phase-outs for sensitive products have traditionally been a key part of trade agreements in order to give companies time to adjust business models and minimize large-scale potential job displacement. For example, South Korea exports of polyester fiberfill have entered the United States under anti-dumping orders for the past 15 years. This dumping case passed two sunset reviews, the last of which was successfully completed prior to the end of the KORUS negotiations. Nevertheless, KORUS immediately removes the U.S. duty on polyester fiberfill, defeating the purpose of the anti-dumping rule and defying logic of equitable trade negotiations.
In the U.S. technical textile market, South Korea has emerged as the number one exporter of advanced textile reinforcements, and this sensitive tariff line is scheduled for immediate tariff phase out. U.S. industrial textile producers have already lost significant market share to South Korean manufacturers, and this FTA will do significant harm to the industrial textile industry and greatly diminish the sustainability of our fragile domestic supply base.
Socks are another sensitive product where most tariff lines go to zero immediately. South Korea was the 6th largest exporter of socks to the United States in 2010 by volume, shipping more than 152 million pair.
Non-Reciprocal Tariff Phase-Outs
The agreement also provides South Korea with a more generous and expedited tariff elimination schedule than what is afforded U.S. producers and exporters for certain products. One example is para-aramid fiber, which is used to produce tough, flame-retardant fabrics for industrial and military applications including body armor. Under KORUS, South Korea will be allowed to export aramids to the United States with immediate duty free treatment. U.S. producers do not get duty free access to the Korean market as South Korea is allowed to phase out its tariff to be duty free on January 1 of Year 5. This puts U.S. manufacturers at a direct disadvantage.
Job-Destroying Loopholes in Rule-of-Origin
The rule of origin is a critical element of any free trade agreement because it defines which products qualify for preferential treatment and whether countries not party to the agreement will receive benefits. The KORUS contains a "yarn forward" rule of origin. While we support a basic yarn forward rule, certain specific exemptions to the product origin rules under KORUS are very problematic.
In essence, the rule applies only to the component that determines the tariff classification of the apparel or home furnishing good (in other words, the main or essential fabric) plus certain visible lining fabrics. Applying origin rules in this manner means that key component yarns, threads and fabrics are not adequately covered under the rule of origin and therefore do not have to be of U.S. or South Korean origin. This conflicts with the majority of our recent agreements including CAFTA-DR, Peru, Colombia and Panama which apply the yarn forward rule beyond just the essential character fabric.
Under KORUS, components including sewing thread, pocketing and narrow fabrics, all of which are in plentiful supply from U.S. producers, are allowed to come from anywhere. This allows third parties, such as China, to benefit without making any market concessions of their own. Domestic producers of these types of component yarns and fabrics provide thousands of U.S. jobs, which will be put into jeopardy if KORUS is implemented.
(3) HIGH LIKELIHOOD OF MASSIVE CUSTOMS FRAUD DUE TO INADEQUATE ENFORCEMENT PROVISONS
In addition to the flaws in the textile chapter of KORUS, there is strong evidence that Customs' ability to enforce this agreement will be ineffective.
Due to South Korea's history of transshipment paired with significant cross-border investment with China, upgraded customs enforcement provisions are essential to prevent large-scale customs fraud under KORUS. China already exports nearly $4 billion annually in textiles and apparel to South Korea, and South Korea was labeled by U.S. Customs as a major transshipment point for Chinese exporters when quotas were in place.[6] <#_ftn6>
Instead of strengthening enforcement, however, the customs language in KORUS was significantly weakened compared to other high risk agreements such as the Singapore FTA.
Key enforcement provisions that were dropped under KORUS include the ability for U.S. Customs to (1) seize goods from repeat offenders, (2) reduce South Korea's access if it does not enforce the rules of the agreement, and (3) deny fraudulent companies import privileges for several years.
The substandard customs provisions in the KORUS leave the U.S. textile industry and its workers vulnerable to large-scale illegal imports from China through South Korea. As a result, the industry fully expects Chinese textile exporters to be a primary beneficiary of KORUS.
In addition to its direct threat to the U.S. market, the specter of increased illegal transshipments likely to be generated by KORUS represents a significant attack on the hemispheric textile production structure encouraged by U.S. policy for the past three decades.
The KORUS threatens to damage the Western Hemisphere because South Korea's textile and apparel exports are expected to surge and displace orders currently being sourced in the region. When finished product orders are lost by manufacturers in the Western Hemisphere, U.S. mills also lose the orders for the yarns and fabrics that go into garments and made-up articles.
