Reports from the Economic Front

by Martin Hart-Landsberg

Archive for the ‘Korea’ Category

Signs Of Global Slowdown

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There are growing signs that the global economy is slowly but steadily heading into another period of stagnation.

Global growth since the 2009 world financial crisis has largely been driven by the third world; developing Asia alone accounted for almost 60% of world growth over the period 2009 to 2014.

However, the economic fortunes of most third world countries, including those in developing Asia, are now being pulled down by weak core country growth.  And this development will in turn deepen economic problems in Japan, most Eurozone countries, and even the U.S.

For example, Asian growth has largely been fueled by exports to advanced capitalist countries, in particular the U.S.  However, as a result of core country economic difficulties developing Asian countries have seen their exports plummet. The following figure shows year-on-year export growth for developing Asian countries; the last data point (April 2015) is an average growth rate only for Korea, China, and Taiwan.

export growth rates

The next figure shows that all of Asia’s leading economies are suffering a similar fate, with their exports now barely growing in value compared with growth rates of over 40% in 2010.


The Wall Street Journal explains what is happening as follows:

For decades, Asia fueled its development by selling products to the West. That engine is now sputtering, threatening to sap the region’s economic expansion. . . .

Today, it is unclear whether exports can still provide that oomph. Overall growth is slowing in many Asian nations, forcing policy makers to ponder whether demand from their own consumers can fill the void.

“That model that Asia had of relying on the trade channel—that’s gone,” said Markus Rodlauer, deputy director for Asia and the Pacific at the International Monetary Fund in Washington.

The following figure shows aggregate exports by destination for six leading Asian economies: China, Hong Kong, Korea, Singapore, Taiwan and Thailand.  The declines in sales to Japan and the EU are especially striking.  However, even intra-Asian export growth has fallen, in large part because of China’s slowing economic activity.


To this point, Asian economic growth has not fallen as much as one might expect given the export trends highlighted above.  Perhaps the main reason is that China’s massive investment spending has, up to now, served to support Asian exports, although at a reduced rate.  But China’s investment first policy has largely run its course, leaving the country with a growing number of empty towns, shopping centers, theme parks, airports, and high-speed rail lines and its regional governments deep in debt.

Here is one illustration of the problem from the South China Morning Post:

When officials reopened the airport on the sparsely populated Dachangshan island off the mainland’s northeast coast after a US$6 million refurbishment in 2008, they planned to welcome 42,000 passengers in 2010 and another 78,000 in 2015.

However, fewer than 4,000 passengers – or just a 10 a day – passed through its gates in 2013, data from the civil aviation authority showed.

Since February last year [2014], China has approved at least 1.8 trillion yuan (HK$2.3 trillion) in new infrastructure projects to counter a slowing economy. The approvals come just as the full costs of the underused airports, expressways and stadiums built during the last spending binge are beginning to emerge.

While construction firms profited from the boom, it saddled provincial governments with US$3 trillion worth of debt, with the most over-exuberant seeing their local economies weaken and become imbalanced towards the building sector.

As noted above, some analysts believe that Asian governments are likely to try and compensate for the loss of demand from stagnate exports by supporting policies to boost domestic consumption.  However, this is extremely unlikely.

To put it bluntly, governments throughout the region remain committed to their export growth strategies.  This has left them locked in competition to attract and hold corporate investment and determined to keep labor costs as low as possible.  The Chinese government, for example, has decided to counter the recent rise in labor activism and wages by engaging in a massive push to replace workers with robots.

As the New York Times reports:

Chinese factory jobs may thus be poised to evaporate at an even faster pace than has been the case in the United States and other developed countries. That may make it significantly more difficult for China to address one of its paramount economic challenges: the need to rebalance its economy so that domestic consumption plays a far more significant role than is currently the case.

Another indicator of global fragility is the decline in commodity prices.  Of course this trend is largely a consequence of the previous one.  Asia’s export decline has translated into a decline in regional manufacturing activity and a fall in the demand for as well as price of most commodities.  The following figures from the Guardian illustrate this trend.






iron ore

These sharp declines in commodity prices threaten to dramatically slash rates of growth in sub-Saharan African and Latin American countries, most of whom depend on exports of these commodities to finance the imports they need to support domestic production and consumption.

In brief, growth prospects in core countries are poor.  As a consequence, developing Asia faces the exhaustion of its export-led growth strategy.  And the same is true for sub-Saharan Africa and Latin America.  Compounding global problems is the fact that Germany and Japan continue to embrace their own export-led growth strategies and U.S. growth is unlikely to prove strong enough to ensure sufficient global demand.

In sum, without significant structural changes in most economies, changes that include support for policies designed to boost majority living and working conditions or said differently privilege people over profits, workers everywhere are in for a long period of economic hardship.

Worker Struggles At Samsung

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Our media celebrates the dynamism of our leading technology companies.  The message is that our world would be better if only other businesses could replicate their practices.

Not surprisingly, it is their products not their labor practices that draws the most attention.  Unfortunately, many of the firms on the cutting edge of technology also tend to be leaders in fashioning the most alienating and exploitative labor practices.

It took suicides and strikes to bring attention, if only for a short period, to the dreadful working conditions in the China-based factories that produce Apple products.  See here and here.

Samsung, the leading Korean technology company and Apple’s main competitor, is no better. Samsung has used all means possible to keep its operations non-union.

The following is the beginning of an interview with Sunyoung Kim, the chair of the Samsung Electronics Service Union, about the union’s recent victory, becoming the first recognized union in the company’s 76 year history. The interviewer is Dae-Han Song, the International Strategy Center’s Policy and Research Coordinator. 

Sunyoung Kim: We started the union because of the harsh working conditions. Sometimes, we might work twelve to thirteen hours a day, and still not make the minimum wage. You might come to work on Saturday or Sunday from 8:00 to 6:00 PM and come out on the minus. Why? Because you didn’t get paid, but you still had to pay for lunch and gas. You even had to pay for your own training from Samsung. In addition, our work is dangerous, whether it is installing air-conditioning, or climbing a wall, or working with live electricity. Despite these dangers, the company doesn’t provide any safety equipment. We have to wear neckties even when working with moving parts. They force us to wear dress shoes even when working on a roof in the rain, just for the sake of maintaining a clean and professional image.

Dae-Han Song: How can a person work 12 to 13 hours a day and not even get paid the minimum wage?

