By Henry M. Seggerman
President of International Investment Advisers
The title of my column last August was ``Korea-US FTA Deal Faces Bumpy Road.'' So, where are we with the various observations and predictions I made? ``A substantive free trade agreement between the United States and Korea is as likely as long-term peace in the Middle East.''
The headlines indicate there has been no agreement on beef, rice, Kaesong, and anti-dumping regulations, but that's not the whole story. At the very outset of the talks, both parties agreed to leave 19 areas in the United States and 88 areas in Korea, closed to each other.
If a deal is ratified, it may be a deal, but it will be far from substantive. According to a poll taken on April 2, only 31 percent of the National Assembly will vote to ratify the FTA, with 23 percent opposed, and 42 percent undecided. The cost of persuading 19 percent of the 42 percent could just be too high for any outgoing president.
Certainly important, the main opposition Grand National Party (GNP) party lawmakers reject the FTA outright, and former Uri party bosses Chun Jung-bae and Kim Geun-tae have gone on a hunger strike in opposition to it.
The vote could very well be delayed until 2008, after the presidential election, meaning the whole thing may go right back to square one. Did I mention the Korea Confederation of Trade Union (KCTU) self-immolations and that the Democratic Labor Party (DLP) and North Koreans have denounced the FTA as a ``yoke of subordination?''
Meanwhile, across the pond, Bush's Iraq catastrophe has cost his party both houses of Congress. As a result, the FTA ``Fast Track'' is an illusion.
Congress is not the Commander-in-Chief, but all they have to say these days is ``No, but...'' to funding the war, and suddenly, they are. Don't think the populist, protectionist Democratic xenophobes in Congress won't employ the same ``No, but...'' strategy when the KORUS FTA is up for the so-called ``Fast Track'' ratification.
Cattle ranchers and rice growers, completely betrayed, are livid. Sander Levin, Democrat chairman of the House Trade subcommittee already told the U.S. Trade Representative that the deal is ``completely inadequate in the face of Korea's long-standing iron curtain to American manufactured products.''
``It has been almost comical watching these FTA big shots quibble about some low-grade North Korean pots and pans.'' North Korean products have been excluded from the FTA. Case closed till reunification time.
In August, I expressed no doubts about an agreement for the automobile sector _ the elimination of Korea's 8 percent tariff and engine-displacement tax on U.S. cars and the U.S. 2.5 percent tariff on Korean cars.
Ford and GM are going bankrupt because they make enormous, unreliable gas-guzzlers, and have for many years. Besides, Koreans are nationalistic and will buy Korean cars, unless they are super-rich and can afford a Mercedes.
Everybody knows this, so Korea is not worried about giving up its 8 percent tariff on a few thousand American cars each year, tops.
Did you know that Korean consumers pay 4,000 won for 1,000 won worth of rice? It's because Korean rice farmers have not turned a profit for many decades.
Rice can be grown profitably in countries with per-capita GDP of $1,000, like Cambodia, not $15,000, like Korea.
So, instead of investing in assets which can appreciate, Korean consumers are required by law to flush their hard-earned pay down the toilet to support one of the most consistently unprofitable (perpetual guaranteed 75 percent net loss margin) businesses in the history of the world. This policy is one of the FTA's primary obstacles.
South Korea's average agricultural tariff is 52 percent, more than four times the U.S. average. Not surprisingly, America's rice farmers demanded free access to the Korean market.
However, they have much less clout than America's heavily subsidized, consistently unprofitable, sugar and cotton growers. The U.S. dropped its insistence on rice; however, this is a very bad thing for the Korean economy in the long-term.
Rice has been Korea's staple crop for more than 1,000 years. It is correct to say that many Koreans believe rice is part of the country's national sovereignty, thus a ``red line'' deal-breaker.
These many Koreans are absolutely free to continue paying 4,000 won for 1,000 won worth of Korean rice, waving flags fiercely at the checkout line. However, what right do they have to force the remainder of Korea's population to be gouged at the supermarket?
Why can't Koreans who don't subscribe to these views buy rice at its real price? The price support for Korean rice forces working class Koreans to spend their limited discretionary income on a huge portion of their daily food intake.
There is a reason why the Korea GDP is growing at 4 percent, instead of 7-10 percent like in most of Asia: it props up chronically unprofitable businesses like rice farming exactly like it propped up Daewoo not too long ago.
Koreans who can afford beef enjoy dishes like kalbi and bulgogi; however, Korea's regulatory environment ensures beef purchases will have the same value-destroying effect on working-class Koreans and the economy that rice has.
Beef costs Koreans about $50 per kilo, but citizens of many countries in the rest of the world pay only about $7. This would be impossible without the 40 percent import tariffs and a tradition of harsh inspections imposed on foreign beef imports.
As there was no agreement on this in the FTA, it appears very unlikely that kitchens across Korea will enjoy real market prices for beef anytime soon.