The potential loss of business is enormous. As a result of trade preference programs and the NAFTA/ CAFTA/Peru FTAs, nearly two million textile and apparel workers in those regions produce garments, home furnishings, and the textile components incorporated into those products. The U.S. textile and apparel industry is a critical link in the supply chain. We export more than $12 billion a year to our preferential partners in the Western Hemisphere, predominantly in components such as yarns, threads, and fabrics. This trade accounts for more than 60 percent of total U.S. textile and apparel exports.
CONCLUSION
AMTAC urges Members of Congress to vote NO on KORUS due to the expedited tariff reductions, lack of reciprocity in certain key product areas and overall negative impact on U.S. companies and jobs. Congress should prioritize fixing U.S. trade policy, stopping manufacturing job loss, and closing the trade deficit before considering any new trade deals including KORUS.
Thank you for your consideration in this matter. If you have any questions, please do not hesitate to contact us.
Sincerely,
Auggie Tantillo
Executive Director
American Manufacturing Trade Action Coalition
[1] <#_ftnref1> Trade deficit figures calculated from U.S. International Trade Commission statistics for Domestic Exports FAS minus Imports for Consumption Value.
[2] <#_ftnref2> CIA World Factbook. Official Exchange Rate GDP.
[3] <#_ftnref3> U.S. International Trade Commission, DATAWEB. Total Exports minus General Imports for All Commodities, DOC Automotive HTS10 List, and Textiles and Apparel HTS Chapters 50-63.
[4] <#_ftnref4> http://www.usitc.gov/publications/docs/pubs/332/pub3452.pdf
[5] <#_ftnref5> http://www.usitc.gov/publications/pub3949.pdf
[6] <#_ftnref6> CBP (July 10, 2008). "CBP Charges More Than 1,000 Containers of Illegal Textile Shipments to China's Quota Levels." Press release. http://www.cbp.gov/xp/cgov/newsroom/news_releases/archives/2008_news_releases/july_2008/07102008_3.xml
Posted on October 18, 2011
Source: AMTAC
"The Korean FTA is a bad deal for U.S. manufacturing," said AMTAC Executive Director Auggie Tantillo.
"A likely decline in textile output almost certainly means the loss of U.S. textile jobs," Tantillo added as he noted that the U.S. International Trade Commission admits that U.S. textile output is expected to decline as a result of the agreement.
"If the United States wants to create more jobs through trade, we should be negotiating free trade agreements with countries like Britain, Italy or Germany. These countries not only have large populations with the financial capability to buy U.S.-made goods in significant quantities, but they also have a recent historical track record of not raising non-tariff barriers to buying U.S. exports," Tantillo said.
"Instead, the U.S. government has been negotiating trade deals with low-cost producers in Asia like Korea and with communist Vietnam as a part of the proposed Trans-Pacific Partnership (TPP)," Tantillo continued.
"As the high U.S. trade deficit in manufacturing shows, deals like approving China's accession to the World Trade Organization, the Korean FTA, and the proposed TPP with Vietnam are almost all about producing in Asia and selling to the Carolinas or the Midwest rather than the other way around," Tantillo pointed out.
"As U.S. trade deficits with many of our Asian trade partners have skyrocketed in recent years, it is no coincidence that that the Federal Reserve reported that the "Total Index" of U.S. industrial production grew by just a measly 1.74 percent between January 2001 and January 2011. In contrast, U.S. industrial output grew by 50 percent during the decade before," Tantillo further elaborated.
"If Congress were truly serious about creating more American manufacturing jobs and boosting exports to Asia, it would swiftly pass legislation to discourage Chinese currency manipulation instead of adopting flawed trade deals," Tantillo stressed.
"Congressional intervention to stop illegal export subsidies like undervalued currency would open doors to lucrative markets abroad that have been effectively closed to U.S. manufacturers thanks to cheating on trade by China and others. In addition, addressing the currency manipulation problem would help keep China from running roughshod over American manufacturers in the U.S. market. If American manufacturing were given a level playing field, output and exports would rise. That's what would create more jobs," Tantillo concluded.
A letter sent to the U.S. House of Representatives and Senate outlining AMTAC's reasons for opposing the Korean FTA is appended below.
AMTAC URGES "NO" VOTE ON KORUS
October 7, 2011
Dear Member of Congress:
The American Manufacturing Trade Action Coalition (AMTAC) urges you to vote NO on the U.S.-South Korea Free Trade Agreement (KORUS). The agreement was submitted to Congress on October 3, and a vote is expected in both the House and Senate on Wednesday, October 12.