Sunyoung Kim: It’s a system based on commission. There is no base pay. You are basically a freelancer. You come in to work, and if there is work you work if there is not then you just stay in the office. However, while a real freelancer can decide whether or not to show up to the office, we have a specified clock in and clock out time. When there is work, we just keep working. In the summer, there’s a lot of work: air conditioning, refrigerators. So, we just keep on working until everything is done. Not only is working such long hours exhausting, it is also exhausting doing so in the summer heat. Sometimes you don’t get home until 12:00 AM and can’t even rest on the weekends. That’s when we make our money that carry us through the fall, winter, spring when there is little work. In these off seasons we might sometimes just get one or two calls in a day and since we get paid by commission, if we don’t work, we don’t get paid.

The complete interview was published by the Korea Policy Institute, an excellent source for information on Korea, and can be found here.




Written by marty

October 11th, 2014 at 12:23 pm

Neoliberalism Kills

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On April 16, the Sewol, a South Korean passenger ferry, sank.  The Sewol carried over 400 people, the majority of whom were young students on a field trip to Jeju Island.  More than 260 people have been officially reported as dead; dozens more remain missing and are presumed dead.

The international media has run numerous stories about the sinking and the alleged irresponsibility of the captain and crew.

However, missing from the reporting is any discussion of the real culprit: South Korean neoliberal policies.  The connection between this tragedy and neoliberal policies such as privatization, deregulation, and liberalization needs to be understood if future tragedies, in South Korea as well as other countries, are to be averted.

Since most major media and governments are not anxious to highlight this connection, a group of scholars has decided to do it.  They have written and circulated a statement — see below — that is to be sent to the South Korean media.  It has already been endorsed by almost a thousand scholars.  

As the authors point out:

The ferry sank under the weight of deregulation and privatization: the previous administration relaxed the regulations on a ferry’s life and safety, allowing the Chonghaejin Maritime Transportation, the Sewol’s owner, to import an aged ship and add more room for passengers and cargos; the safety inspection and the certification of the ship were left to private entities formed or heavily influenced by ferry owners; the Park administration allowed the Chonghaejin to hire temporary workers, including the captain, at a low wage and without adequate safety training; and the government turned a blind eye to the illegal overloading of the ferry.

Sadly, the South Korean government is not alone in seeking to boost private profits by relaxing health and safety regulations, privatizing vital public services, and weakening labor laws.  Such policies have become the new normal and we all suffer the consequences.


The Sewol Ferry Tragedy as a Warning: Neoliberal Deregulation and Lack of Democratic Accountability in South Korea
May 7, 2014

We express our deepest sorrow and condolence for the families of victims and Danwon High School students who have lost their loved ones in the sinking of the Sewol Ferry on April 16th. We sincerely hope that the missing passengers, whose death is not yet confirmed, return to their families as soon as possible.

The tragedy of the Sewol Ferry sank the heart of not only the Koreans but also everyone in the world to the deepest of shock and grief, as the world helplessly watched hundreds of lives drown to death because of the combination of corruption, ineptitude, and irresponsibility pervasive in today’s Korea. The ferry sank under the weight of deregulation and privatization: the previous administration relaxed the regulations on a ferry’s life and safety, allowing the Chonghaejin Maritime Transportation, the Sewol’s owner, to import an aged ship and add more room for passengers and cargos; the safety inspection and the certification of the ship were left to private entities formed or heavily influenced by ferry owners; the Park administration allowed the Chonghaejin to hire temporary workers, including the captain, at a low wage and without adequate safety training; and the government turned a blind eye to the illegal overloading of the ferry. Throughout the tragedy, not only did the Park Geun-Hye administration fail to mobilize its resources to rescue the passengers in a timely manner: the Coast Guard never issued an order to rescue the passengers, but only a call to salvage the ferry; and it relied on a particular private company for the rescue and salvage, and protected the company’s monopolistic operation. The Park Geun-Hye administration also walked away from democratic accountability by abandoning its responsibility to protect the people, systematically controlling the media, and mobilizing the police to isolate and surveillance the victims’ families. Many Koreans, watching the government’s betrayal, began to raise serious questions about whether they could trust the current government with their lives.

We, the undersigned academics and scholars, share Koreans’ sense of governance crisis in South Korea. Compelled by a sense of urgency that a similar tragedy can occur again unless the problems exposed by the tragedy are immediately and adequately addressed, we demand the following:

1. The survivors, the victims, and their families must be provided with medical care, adequate healing, and proper compensation. 

The Sewol tragedy is bound to leave indelible wounds on the survivors and the families of the victims. Instead of providing the needed support for them, however, the Korean government has mobilized the police to block the families’ protest against its slow rescue operation and sent undercover policemen for the surveillance of the families. The government must offer all the care and support required to help them heal their wounds and try to resume their lives. Those responsible for the tragedy must compensate the survivors, the victims, and their families because a just compensation is required not only for their recovery but also for social justice.

2. The government must own up to its responsibility for the Sewol tragedy, mindful that it is the most fundamental responsibility of the government, including the president, that it protect the life and safety of the people.

Article 34 of the Constitution of the Republic of Korea clearly states, “The state must endeavor to prevent disasters and protect the people from their danger.” While the immediate cause of the Sewol’s accident might be attributable to the captain and the owner of the ship, the government bears the most direct responsibility for saving not a single passenger who was left in the ferry. Ten years ago, then Representative Park Geun-Hye criticized President Roh Moo-Hyun for failing to protect Kim Sunil, who defied the government’s travel ban to go to Iraq on a proselytization mission and was killed by an extremist group: “If a state fails to protect its people, it cannot be called a state. A president who fails to protect a citizen has lost his credentials.” We hold President Park to her own words. She must stop blaming others for her failure, own up to her responsibility, and sincerely apologize to the victims’ families. Top officials, including ministers, at Ministry of Security and Public Administration, Ministry of Oceans and Fisheries, and Coast Guard, must be investigated and punished for their failure to fulfil the duty to protect the people’s life. President Park and the Presidential Office must tell the people how they are going to take the responsibility for failing to direct and oversee them.

3. An independent special prosecutor must be appointed and a special act must be adopted to investigate the causes of the tragedy and prosecute those who are responsible.

