Free-trade deal between U.S., South Korea hinges on automobiles
Friday, October 1, 2010; 8:49 PM
In the best of all worlds, a U.S. free-trade agreement with South Korea would fling open the doors of that country's million-vehicle-a-year auto market to U.S. models like the Ford Focus or Fiesta, the type of fuel-efficient small cars that Koreans prefer and are central to Ford's corporate strategy.
But in practice, there's no guarantee those extra vehicles would be made at U.S. plants by U.S. workers, rather than at Ford facilities in places such as Chennai, India, or Chongqing, China, where the automaker's footprint is growing.
Debate over the proposed trade treaty, which could be resolved this fall, has boiled down to a battle over automobiles - an industry that South Korea has nurtured into an export powerhouse and the United States is trying to rebuild after a traumatic restructuring and government bailouts. That fight is being waged with graphs and sales statistics - the skimpy penetration of imports into South Korea offered by U.S. companies as proof the country is protectionist, data showing a steady rise in sales of European luxury autos offered by South Korea as proof that it is not.
But there is a deeper reality that is rarely captured in the data, and it could blunt the impact on jobs of any deal the Obama administration is able to strike: the globalized nature of auto production.
Not only has Ford, like other major auto companies, stationed its factories strategically around the world, but the largest U.S. car company, General Motors, has bowed out of the South Korea-U.S. trade debate altogether because it already has access to the market through its ownership of the South Korean automaker Daewoo. GM makes and sells more than 100,000 cars a year through Daewoo and exports hundreds of thousands more to Europe and elsewhere.
"Historically we have built where we sold," said Greg Martin, a GM spokesman. "We sell in Korea and we build in Korea."
Tens of thousands of Chevrolet-branded Aveos come back to the United States each year as imports. It's an odd footnote for GM, considering its largest stockholder - the federal government - is working to temper the country's mammoth trade deficit. GM says its production of Aveos will shift back to the United States soon.
"The net calculation of a Ford or a GM - how they react or expand or alter their production network - it is kind of hard to know," said Matthew J. Slaughter, a professor at the Tuck School of Business at Dartmouth University and a member of President George W. Bush's Council of Economic Advisers. "Free-trade agreements both create and destroy jobs. Exactly in which countries and in which industries is really hard to predict."
Deal made, not ratified
The South Korea agreement was negotiated by Bush but never ratified by Congress. President Obama, who has made its enactment a priority, wants to finalize possible changes with the South Korean government when he visits there in November and then seek congressional approval.
There are issues beyond automobiles on the table, including continued restrictions on U.S. beef exports to South Korea and some trade enforcement matters raised by labor and other groups leery of the trade pacts signed by the United States in the past two decades.
But the debate over cars is considered the key dispute. The agreement would have to clear the House Ways and Means Committee, and its chairman, Rep. Sander M. Levin (D-Mich.), whose district includes northern suburbs of Detroit, insists there be more tangible benefits for U.S. automakers.
South Korea sends more than 400,000 vehicles, mostly Hyundais and Kias, to the United States each year and makes about 200,000 others at U.S. plants. By contrast, the United States exported 5,878 vehicles to South Korea in 2009, according to data from the U.S. Commerce Department.