AMTAC strongly opposes KORUS for three main reasons:
- the agreement is flawed in concept;
- the terms of the agreement are unfavorable to key industries such as textiles; and,
- the textile and apparel provisions in the agreement are unlikely to be adequately enforced.
These problems are why as many as an estimated 40,000 U.S. jobs are expected to be lost in the first seven years after implementation just as a result of textile concerns with the agreement.
If Congress is serious about creating jobs, passing trade-law enforcement measures like the stalled anti-currency manipulation legislation, strengthening our "buy American" laws, and eliminating trade distortions caused by foreign border-adjusted taxes should be targeted instead.
(1) KORUS IS A CONTINUATION OF A JOB-DESTROYING U.S. TRADE POLICY
KORUS replicates a fatal flaw contained in almost every free trade agreement (FTA) that the United States has implemented: our FTA partners can (and do) sell more to us than we to them. During the lifetime or our existing FTAs, the United States has run a cumulative $2.1 trillion deficit with our free trade partners. [1] <#_ftn1> This flaw drives up the U.S. production shortfall manifested in our trade and current account deficits that have destroyed so many middle-class American jobs.
The disparity in market opportunities is immense for several reasons. South Korea's population is less than one-sixth of the United States. Its GDP of $986.3 billion is less than 7 percent of the U.S. GDP of $14.6 trillion in 2010.[2] <#_ftn2>
Despite the South Korean economy's smaller size, it is an export superpower in many important industries such as autos, electronics, and textiles. With respect to textiles, South Korean has a highly sophisticated, vertically integrated industry that is a world-class manufacturer of even the most technical products. In 2010, South Korea was America's 8th largest supplier of textiles and apparel by volume. For just yarns and fabrics, the largest component of the U.S. industry, South Korea is America's 2nd largest source of imports.
In addition, South Korea has a long history of unfair trading practices. Currently, there are 16 antidumping and countervailing duty orders in place against U.S. imports of goods from South Korea.
Moreover, despite its obligations under the World Trade Organization (WTO), South Korea has been hostile to imports. It has raised non-tariff barriers for those goods where there is sizeable Korean production, autos being the prime example.
We would also note that while KORUS will give South Korean goods duty-free entry into the U.S. market, U.S. exports to South Korea will still be subjected to a 10 percent Value Added Tax (VAT). Through their VAT system, South Korea will be allowed to maintain what amounts to a permanent 10 percent tariff on U.S. exports to their market. Moreover, South Korea has complete freedom to raise their VAT rate above the current 10 percent at any point in the future. It was a major error on the part of our negotiators not to address this inequity as part of KORUS, as border taxes are another persistent example of foreign practices that place domestic companies at a competitive disadvantage.
Finally, the agreement is geographically disadvantageous to the United States. South Korea faces roughly the same logistical challenges as its other Asian competition when it exports to the United States. In contrast, the United States must ship its exports of manufactured goods several thousand miles across the Pacific Ocean to a market where our competitors in China and Japan are right next door.
The disparity in market opportunity is one reason why the United States ran a $10 billion trade deficit with South Korea in 2010. Of that total, the U.S. ran a $10.6 billion deficit in motor vehicles and motor vehicle parts and a $600 million deficit in textiles and apparel. [3] <#_ftn3> It is also why the U.S. textile industry and some other sectors expect few export opportunities for their products under KORUS.
In the face of these unfavorable factors, KORUS will eliminate U.S. tariffs on 95 percent of current trade in industrial products within three years of implementation of the agreement while not guaranteeing reciprocal U.S. access to the South Korean market for key industrial products such as autos and textiles.
With South Korea's current capabilities as a major producer and exporter of industrial products, its close proximity to China, and its traditional hostility to imports, KORUS will hurt U.S. manufacturers and exacerbate our trade deficit.
No wonder the Economic Policy Institute predicts the KORUS agreement will increase the total U.S. trade deficit with South Korea by about $16.7 billion annually and displace approximately 159,000 American jobs within the first seven years after it takes effect.
(2) KORUS'S TEXTILE CHAPTER HURTS U.S. TEXTILE MANUFACTURERS
The United States International Trade Commission (USITC) estimates that U.S. textile and apparel output will decline by the largest percentage of any sector as a result of KORUS and cites expected increases in U.S. imports from South Korea as the driving factor.