We agree with the victims’ families that it is imperative to form an independent special prosecutor and adopt a special act to investigate the causes of the Sewol tragedy. Since the Park government is directly implicated in this, prosecutors under President Park’s order cannot conduct an independent and thorough investigation. They have failed before: they could not investigate the full extent to which the Korean Intelligence Service, the military and other administrative agencies interfered in the election that had elected President Park; and they colluded with the Korean Intelligence Service to fabricate evidence in an attempt to frame Yu Osong, a North Korean defector, as a spy for the North. Only an independent special prosecutor, who is given the Korean people’s mandate to get to the bottom of the incident without worrying about the government’s influence, therefore can summon not just the crew members who are at the bottom of the power hierarchy but also the rich and the powerful, including the relevant ministers and President, and reveal their failures. Those found guilty must receive the maximum punishment allowed under the law so as to restore justice and serve as a warning for the future. The Sewol investigation should not be used as a blanket with which to cover the election interference and the recent spy fabrication case, but rather add the urgency to investigate them as fully.

4. Neoliberal deregulation must be repealed, and regulations on safety and public interest must be strengthened.

Just as neoliberalism has clearly betrayed its limits around the globe, so does the Sewol incident tragically demonstrate the dangers of rampant deregulation and privatization that place corporate profits before the public interest and safety. An interest group that regards the people as a tool of economic gain and promotes deregulation and privatization under the name of efficiency cannot be called a government. We are appalled that amidst the Sewol chaos the Park administration restarted the Kori Nuclear Reactor that had been stopped over concerns about safety. Restarting the Kori Reactor, which generates only 1% of Korea’s electricity, is not just taking the same fatal missteps as letting the Sewol sail to the passengers’ peril, but represents a more serious threat to the nation and the region. The current government has set the quantitative goal of reducing all economic regulations by 20%, and is vigorously working to accomplish it. President Park must reverse the dangerous policy of wholesale deregulation and privatization that she has prioritized, and place the people’s life and the quality of life before business profits and government convenience. The Sewol tragedy brings home the necessity to shift Korea’s profit-driven paradigm to a people-centered one.

5. The government must stop its media control and censorship, and guarantee the freedom of press.

A victim’s father clearly identified one of the problems: “I still think that there would have been survivors if the media had reported a little more factually and a little more critically from day one on.” The government has systematically worked to control the media for fear that the government should be held responsible. Immediately after the Sewol’s sinking, the government misled the public by announcing that all the passengers had been rescued, an announcement that was dutifully relayed by the media. Korea Communications Commission created a task force that would monitor media coverages and internet postings and “coordinate and control” – later changed to “request cooperation” – broadcasters in order to de facto censor the media and manipulate public opinion. The brazenness of the government’s media control is reflected in the fact that Korea Communications Standards Commission is seeking to penalize Son Sukhee, a TV anchor, for conducting an interview with Lee Jongin who had offered a rescue method different from that of the private salvage company backed by the government. Also the government has impeded the free flow of information and opinions in the internet by intervening in various internet media. The Park government must immediately stop all its endeavors to oppress the freedom of press that is so central to liberal democracy.

Written by marty

May 12th, 2014 at 9:48 am

The Free Trade Record

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The U.S. government is hard at work negotiating the Transpacific Partnership Free Trade Agreement with eleven other governments.  It continues to defend this and other free trade agreements with claims that they generate exports and jobs for U.S. workers.

That the historical record demonstrates the falseness of such claims seems not to matter to the media or political and economic leaders.

For example, here is what the Office of the United States Trade Representative had to say upon completion of the U.S.-Korea Free Trade agreement:

The entry into force of the U.S.-Korea trade agreement on March 15, 2012 means countless new opportunities for U.S. exporters to sell more Made-in-America goods, services, and agricultural products to Korean customers – and to support more good jobs here at home.

However, the Eyes on Trade blog examined the data and found that:

Two years after the implementation of the U.S.-Korea Free Trade Agreement (FTA), government data reveal that the Obama administration’s promises that the pact would expand U.S. exports and create U.S. jobs are exactly opposite of the actual outcomes: a downfall in U.S. exports to Korea, rising imports and a surge in the U.S. trade deficit with Korea. Using the administration’s export-to-job ratio, the estimated drop in net U.S. exports to Korea in the FTA’s first two years represents the loss of more than 46,600 U.S. jobs. . . .

Contrary to the administration’s promise that the Korea FTA would mean “more exports, more jobs”:

    • U.S. goods exports to Korea have fallen below the pre-FTA average monthly level for 21 out of 22 months since the deal took effect. See graph below.
    • The United States has lost an average of $385 million each month in exports to Korea, given an 11 percent decline in the average monthly export level in comparison to the year before the deal.
    • The United States lost an estimated, cumulative $9.2 billion in exports to Korea under the FTA’s first two years, compared with the exports that would have been achieved at the pre-FTA level.

Eyes 1

More specifically, “U.S. average monthly exports to Korea have fallen in 11 of the 15 sectors that export the most to Korea, relative to the year before the FTA (see graph below). . . . Ironically, many sectors that the administration promised would be the biggest beneficiaries of the Korea FTA have been some of the deal’s largest losers.”

Eyes 2

And of course this is just the trade record.  All free trade agreements also have multiple chapters that have nothing to do with trade as commonly understood but are designed to block possible future government interventions that might limit corporate profit-making opportunities.  See here and here for examples from the U.S.-Korea Free Trade Agreement.

Since agreements like the Transpacific Partnership Free Trade Agreement are first and foremost about promoting corporate interests, the government’s lack of interest in highlighting the historical record should come as no surprise.

Written by marty

April 27th, 2014 at 6:53 am

The Need To Work For Peace On The Korean Peninsula

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This long post examines the causes of and offers a response to the dangerous escalation of tensions on the Korean peninsula.

While the details of U.S.-North Korean relations are complex, the story is relatively simple.  In brief, the U.S. government continues to reject possibilities for normalizing relations with North Korea and promoting peace on the Korean peninsula in favor of a dangerous policy of regime change.  Unfortunately, but not surprisingly, the U.S. media supports this policy choice with a deliberately one sided presentation of events designed to make North Korea appear to be an unwilling and untrustworthy negotiating partner.

As a corrective, in what follows I offer a more complete history of U.S -North Korean relations, focusing on the major events that frame current tensions over North Korea’s nuclear program.  This history makes clear that these tensions are largely the result of repeated and deliberate U.S. provocations and that our best hope for peace on the Korean Peninsula is an educated U.S. population ready and able to challenge and change U.S. foreign policy.

Historical Context

Perhaps the best starting point for understanding the logic of U.S.-North Korean relations is the end of Korean War fighting in 1953.  At U.S. insistence, the fighting ended with an armistice rather than a peace treaty.  A Geneva conference held the following year failed to secure the peace or the reunification of Korea, and U.S. demands were the main reason for the failure.

The United States rejected North Korean calls for Korea-wide elections, supervised by a commission of neutral nation representatives, to establish a new unified Korean government, a proposal that even many U.S. allies found reasonable.  Instead, the U.S. insisted, along with South Korea, that elections for a new government be held only in the North and under the supervision of the U.S. dominated United Nations.  Needless to say, the conference ended without any final declaration, Korea divided, and the United States and North Korea in a continuing state of war.

Up until the late 1980s/early 1990s, an interrelated, contentious but relatively stable set of relationships—between the United States and the Soviet Union and between North Korea and South Korea—kept North Korean-U.S. hostilities in check.  The end of the Soviet Union and transformation of Russia and other Central European countries into capitalist countries changed everything.

The loss of its major economic partners threw North Korea’s economy into chaos; conditions only worsened the following years as a result of alternating periods of flood and drought.  The North Korean government, now in a relatively weak position, responded by seeking new trade and investment partners, which above all required normalization of relations with the United States.  The U.S. government had a different response to the changed circumstances; seeking to take advantage of the North’s economic problems and political isolation, it rejected negotiations and pursued regime change.

It is the interplay of U.S. and North Korean efforts to achieve their respective aims that is largely responsible for the following oft repeated pattern of interaction: the North tries to force the United States into direct talks by demonstrating its ability to boost its military capacities and threaten U.S. interests while simultaneously offering to negotiate away those capacities in exchange for normalized relations.  The United States, in turn, seizes on such demonstrations to justify ever harsher economic sanctions, which then leads North Korea to up the ante.

There are occasional interruptions to the pattern.  At times, the United States, concerned with North Korean military advances, will enter into negotiations.  Agreements are even signed.  But, the U.S. rarely follows through on its commitments.  Then the pattern resumes.  The critical point here is that it is the North that wants to conclude a peace treaty ending the Korean War and normalize relations with the United States.  It is the U.S. that is the unwilling partner, preferring to risk war in the hopes of toppling the North Korean regime.

The Framework Agreement, 1994-2002

The U.S. government began to raise public concerns about a possible North Korean nuclear threat almost immediately after the dissolution of the Soviet Union.  These concerns were driven by many factors, in particular the U.S. need for a new enemy to justify continued high levels of military spending.  Colin Powell, then head of the Joint Chiefs of Staff, explained in testimony to Congress that with the Soviet Union gone, the United States was running out of enemies.  All that was left, he said, was Fidel Castro and Kim Il Sung.

The North had shut down its one operating reactor in 1989 for repairs.  In 1992, the CIA claimed that the North used the shutdown to reprocess plutonium and was now in possession of one or two nuclear weapons, a claim disputed at the time by the State Department.  The North also denied the claim but offered to settle U.S. nuclear concerns if the United States would enter into normalization talks.

The Clinton Administration rejected the invitation and began planning for war.  War was averted only because of Jimmy Carter’s intervention.  He traveled to North Korea and brokered an agreement with Kim Il Sung that Clinton reluctantly accepted.  The resulting 1994 Framework Agreement required the North to freeze its graphite-moderated reactor and halt construction of two bigger reactors.  It also required the North to store the spent fuel from its operating reactor under International Atomic Energy Association (IAEA) supervision.

In exchange, the U.S agreed to coordinate the building of two new light water reactors (which are considered less militarily dangerous) that were to be finished by 2003.  Once the reactors were completed, but before they were fully operational, the North would have to allow full IAEA inspections of all its nuclear facilities.  During the period of construction, the U.S. agreed to provide the North with shipments of heavy oil for heating and electricity production.

Perhaps most importantly, the agreement also called for the United States to “move toward full normalization of political and economic relations” with the North and “provide formal assurances to the DPRK against the threat or use of nuclear weapons by the United States.”

Tragically, although rarely mentioned in the U.S. media, the U.S. government did little to meet its commitments.  It was repeatedly late in delivering the promised oil and didn’t begin lifting sanctions until June 2000.  Even more telling, the concrete for the first light water reactor wasn’t poured until August 2002.  Years later, U.S. government documents revealed that the United States made no attempt to complete the reactors because officials were convinced that the North Korean regime would collapse.

The Bush administration had no use for the Framework Agreement and was more than happy to see it terminated, which it unilaterally did in late 2002, after charging the North with violating its terms by pursuing nuclear weapons through a secret uranium enrichment program.  Prior to that, in January 2002, President Bush branded North Korea a member of the “axis of evil.”  In March, the terms of a new military doctrine were leaked, revealing that the United States reserved the right to take preemptive military strikes and covert actions against nations possessing nuclear, biological, and chemical weapons as well as use nuclear weapons as an option in any conflict; North Korea was listed as one of the targeted nations.  In July, President Bush rejected a North Korean request for a meeting of foreign ministers, calling Kim Jong Il a “pygmy” and a “spoiled child at the dinner table”

It is certainly possible that North Korea did begin a uranium enrichment program in the late 1990s, although the Bush Administration never provided proof of the program’s existence.  However, what is clear is that the North did halt its plutonium program, allowing its facilities to deteriorate, with little to show for it.  The failure of the United States to live up to its side of the agreement is highlighted by the fact that North Korea’s current demands are no different from what it was promised in 1994.

The North Korean government responded to the Bush administration’s unilateral termination of the Framework Agreement by ordering IAEA inspectors out of the country, restarting its plutonium program, and pledging to build a nuclear arsenal for its defense.

Six Party Talks, 2003-7

Fearful of a new war on the Korean peninsula, the Chinese government organized talks aimed at deescalating tensions between the United States and North Korea.  The talks began in August 2003 and included six countries—the United States, North Korea, South Korea, Japan, China, and Russia.  Two years of talks failed to produce any progress in resolving U.S.-North Korea differences.  One reason: the U.S. representative was under orders not to speak directly to his North Korean counterpart except to demand that North Korea end its nuclear activities, scrap its missiles, reduce its conventional forces, and end human rights abuses.  The North, for its part, refused to discuss its nuclear program separate from its broader relations with the United States.

Finally, in mid-2005, the Chinese made it known that they were prepared to declare the talks a failure and would blame the United States for the outcome.  Not long after, the United States ended its opposition to an agreement.  In September 2005, the six countries issued a Joint Statement, which was largely a repackaged Framework Agreement.  While all the countries pledged to work towards the denuclearization of the Korean peninsula, most of the concrete steps were to be taken by the United States and North Korea “in a phased manner in line with the principle of ‘commitment for commitment, action for action’.”

