Thursday, April 17, 2008

Susan J. Demas featured in the Guardian U.K., Forbes

Korea trade deal an issue in Michigan election

From The Guardian U.K. and Forbes
By Soyoung Kim

DETROIT, April 17 (Reuters) - Deepening woes in the U.S. auto industry have raised concerns about a free trade pact with South Korea, and analysts say it could sway Michigan voters when they cast their presidential ballots.

The pact, signed last year and awaiting legislative approval in both nations, is viewed by many as punishing an industry already in the middle of a wrenching restructuring.

Democratic hopefuls Barack Obama and Hillary Clinton have seized on the backlash and made their opposition to the deal their top selling point in Michigan. But presumptive Republican nominee John McCain has endorsed it.

The Democrats' strategy has a good chance of paying off in a race that is likely to be tight, political analysts say.

"There is certainly a backlash against trade agreements with nations like South Korea in Michigan, which has seen thousands of jobs shipped overseas," said Susan Demas, an analyst at Michigan Information & Reserve Service in Lansing.

"Obama and Clinton definitely have the upper hand in Michigan on trade," she said.

From 2000-2005, Michigan, home to General Motors, Ford Motor and Chrysler, lost 42 percent of its auto assembly jobs, versus a 14 percent loss in the rest of the nation, according to the Federal Reserve Bank of Chicago.

Rising imports and more production in southern U.S. states by Asian rivals such as Hyundai Motor have helped make Michigan's unemployment rate -- at 7.2 percent -- the highest in the nation.


The trade agreement calls for the immediate elimination of South Korea's 8-percent tariff on U.S. vehicles and the U.S. removal of its 2.5-percent tariff.

It would also remove South Korea's system that levies taxes based on engine size, a disadvantage to larger U.S.-made autos. It also has a clause that if South Korea violates the promises, U.S. tariffs on South Korean cars, which topped about $220 million in 2006, would snap back into place.

But Detroit is more concerned about South Korean autos and parts flowing in than about gaining market share in Korea. Less than 4 percent of cars sold in South Korea are imports, the lowest market share for imported autos of any industrialized country.

"It's various nontariff barriers that change the game to make it difficult for foreign automakers to compete, not the 8 percent tariff," said Stephen Collins, president of the Auto Trade Policy Council which represents Detroit carmakers.


South Korean president Lee Myung-bak, who is in the United States this week in his first official visit to the country, pledged a swift ratification of the pact in an investor forum in New York on Wednesday.

Expectations are growing that South Korea will soon take a step to fully opening its market to U.S. beef, which U.S. lawmakers say is a prerequisite for the auto pact to be ratified in Congress.
But concerns that the annual $11 billion loss in automotive trade with South Korea will only widen, along with the beef feud, are casting a shadow over speedy resolution.

Ron Gettelfinger, head of the United Auto Workers, attacked the Bush administration for backing the South Korea deal.

"We don't value our industry as a nation compared to other nations," Gettelfinger told a forum in Canton, Michigan, this month. "South Korea exported 700,000 vehicles to the United States. The United States exported 7,000 vehicles to South Korea."

U.S. auto employment peaked at 1.1 million in 1999 but has since fallen by 27 percent, according to Automotive Research. The center estimates employment by Detroit's Big Three will fall another 15 percent by 2016 from about 241,000 at the end of last year.


The UAW has yet to endorse a Democratic candidate. Once it does, it will make a substantial difference in a state that has voted for a Democrat in every presidential election since 1992 but now appears to lean toward McCain, said Phil Power, head of the Center for Michigan, an Ann Arbor-based think tank.

"I've seen recent polls suggest Senator McCain is ahead. I think part of that is caused by the fact there's no Democratic nominee at this point and that the Michigan primary election was so confused and messed up that Michigan voters are not very happy about the Democratic Party right now," Power said.

The national party invalidated the Democratic nominating contests in Michigan and Florida in January because the states violated party rules. The states were denied delegates to the August party convention that picks the nominee.

No comments: