Textile Industry Loses As Congress Passes KORUS Free Trade Agreement

WASHINGTON — October 13, 2011 — The U.S. specialty fabrics industry, one of the thriving textile
sectors in the U.S., took a direct hit yesterday when the House and Senate majority voted in favor
of the Korea-U.S. free trade agreement (KORUS).

Under the win/lose terms of KORUS, South Korean goods will immediately enjoy duty-free entry
into the U.S. market; but U.S. exports to South Korea will still be subjected to a 10 percent Value
Added Tax (VAT). Through its 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 its VAT rate above the current 10 percent
at any point in the future. According to Ruth Stephens, Executive Director of the United States
Industrial Fabrics Institute (USIFI), “It was a major error on the part of U.S. negotiators not to
address this inequity as part of KORUS, as border taxes are a persistent example of foreign
practices that place domestic companies at a competitive disadvantage.”

USIFI is a division of the Industrial Fabrics Association International, a trade group with
over 1,800 member companies which has represented the U.S. specialty fabrics industry for nearly
100 years. The world market for specialty fabrics is estimated at $126 billion in 2011–$29 billion
of that in the U.S. In fact, this is one segment of the domestic textile manufacturing base which
now thrives thanks to continuous technical innovation.

USIFI commended the 151 House of Representative Members and 15 Senators who understood the
serious disadvantage to U.S. manufacturing and voted “no” on the U.S.-Korea Free Trade Agreement
(KORUS) last night, Oct. 12, 2011. Both bodies of Congress ratified the agreement; the House vote
was 278 to 151 and the Senate vote was 83 to 15.

Unfortunately, says Stephens, no one is looking at the free trade agreement results data. The
claim that enormous numbers of U.S. jobs will be created by the passage of this agreement is
unfounded, based on government results data collected since past trade agreements such as NAFTA and
CAFTA were implemented. Free trade partners can (and do) sell more to the U.S. than vice versa.
During the lifetime of the country’s existing free trade agreements the U.S. has run a cumulative
$2.1 trillion deficit with our free trade partners.

According to Stephens, “The specialty fabrics industry is particularly concerned because
Korea has a very sophisticated, vertically integrated industrial textile industry, recently
receiving massive government financial support to build extra manufacturing capacity.”

The impacts of KORUS 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 are expected to be extensive.

Stephens warns that 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.

“A likely decline in U.S. textile output because of increased Korean market penetration
almost certainly means the loss of U.S. textile jobs,” she says. “Textile job skill sets are not
easily transferred to segments such as agriculture which might see a slight gain because of the

Stephens also notes that the U.S. International Trade Commission admits that U.S. textile
production is expected to decline as a result of the KORUS agreement. USIFI and other industry
associations predict that more than 10,000 U.S. textile and apparel manufacturing jobs will be lost
in the first seven years after implementation as result of flaws in the textile chapter of KORUS.

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 are expected to be

Specialty fabrics is a segment of the domestic textile manufacturing base that has not only
survived decades of bad trade policies and relentless import pressures but which, though continuous
technical innovation, has grown and competed in the world marketplace–until now.

Says Stephens, “Until we address the issue of border taxes (VATs), we will never have true
free trade….every other major country in the world uses border adjusted taxes, usually in concert
with duty rates (as the duty revenue goes down, the VAT goes up to compensate). As one of our
members says, ‘We’re playing checkers, and everyone else is playing chess.”

Posted on October 18, 2011

Source: USIFI