Unfortunately, the day after the Joint Statement was issued, the United States sabotaged it.  The U.S. Treasury announced that it had “proof” that North Korea was counterfeiting $100 bills, so called super notes, an action it said amounted to war.  It singled out the Macao-based Banco Delta Asia, which was one of North Korea’s main financial connections to the west, for supporting the country’s illegal activities, froze its dollar accounts, and warned other banks not to conduct business with it or service any North Korean dollar transactions.  The aim was to isolate North Korea by denying it access to international credit markets.  The charge of counterfeiting was rejected by the North, most Western currency experts, and even China and Russia who were given a presentation of evidence by the U.S. Treasury.  However, fearful of possible U.S. retaliation, most banks complied with U.S. policy, greatly harming the North Korean economy.

The timing of the counterfeit charge was telling.  The U.S. Treasury had been concerned with counterfeit super notes since 1989 and had originally blamed Iran.  The sum total identified was only $50 million, and none of the notes had ever circulated in the United States.  This was clearly yet another effort to stop normalization and intensify economic pressure on North Korea.

The North announced that its participation in Six Party talks was contingent on the withdrawal of the counterfeit charge and the return of its Banco Delta Asia dollar deposits.  After months of inaction by the United States, the North took action.  On July 4, 2006, it test-fired six missiles over the Sea of Japan, including an intercontinental missile.  The U.S. and Japan condemned the missile firings and further tightened their sanctions against North Korea.  In response, on October 8, 2006, North Korea conducted its first nuclear test.  Finally, the U.S. agreed to reconsider its financial embargo and the North agreed that if its money was returned and it received energy supplies and economic assistance it was willing to once again shutdown its nuclear facilities, readmit international inspectors, and discuss nuclear disarmament in line with steps toward normalization of relations with the United States.

The Six Party talks began again in December 2006 but the process of securing implementation of the Joint Statement was anything but smooth.  The U.S. chief negotiator at the talks announced in February 2007 that all frozen North Korean deposits would be unfrozen and made available to the North within 30 days; the North was given 60 days to shut down its reactor.  However, the Treasury refused to withdraw its charges, and no bank was willing to handle the money for fear of being targeted as complicit with terrorism.  It took the State Department until June 25 to work out a back-door alternative arrangement, thereby finally allowing the Six Party agreement to go into effect.

The Six Party Agreement, 2007-9

As noted above, the Six Party agreement involved a phased process.  Phase 1, although behind schedule because of the U.S. delay in releasing North Korean funds, was completed with no problems.  In July 2007, North Korea shut down and sealed its Yongbyon nuclear complex which housed its reactor, reprocessing facility, and fuel rod fabrication plant.  It also shut down and sealed its two partially constructed nuclear reactors.  It also invited back IAEA inspectors who verified the North Korean actions.  In return, the U.S. provided a shipment of fuel oil.

Phase 2, which began in October, required the North to disable all its nuclear facilities by December 31, 2007 and “provide a complete and correct declaration of all its existing nuclear programs.”  In a separate agreement it also agreed to disclose the status of its uranium enrichment activities.  In exchange, the North was to receive, in stages, “economic, energy, and humanitarian assistance.” Once it fulfilled all Phase 2 requirements it would also be removed from the U.S. Trading with the Enemy Act and the State Sponsors of Terrorism list.

North Korean complaints over the slow delivery of fuel oil delayed the completion of this second phase.  However, in May 2008, North Korea completed the last stage of its required Phase 2 actions when it released extensive documentation of its plutonium program and in June a declaration of its nuclear inventory.  In response, the U.S. removed North Korea from its list of state sponsors of terrorism.

However, the U.S. government failed to release the remaining promised aid or end the remaining sanctions on North Korea.  It now demanded that North Korea accept a highly intrusive verification protocol, one that would open up all North Korean military installations to U.S. inspection, and made satisfaction of Phase 2 commitments dependent on its acceptance.  The U.S. was well aware that this demand was not part of the original agreement.  As Secretary of State Rice stated, “What we’ve done, in a sense, is move up issues that were to be taken up in phase three, like verification, like access to the reactors, into phase two.”

The North offered a compromise—a Six Party verification mechanism which would include visits to declared nuclear sites and interviews with technical personal.  It also offered to negotiate a further verification protocol in the final dismantlement phase.  The U.S. government rejected the compromise and ended all aid deliveries.

In February 2009, the North Korea began preparation to launch a satellite.  South Korea was preparing to launch a satellite of its own in July.  The North had signed the appropriate international protocols governing satellites and was now providing, as required, notification of its launch plan.  The Obama administration warned the North that doing so would violate sanctions placed on the country after its nuclear test.  In response, the North declared that it had every right to develop its satellite technology and if the U.S. responded with new sanctions it would withdraw from the Six Party talks, eject IAEA monitors, restart its reactors, and strengthen its nuclear deterrent.

The North launched its satellite in April.  In June, the U.S. won UN support for enhanced sanctions, and the North followed through on its threat.  In May the North conducted a second nuclear test, producing yet another round of sanctions.

Recent Events

In April and December 2012 the North again launched earth observation satellites.  Although before each of these launches the U.S. asserted that these were veiled attempts to test ballistic missiles designed to threaten the United States, after each launch almost all observers agreed that the characteristics of the launches—their flight pattern and the second stage low-thrust, long burntime–were what is required to put a satellite in space and not consistent with a missile test.

After the December launch, the only successful one, the U.S. again convinced the Security Council to apply a new round of sanctions.  And in response, the North carried out its third nuclear test in February 2013.  The North Korean Ministry of Foreign Affairs pointed out that there have been “more than 2,000 nuclear tests and 9,000 satellite launches” in the world, “but the UN Security Council has never passed a resolution prohibiting nuclear tests or satellite launches.”  The Security Council responded to the North’s nuclear test by approving stricter sanctions.

In addition to sanctions, the U.S. has also intensified its military provocations against the North in hopes of destabilizing the new North Korean regime led by Kim Jung Un.  For example, in 2012, U.S.-South Korean military analysts conducted the world’s largest computerized war simulation exercise, practicing the deployment of more than 100,000 South Korean troops into North Korea to “stabilize the country in case of regime collapse.”  As part of their yearly war games, U.S. and South Korean forces also carried out their largest amphibious landing operations in 20 years; 13 naval vessels, 52 amphibious armored vehicles, 40 fighter jets and helicopters, and 9,000 U.S. troops were involved.

As part of its March 2013 war games, the U.S. flew nuclear-capable B-2 Stealth bombers over South Korea; these are also the only planes capable of dropping the 30,000-pound Massive Ordnance Penetrator bomb, which was developed to destroy North Korean underground facilities.  Nuclear-capable B-52 bombers also flew over South Korea, dropping dummy munitions.  The United States also sent the nuclear-powered submarine USS Cheyenne, equipped with Tomahawk missiles, into Korea waters.

