Opening Statement of Congressman Brad Sherman
Chairman, Subcommittee on Terrorism, Nonproliferation and Trade
I want to thank Ambassador Bhatia and Secretary Hill for joining us today as we look at specific aspects of the proposed U.S. - South Korea FTA.
As we look at this agreement, I am reminded of a certain lesson of history. On June 18, 1812, the United States declared war on Great Britain, and we made - what proved to be - a catastrophic foreign policy decision: We invaded Canada.
Our leaders mistakenly believed that the war would be an easy victory. They were wrong, and two months later we saw the fall of Detroit.
Today, we are not considering an invasion, but a trade agreement with one of our most important allies: South Korea. However, before we go forward with a proposal that the Bush Administration tells us will benefit both sides, we should be certain that we are not setting into motion a plan that will once again lead to the demise of Detroit.
Fundamental to answering these concerns is to ask how the U.S. - South Korea FTA will affect our trade deficit, which last year reached $836 billion. Our imports world-wide for 2006 ($1.8 trillion) were double the entire gross domestic product of South Korea. Unsurprisingly, we have a trade deficit with South Korea as we do with the vast majority of countries around the world.
As one of our witnesses, Ambassador Bhatia, recently pointed out, these types of agreements tend to grow our trade deficit. He is not alone in this assessment. According to a report issued in April of this year by the Korea Institute for Industrial Economics and Trade, if this deal moves forward our trade deficit with South Korea will grow by as much as $750 million annually.
Using the numbers from a study done by the Peterson Institute on International Economics we see a similar picture in which our trade deficit with South Korea will grow by another $880 million annually.
A full eighty percent of this trade imbalance comes from the auto industry, which brings us strait back to Detroit. Last year, South Korea exported 700,000 cars to the United States, more than 100 times what U.S. carmakers sold there.
We are told that there are some improvements to the barriers that U.S. automakers face, but they are not enough. Ford, Chrysler, and the United Auto Workers are all opposing this agreement because - in the words of a Ford Motor Vice President, "No manufacturer from any county can make significant gains in the Korean market."
But I am not going to criticize our friends in South Korea. They are doing what most countries do: they are looking out for their own best interests and the interests of their own workers. However, our own trade officials should be doing the same, which clearly they are not.
The auto provisions are not the only issue that needs to be addressed. There is a Trojan Horse in this deal, which I believe will leave both sides unpleasantly surprised.
Unable or unwilling to make the tough decisions regarding outward processing zones in North Korea - like the one at Kaesong - the negotiators have sent us a deal that leaves too many unanswered questions.
This is not acceptable given the serious implications to our efforts to counter the North Korean nuclear weapons program. In October of last year, the North Korean regime tested a nuclear device. The response of the U.S. Trade Representative was to allow the inclusion of language in the US-South Korea FTA that paves the way for special treatment of goods produced in North Korea.
We are told not to worry because the name of the only currently existing outward processing zone, the Kaesong Industrial Complex in North Korea, doesn't actually appear in the text of the agreement. That rational is ridiculous.
This agreement establishes a committee whose composition and real powers are still unclear, but nevertheless has the authority to negotiate the terms of outward processing zones in North Korea.
These special zones will allow goods to be made in North Korea and be treated the exact same way as South Korean goods. We are not talking about a small exception. In the words of the South Korean trade minister this agreement leaves, "the possibility that any region in North Korea can be designated as a zone where products made there can be considered as South Korean-made."
How far-reaching could this be? The first of these trade zones alone is expected to ultimately employee upwards of one million workers and house up to three million people.
Additionally the text of the agreement leaves open another possibility: differing interpretations of the borders of South Korea. The FTA defines South Korea as the land, maritime, and air space over which the Republic of Korea exercises sovereignty. While I certainly welcome the day that North and South Korea are peacefully reunited into a single, free democratic country, I must question the peculiar way in which this was put together. How and by whom will the sovereign authority of South Korea be determined? South Korea's constitution says it extends to the Chinese border.
We have been told that all of these concerns will be addressed eventually. We are told that Congress will retain the authority to authorize the special treatment of goods in North Korea. We have received assurances from the Bush Administration that additional fixes can still be added to this FTA even though South Korean officials have publicly stated that Seoul is unwilling to reopen the agreement.
In order to codify these assurances I would suggest a clarification that we could have in the agreement or implementing legislation.
I want to be absolutely certain that no special trade privileges are extended to North Korea without Congress making the final determination.
I hope that the Administration witnesses will agree to the following:
"No good or service produced in whole, or in part, in the portion of the Korean Peninsula located north of the Korean War Armistice Line shall be eligible for the benefit of this agreement, unless such benefit is recommended by the Committee stipulated in Annex 22-c and thereafter authorized by a specific statute passed by the Congress."
Either this Free Trade Agreement does or does not allow special treatment for goods produced in North Korea.
There can be no maybe and no middle line.
The U.S. Congress must have the final word.
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