According to the U.S. International Trade Commission's initial analysis of entering into an agreement with South Korea, "The largest gains for Korean exports to the United States are anticipated in textiles, apparel, and leather goods, and other manufacturing (e.g., chemicals and allied products, electronics, and transportation)."[4] <#_ftn4> Various studies cited in the 2007 USITC report on KORUS uniformly predict declines in U.S. textile and apparel output ranging from 0.4 to 1.5 percent.[5] <#_ftn5>
AMTAC estimates that 9,300 to 12,300 U.S. textile and apparel manufacturing jobs are expected to be lost in the first seven years after implementation as result of flaws in the textile chapter of KORUS. Moreover, because U.S. government figures show that approximately three additional jobs are lost to the U.S. economy for each textile job that is eliminated, the total estimated job loss climbs to nearly 40,000. It is also important to note that these figures do not account for job losses as a result of a likely surge in illegal Chinese transshipments via South Korea, which we expect to be significant.
One highly sensitive market where South Korea competes head-to-head with U.S. producers in the U.S. market is in industrial textiles, a sector with employment of more than 25,000.
U.S. industrial textile manufacturers are particularly concerned about this agreement and its impact on the extended domestic supply chain for coated and laminated membranes used in industrial and military applications such as fuel cells, oil booms, rapidly deployable shelters/tents, radar attenuating covers, safety and protective gear, and many more advanced applications, including automotive fabrics. Many companies participating in this supply chain also support the military needs of our warfighters. Their ability to innovate and responsively supply the military is dependent on an overall healthy domestic market and industry.
Our principal concerns with the text include (1) accelerated tariff phase-outs that do not give U.S. producers time to adjust, (2) non-reciprocal tariff phase-outs that favor the South Korean textile industry in key products, and (3) exclusion of certain textile components from the rule of origin.
The aforementioned reasons and others are why, as the auto provisions of KORUS were being reopened, AMTAC and other industry associations made a request to the Obama administration in August 2010 that they also reopen the textile and apparel chapter of the agreement to fix the problems therein. Textile concerns, however, were never raised with South Korea and these damaging provisions remain unchanged.
Problematic Accelerated Tariff Phase-Outs
Contrary to the precedent established in the NAFTA, 86 percent of textile and apparel product lines are duty free immediately under KORUS and an additional 10 percent will be duty free on January 1 of Year 5 of the agreement. This is the first time a large number of sensitive products from a country with a large, sophisticated textile industry have received immediate access to the U.S. market. Tariff phase-outs for sensitive products have traditionally been a key part of trade agreements in order to give companies time to adjust business models and minimize large-scale potential job displacement. For example, South Korea exports of polyester fiberfill have entered the United States under anti-dumping orders for the past 15 years. This dumping case passed two sunset reviews, the last of which was successfully completed prior to the end of the KORUS negotiations. Nevertheless, KORUS immediately removes the U.S. duty on polyester fiberfill, defeating the purpose of the anti-dumping rule and defying logic of equitable trade negotiations.
In the U.S. technical textile market, South Korea has emerged as the number one exporter of advanced textile reinforcements, and this sensitive tariff line is scheduled for immediate tariff phase out. U.S. industrial textile producers have already lost significant market share to South Korean manufacturers, and this FTA will do significant harm to the industrial textile industry and greatly diminish the sustainability of our fragile domestic supply base.
Socks are another sensitive product where most tariff lines go to zero immediately. South Korea was the 6th largest exporter of socks to the United States in 2010 by volume, shipping more than 152 million pair.
Non-Reciprocal Tariff Phase-Outs
The agreement also provides South Korea with a more generous and expedited tariff elimination schedule than what is afforded U.S. producers and exporters for certain products. One example is para-aramid fiber, which is used to produce tough, flame-retardant fabrics for industrial and military applications including body armor. Under KORUS, South Korea will be allowed to export aramids to the United States with immediate duty free treatment. U.S. producers do not get duty free access to the Korean market as South Korea is allowed to phase out its tariff to be duty free on January 1 of Year 5. This puts U.S. manufacturers at a direct disadvantage.
Job-Destroying Loopholes in Rule-of-Origin
The rule of origin is a critical element of any free trade agreement because it defines which products qualify for preferential treatment and whether countries not party to the agreement will receive benefits. The KORUS contains a "yarn forward" rule of origin. While we support a basic yarn forward rule, certain specific exemptions to the product origin rules under KORUS are very problematic.