The North Korean government responded to these threats in three ways.  First, the content of their declarations changed.  In particular, they began to focus their own threats on the U.S. as well as South Korea.  For example, the government stated, “If the US imperialists brandish nuclear weapons, we — in complete contrast to former times — will by means of diversified, precision nuclear strike in our own style turn not just Seoul, but even Washington, into a sea of fire.”  It also asserted, for the first time, that its nuclear weapons were no longer negotiable.  At least, not “as long as the United States’ nuclear threats and hostile policy exist.”

Second, the government put North Korean forces on full alert, including all artillery, rockets, and missiles.  Kim Jong Un announced that the country would “answer the US imperialists’ nuclear blackmail with a merciless nuclear attack.”  Finally, it announced, in April, that it would restart its uranium enrichment program and its Yongbyon reactor.

What Lies Ahead

The Obama administration has adopted what it has called the doctrine of “strategic patience” in dealing with North Korea.  But as made clear from above, in reality the U.S. has continued to pursue an aggressive policy towards North Korea, motivated by the hope that the regime will collapse and Korean reunification will be achieved by the South’s absorption of the North, much like the German experience.

The consequence of this policy is ever worsening economic conditions in the North; continuing military buildup in the United States, Japan, China, and both North and South Korea; a strengthening of right-wing forces in South Korea and Japan; and the growing threat of a new war on the Korean peninsula.  There are powerful interests in Japan, South Korea, and the United States that are eager to further militarize their respective domestic and foreign policies, even at the risk of war.  Tragically, their pursuit of this goal comes at great cost to majorities in all the countries concerned, even if war is averted.

The North has made clear its willingness to enter direct talks with the United States.  It is only popular pressure in the United States that will cause the U.S. government to change its policy and accept the North Korean offer.  It is time for the U.S. government to sign a peace treaty finally ending the Korean War and take sincere steps towards normalization of relations with North Korea.


Written by marty

May 2nd, 2013 at 3:46 pm

Free Trade As A Coroporate Project

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I was recently interviewed by David Delk on his Populist Dialogue cable TV program.  I shared my criticism of free trade as a corporate project, looking in particular at the Transpacific Partnership Free Trade Agreement (which the president is aggressively promoting) and the U.S.-Korea Free Trade Agreement (which was recently passed).

The 30 minute program can be watched here or below.

For more on the Transpacific Partnernership Free Trade Agreement see here and here.

For more on the U.S.-Korea Free Trade Agreement see here, here,  and here.


Free Trade Above All

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Agreement on Technical Barriers to Trade (TBT)—what could that be you ask?  It is one of the many agreements enforced by the World Trade Organization (WTO).    


The WTO is said to be concerned only with the promotion of free trade for our collective benefit.  And, according to the WTO, the TBT was negotiated to achieve that very aim. In the words of the WTO:

Technical regulations and product standards may vary from country to country. Having many different regulations and standards makes life difficult for producers and exporters. If regulations are set arbitrarily, they could be used as an excuse for protectionism. The Agreement on Technical Barriers to Trade tries to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles, while also providing members with the right to implement measures to achieve legitimate policy objectives, such as the protection of human health and safety, or the environment.

Sounds reasonable—well, the United States just lost two cases this past September in which foreign governments charged the United States with violating that agreement.

First case: a WTO panel ruled in Mexico’s favor against U.S. measures designed to protect dolphins.  The United States allows tuna fishers that use dolphin-safe nets to label their tuna sold in the U.S with a dolphin-safe label.  According to Mexico, this unfairly discriminates against those fishers that want to use different methods of production.  The WTO agreed—the U.S. was being an unfair trader.  No more labels.  

Second case: a WTO panel ruled against U.S. measures designed to reduce teenage smoking.  Among other things, the U.S. measures banned the sale of many flavored cigarettes–in particular clove cigarettes–which were seen as likely to hook young smokers.  Indonesia is a major producer and exporter to the United States of clove cigarettes and it argued that the U.S. ban discriminated against its products.  The WTO agreed—the U.S. was being an unfair trader.   

It also looks likely that a WTO panel will find against U.S. consumer labeling laws that allow country of origin labeling for beef.  If consumers knew where their beef came from it might influence their purchasing decisions.  That could have a negative effect on sales of imported beef.  

Free trade in the eyes of the WTO means maximum freedom for corporations to produce and sell products as they want.  Said differently, it means a world in which governments are forbidden to take steps to protect the environment or the health of its citizens if doing so interferes with private profit making. 

This is just one agreement.  The WTO presides over many more that are equally, if not more, scandalous.  You will be hard pressed to read about these decisions in the press.  The reason: it might encourage people to question the free trade agreements with Korea, Colombia, and Panama that the U.S. government is promoting, since they also include TBTs.  My recently published analysis of the U.S.-Korea Free Trade Agreement can be read here.

Written by marty

October 3rd, 2011 at 10:23 am

Say No To Free Trade Agreements

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The president, with the enthusiastic support of our business community, is pushing ratification of free trade agreements with Korea, Colombia, and Panama.  The fact is that these agreements are terrible for working people. 

Those advocating their ratification generally argue that they are simple tariff reduction agreements which promote exports and jobs.  In the case of the Korea agreement, the U.S. trade representative claims that ratification will create 70,000 new jobs for American workers.  The fact is, as argued before, this claim is based on a fradulent methodology that ignores the consequences of the expected growth in imports and trade diversion.  In short, the government is playing fast and loose with the data to manipulate public opinion.  

The government is willing to go to such lengths because these bilateral free trade agreements have become increasingly important to the business sector.  Originally the U.S. and other governments favored multilateral agreements like the WTO.  However, popular resistance has made it almost impossible to expand their reach.  As a result, most governments have settled on a strategy of using bilateral agreements to strengthen corporate power in a step-by-step approach that is less likely generate another “Seattle.”

Two recent WTO rulings based on alleged U.S. violations of the Technical Barriers to Trade agreement (TBT) help to clarify what is at stake.  Among other things, the TBT says:

Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.  For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfill a legitimate objective, taking account of the risks non-fulfillment would create.  Such legitimate objectives are, inter alia:  national security requirements;  the prevention of deceptive practices;  protection of human health or safety, animal or plant life or health, or the environment.  In assessing such risks, relevant elements of consideration are, inter alia:  available scientific and technical information, related processing technology or intended end-uses of products.

