[CTC] Small businesses not served by Korea FTA

[Arthur Stamoulis]

http://www.prosperousamerica.org/2013/03/25/cpa-official-comments-on-korea-trade-agreement-study/

CPA Official Comments on Korea Trade Agreement Study
Posted on 25 March 2013.
The International Trade Commission is conducting an investigation into  
the economic impact of the Korea Free Trade Agreement on small and mid- 
sized enterprises (SME) in the U.S. Oddly, or perhaps predictably,  
they are only looking for anecdotes on export opportunities for SMEs.
CPA members met with the ITC as part of this investigation. We let  
them know that SMEs don’t generally export. Rather, the vast majority  
are domestic supply chain participants. Thus, the trade agreement  
focus on “global supply chains” basically displaces our small  
manufacturers.
The Federal Register Notice for the investigation is here. Our CPA  
written submission is below.
******
Dear Secretary:
This is a written submission by the Coalition for a Prosperous America  
regarding the investigation: U.S.-Korea Free Trade Agreement: Effects  
on U.S. Small and Medium-Sized Enterprises.
The Coalition for a Prosperous America (CPA) is a national, nonprofit  
organization representing the interests of 2.7 million families  
through our agriculture, manufacturing, and labor association and  
company members. We advocate balanced trade and a national production  
strategy for America.
CPA manufacturing members are include SMEs from the tooling,  
machining, plastic mold building, steel, copper, aluminum, electronics  
components and other industries. Our members are domestic supply chain  
companies. Many of our members, and most SMEs, do not export. CPA  
members that do export, do so on a limited basis. Our members supply  
aerospace, automotive, electronics, medical, energy, defense,  
telecommunications, and other U.S. industries. Their lifeblood is the  
domestic U.S. supply chain.
The questions posed for this study are misleading and not carefully  
tailored to gain facts relating to economic benefits or harm of the  
KORUS FTA. SMEs generally do not export. The domestic market is, by  
far, the biggest and wealthiest market that is feasible for SME sales.  
The questions posed are targeted to that small minority of SME  
producers who do export as a portion of their sales.
Another false assumption of the way the question is framed is that the  
US supply chain will grow and thrive by exporting just like the OEMs.  
The assumption is that, while more trade agreements like KORUS may  
lead domestic OEMs to offshore much of their supply chains and thereby  
increase their global competitiveness to take advantage of new export  
markets, their former domestic suppliers can also use these trade  
agreements to join a more global supply chain that offers far more  
opportunity for them as well.
The fallacy here is the failure of US trade negotiators to recognize  
that the trade strategies of competing nations is to enact trade  
agreements that enable them to capture the supply chains of key  
industries, not to open their markets to US suppliers. They know the  
real economic growth engine is the value added by the supply chain of  
key industries.
CPA members have been harmed by the KORUS FTA and prior free trade  
agreements because they tend to reduce domestic supply chain  
participation in favor of global supply chains. The U.S. has the worst  
trade performance of any country in the world and the worst trade  
performance in world history. We imported $530 billion more than we  
exported in 2012. Our 2011 trade deficit subtracted 4% from GDP  
according to the Bureau of Economic Affairs.
Our goods trade deficit in 2012 was over $700 billion. We are a net  
importer of nearly all types of goods, including advanced technology.  
A substantial cause of this extra-ordinarily poor trade performance is  
the fad for pursuing participation in global supply chains rather than  
recognize and foster the value of domestic supply chains.
The economic muscle of domestic supply chains comes from the massive  
number of jobs, the innovation, the value add, the wealth creation and  
the growth that stems from them. National policies that try to  
transform supply chain participants into exporters, while helping  
reduce SME business by helping globalize the supply chain, are  
impoverishing CPA member companies. Successful trading and producing  
countries optimize domestic supply chains in major industries, rather  
than try to offshore under a “global supply chain” theory.
The industries represented by our members have been suffering  
significant decline because of poorly negotiated US trade agreements.  
Prior to Congress’ passage of KORUS, we warned that it would have the  
same impact.
The KORUS FTA is continuing this trend. Prior trade agreements, and  
China’s accession to the WTO, directly caused CPA member companies to  
lose business to companies in other countries. The U.S. tooling,  
machining, plastic mold building, electronic components and other  
industries are very innovative and efficient. These industries employ  
many people and produce astounding amounts of innovation which become  
embedded in final products. However, trade agreements, including the  
KORUS FTA, continue encouraging the offshoring of this supply chain  
business.
The KORUS FTA, like previous trade agreements, does not include  
provisions neutralizing foreign mercantilist practices like currency  
manipulation, border adjustable (value added) taxes, state-controlled  
company subsidies.
New Economic Modeling Needed: The ITC models for future economic  
performance from trade agreements, including we believe, the KORUS  
FTA, have proven repeatedly optimistic and thus not reflective of  
reality. Trade performance has been far worse than ITC models have  
predicted. The assumption that reduction in foreign trade barriers  
will result in net exports for U.S. producers has proven flawed. The  
ITC should engage in an analysis of why its models have been over- 
optimistic in projections, including developing new cause-effect  
dynamics based upon past performance in other agreements and their  
trade balance results. The ITC should then substantially revise and  
then apply its models so they are more accurately calibrated to real  
results.
In sum, any report about the KORUS FTA that is based upon anecdotes by  
SME exporters will, at best, produce a smattering of stories relating  
to those few SMEs that do export. The supply chain displacement  
dynamic – the most important impact economically – is untouched by the  
export oriented questions underlying this study.


  
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