In essence, the rule applies only to the component that determines the tariff classification of the apparel or home furnishing good (in other words, the main or essential fabric) plus certain visible lining fabrics. Applying origin rules in this manner means that key component yarns, threads and fabrics are not adequately covered under the rule of origin and therefore do not have to be of U.S. or South Korean origin. This conflicts with the majority of our recent agreements including CAFTA-DR, Peru, Colombia and Panama which apply the yarn forward rule beyond just the essential character fabric.
Under KORUS, components including sewing thread, pocketing and narrow fabrics, all of which are in plentiful supply from U.S. producers, are allowed to come from anywhere. This allows third parties, such as China, to benefit without making any market concessions of their own. Domestic producers of these types of component yarns and fabrics provide thousands of U.S. jobs, which will be put into jeopardy if KORUS is implemented.
(3) HIGH LIKELIHOOD OF MASSIVE CUSTOMS FRAUD DUE TO INADEQUATE ENFORCEMENT PROVISONS
In addition to the flaws in the textile chapter of KORUS, there is strong evidence that Customs' ability to enforce this agreement will be ineffective.
Due to South Korea's history of transshipment paired with significant cross-border investment with China, upgraded customs enforcement provisions are essential to prevent large-scale customs fraud under KORUS. China already exports nearly $4 billion annually in textiles and apparel to South Korea, and South Korea was labeled by U.S. Customs as a major transshipment point for Chinese exporters when quotas were in place.[6] <#_ftn6>
Instead of strengthening enforcement, however, the customs language in KORUS was significantly weakened compared to other high risk agreements such as the Singapore FTA.
Key enforcement provisions that were dropped under KORUS include the ability for U.S. Customs to (1) seize goods from repeat offenders, (2) reduce South Korea's access if it does not enforce the rules of the agreement, and (3) deny fraudulent companies import privileges for several years.
The substandard customs provisions in the KORUS leave the U.S. textile industry and its workers vulnerable to large-scale illegal imports from China through South Korea. As a result, the industry fully expects Chinese textile exporters to be a primary beneficiary of KORUS.
In addition to its direct threat to the U.S. market, the specter of increased illegal transshipments likely to be generated by KORUS represents a significant attack on the hemispheric textile production structure encouraged by U.S. policy for the past three decades.
The KORUS threatens to damage the Western Hemisphere because South Korea's textile and apparel exports are expected to surge and displace orders currently being sourced in the region. When finished product orders are lost by manufacturers in the Western Hemisphere, U.S. mills also lose the orders for the yarns and fabrics that go into garments and made-up articles.
The potential loss of business is enormous. As a result of trade preference programs and the NAFTA/ CAFTA/Peru FTAs, nearly two million textile and apparel workers in those regions produce garments, home furnishings, and the textile components incorporated into those products. The U.S. textile and apparel industry is a critical link in the supply chain. We export more than $12 billion a year to our preferential partners in the Western Hemisphere, predominantly in components such as yarns, threads, and fabrics. This trade accounts for more than 60 percent of total U.S. textile and apparel exports.
CONCLUSION
AMTAC urges Members of Congress to vote NO on KORUS due to the expedited tariff reductions, lack of reciprocity in certain key product areas and overall negative impact on U.S. companies and jobs. Congress should prioritize fixing U.S. trade policy, stopping manufacturing job loss, and closing the trade deficit before considering any new trade deals including KORUS.
Thank you for your consideration in this matter. If you have any questions, please do not hesitate to contact us.
Sincerely,
Auggie Tantillo
Executive Director
American Manufacturing Trade Action Coalition
[1] <#_ftnref1> Trade deficit figures calculated from U.S. International Trade Commission statistics for Domestic Exports FAS minus Imports for Consumption Value.
[2] <#_ftnref2> CIA World Factbook. Official Exchange Rate GDP.
[3] <#_ftnref3> U.S. International Trade Commission, DATAWEB. Total Exports minus General Imports for All Commodities, DOC Automotive HTS10 List, and Textiles and Apparel HTS Chapters 50-63.
[4] <#_ftnref4> http://www.usitc.gov/publications/docs/pubs/332/pub3452.pdf
[5] <#_ftnref5> http://www.usitc.gov/publications/pub3949.pdf
[6] <#_ftnref6> CBP (July 10, 2008). "CBP Charges More Than 1,000 Containers of Illegal Textile Shipments to China's Quota Levels." Press release. http://www.cbp.gov/xp/cgov/newsroom/news_releases/archives/2008_news_releases/july_2008/07102008_3.xml
Posted on October 18, 2011
Source: AMTAC
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