This may sound pretty harmless but the key is that the TBT requires governments to pursue their policy goals in ways that are least likely to discourage trade.  Even if government regulations apply equally to foreign and domestic firms, if foreign firms can make a case that the regulations disproportionately affect them because of the way they produce, they can use this agreement to force a change in government policy.  That is what happened in the two recent rulings.   

The first WTO ruling declared that the U.S. must stop allowing companies to put labels on cans of tuna to tell their consumers that the tuna was caught using fishing techniques that protect dolphins.  According to the WTO, not only can we not ban tuna caught using nets that also kill dolphins, we cannot even use labels that inform consumers about how the tuna was caught.  The reason: such labels might influence consumer purchases.  The case was filed by Mexico, representing some 15 countries including the European Union.

The second WTO ruling declared that the U.S. must stop using labels on beef sold in supermarkets that reveal the country where it was raised and slaughtered.  Significantly, although this case was brought by cattle interests in Mexico and Canada, the outcome was also endorsed by the largest cattle industry group in the United States.  Class interest usually does trump national interest.  According to a Reuters report, the president of the National Cattlemen’s Beef Association said, “This ruling is unfortunate for the U.S. government but the consequences of a poor decision have been revealed. We fully support WTO’s preliminary ruling.”  The Association supports the ruling because it will allow cattle producers to combine various qualities of meat sourced from different locations thereby cheapening their costs of production without worry about consumer reaction.  

A strengthened TBT is included in each of the three free trade agreements that our government is promoting.  And there are many other destructive chapters in each of these agreements that our government has also conveniently forgotten to tell us about.  No doubt they are afraid that if we really understood what these agreements are about we would realize that they are designed to promote corporate profitability without any regard for the public interest. 

Our response needs to be a clear and loud “no” to the ratification of these and future free trade agreements.


Written by marty

May 31st, 2011 at 6:59 am

Korea-US Free Trade Agreement: The Investment Chapter

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President Obama has said that the U.S. needs to compete more effectively for exports.  That is why he is calling on Congress to ratify U.S. free trade agreements with Korea, Columbia, and Peru.

In the public back and forth about these free trade agreement most of the arguments are about whether the designated tariff reductions mandated by the agreements will produce jobs for U.S. workers.  In fact, there is little reason to believe that they will.  But, more importantly, little attention has been focused on the fact that these free trade agreements contain many chapters that have far reaching implications beyond employment numbers.

In fact, the U.S. free trade agreement with Korea includes 24 chapters.  One of those chapters deals with investments.  In broad brush, the investment chapter establishes broad limits on the ability of governments (at all levels) to regulate or interfere with private profit seeking investments by (foreign) corporations. 

According to the chapter, the investments covered by the agreement include:

every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include:

(a) an enterprise;
(b) shares, stock, and other forms of equity participation in an enterprise;
(c) bonds, debentures, other debt instruments, and loans;
(d) futures, options, and other derivatives;
(e) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts;
(f) intellectual property rights;
(g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and
(h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges.

This chapter is supposed to secure the protection of Korean investors in the U.S. and U.S. investors in Korea.  In actuality, it will ensure that Korean and U.S. investors will enjoy these protections in their own countries as well.  Although this agreement does allow governments to offer foreign investors protections that exceed those they offer their own investors, it is highly unlikely that they would do so.  Thus, the freedoms granted to foreign investors under the terms of this chapter will, sooner or later, be extended to domestic firms as well, thereby expanding corporate power more generally.  And since, as the above list makes clear, a wide range of activities are to be protected under the terms of this chapter, it is likely that many corporations can expect to benefit from it.

One protection granted to foreign companies is the freedom from government imposed performance requirements.  According to the chapter

Neither Party may, in connection with the establishment, acquisition, expansion, management, conduct, operation, or sale or other disposition of an investment in its territory of an investor of a Party or of a non-Party, impose or enforce any requirement or enforce any commitment or undertaking:

(a) to export a given level or percentage of goods or services;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use, or accord a preference to goods produced in its territory, or to purchase goods from persons in its territory;
(d) to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment;
(e) to restrict sales of goods or services in its territory that such investment produces or supplies by relating such sales in any way to the volume or value of its exports or foreign exchange earnings;
(f) to transfer a particular technology, a production process, or other proprietary knowledge to a person in its territory; or
(g) to supply exclusively from the territory of the Party the goods that such investment produces or the services that it supplies to a specific regional market or to the world market.

This protection clearly limits the ability of a government to implement any meaningful industrial policy. 

The chapter also grants foreign corporations protection from expropriation.  According to the chapter, “Neither party may expropriate or nationalize a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization.”  Critical here is the notion of indirect expropriation or nationalization. 

Indirect expropriate refers to a government action or regulation that has an “effect equivalent to direct expropriation without formal transfer of title or outright seizure.”  A direct nationalization is relatively easy to define, since it involves an explicit government seizure of title and/or assets.  Determining whether an indirect nationalization has occurred is far more difficult.  According to the chapter, such a determination will require:

a case-by-case, fact based inquiry that considers all relevant factors relating to the investment, including:

(i) the economic impact of the government action, although the fact that an action or a series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred;
(ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and
(iii) the character of the government action, including its objectives and context. Relevant considerations could include whether the government action imposes a special sacrifice on the particular investor or investment that exceeds what the investor or investment should be expected to endure for the public interest.

Given the broad range of covered investments, this definition will likely mean that many government actions, including those dealing with health and safety concerns or land use planning, could conceivably result in an indirect expropriation from the perspective of the investor.  This is especially true given that an investor can, as noted above, claim an indirect expropriation if a government action “interferes with distinct, reasonable investment-backed expectations” or “imposes a special sacrifice on the particular investor or investment that exceeds what the investor or investment should be expected to endure for the public interest.” 

There is enough ambiguity in all of this, that one can easily imagine foreign corporations challenging many government regulations.  And, if a corporation does feel that it is the victim of an indirect expropriation, this chapter gives it the power to directly sue the unit of government that has implemented the offending rule or regulation. 

Under the terms of the dispute-settlement mechanism, the corporation can have its claim judged under the World Bank sponsored ICSID (International Centre for Settlement of Investment Disputes) Convention and the ICSID Rules of Procedure for Arbitration, the UNCITRAL (United Nations Commission on International Trade Law) Arbitration Rules, or any other arbitration institution if it is agreed to by both parties. 

For example, if the ICSID is chosen to judge the claim, which is the most common choice in agreements like this, three arbitrators will be selected from a listing of international trade and investment specialists. Each side selects one with a third to be chosen by agreement of the two sides.  In other words, this dispute-settlement mechanism allows a corporation to challenge a governmental action outside the legal system of the host nation and have its case decided according to terms that differ from that nation’s legal system.

As Public Citizen reports:

The special threat is posed by the fact that there is a huge number of U.S. and Korean companies cross-established in each other’s national markets. If the Korea FTA were to be passed with its current text, at least 1,030 corporations with 2,055 establishments across the United States and South Korea would obtain new FTA rights to demand taxpayer compensation through challenges of U.S. and Korean federal and subfederal laws in foreign tribunals. The scale of investment going in both directions is very unlike previous U.S. FTAs with small developing nations.”

We already have an example of how this process could conceivably work.  NAFTA has a similar investor-state dispute settlement mechanism.   In 1996, The Loewen Group, a Canadian funeral home company, lost a $500 million verdict to a Mississippi funeral home business that had accused it of fraudulent business practices.  Loewen appealed the case to the Mississippi Supreme Court, which refused to overturn the decision.  In 1999, the Loewen Group took its case to a NAFTA tribunal, arguing that the verdict against the company should be invalidated because the court proceedings were tainted by anti-Canadian bias.  Loewen asked the tribunal for compensation for what it had to pay to settle the case and for additional damages to compensate the company for the harm done to its business reputation.

The tribunal issued its decision in 2003, ruling in favor of the United States.  The Dispute Resolution Journal describes the reasoning and conclusions of the tribunal as follows:

In its 71-page award, the tribunal . . . acknowledged that this was a difficult case. The award addressed the Loewen Group’s claims of an unfair process as well as the United States’ numerous arguments that it was not liable under NAFTA. In so doing, the tribunal chronicled the injustices suffered by the company and its founder, co-claimant Raymond Loewen. Ultimately, it found, among other things, that “the conduct of the trial judge was so flawed as to constitute a miscarriage of justice amounting to a manifest injustice as that expression is understood in international law.” The tribunal also said that the jury verdict was grossly excessive to the amounts in dispute and therefore the claimants had “strong prospects” of a successful appeal. . . .

After recounting its findings, the tribunal explained that its decision to dismiss the NAFTA claims on the merits was ultimately based on a lack of jurisdiction. It reasoned that it had no authority to determine the Loewen Group’s NAFTA claims because the company had reorganized under Chapter 11 of the Bankruptcy Code as an American corporation and then assigned its NAFTA claims to a newly formed Canadian corporation “owned and controlled by an American corporation.” NAFTA, the tribunal pointed out, was not intended to address investment-related claims by domestic investors against their government.

In other words, the tribunal found it within its authority to rule on this case, even though its decision could potentially overturn a decision made by a U.S. court.  And it gave strong indication that it felt that such action was justified by its reading of the submitted documents.  It rejected the claim only because the Loewen Group, by reorganizing itself as a U.S. registered company, was no longer a “foreign” company and thus no longer had standing under the terms of NAFTA.  If the tribunal had ruled in Loewen’s favor, the U.S. government would have been forced to compensate the company.

Interestingly, the recently completed U.S.-Australia FTA does not include an investor-state enforcement mechanism, but rather relies on state-state enforcement of the FTA’s investment, services and financial services chapters.  It appears that the U.S.-Korea FTA includes an investor-state mechanism because of U.S. insistence.  As Public Citizen reports

Korean civil society organizations report that Korean government officials expressed concern about investor-state, which was characterized by Korean negotiators as a U.S. demand. The FTA text itself reveals Korea’s concerns: Korea insisted on and obtained a limitation on investor-state enforcement. Under this limitation, if a U.S. firm starts proceedings in a Korean court or administrative tribunal about a Korean policy that they claim breaches the various property rights established in the FTA, then they may NOT also use the investor-state system. U.S. firms have to pick domestic OR investor-state.  USTR did NOT make that exception apply to us. . . . That the Korea government would be concerned is reasonable: there are hundreds of U.S. firms in Korea that would be newly empowered to use the investor-state mechanism to privately enforce the FTA’s extraordinary foreign investor rights that extend beyond Korea domestic law, which like U.S. law does not generally recognize compensation claims for “regulatory” takings. 

It seems safe to say that this investment chapter will create an environment in which governments will  understandably be leery of doing anything that might be viewed as harmful to corporate activities, present or future.  Make no mistake, this is the outcome desired by those who drafted the agreement.  

I bet you have read or heard little about this chapter, or the others that have a similar aim, in the public discussions of the U.S.-Korea FTA.  And that is also no accident. 

It is hard to see how this agreement will serve the public’s interest in either Korea or the U.S.   President Obama is pushing Congress to ratify it as soon as possible.  It is very important that we push back.  Our goal must be the defeat of this and the other so-called free trade agreements.

Written by marty

January 26th, 2011 at 8:56 pm

China And The Jobs Issue

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The President of China, Hu Jintao, just completed a visit to the U.S. and, not surprisingly, many people used the occasion to raise the jobs issue.  The U.S. economy continues to suffer from high unemployment.  And the U.S. continues to run an enormous trade deficit with China, a deficit that dwarfs any other bilateral deficit.  The connection made is as follows: China is an unfair trader.  Its state policies, including subsidies and labor repression, are a major reason for the destruction of our manufacturing sector and jobs. 

This nation-state framing encourages us to see U.S. workers in direct competition with Chinese workers, with their gains largely coming at our expense.  It also tends to promote a simple response: force China to quicken its embrace of market forces so that its economy will become more like ours.  Unfortunately, this framing misleads more than it helps to clarify current economic dynamics.  It also leads to a counterproductive response. 

A more accurate framing would start from the fact that contemporary capitalist dynamics have led to the creation of a regional production network in East Asia, with China serving as the region’s final assembly base for exports to the U.S.  The primary beneficiaries of this development are the many multinational corporations that have created the network, and the primary losers are the majority of workers in China and the United States.  The appropriate response to this development would be to build opposition to the policies that support this corporate strategy, including free trade agreements.   

Multinational corporations have developed a strategy to cheapen their costs of production, especially of information, technology and communication (ICT) products and electrical goods like semiconductors.  This strategy involves dividing production processes into ever-finer vertical divisions and locating the separate stages in two or more countries, creating what are called cross-border production networks.  The growth in this strategy is captured by the growth in the international trade in parts and components.  Trade figures also make clear that multinational corporations have made East Asia the center piece of their new strategy.

East Asia’s share (including Japan) of world parts and component exports grew from 27 percent in 1992-93 to 39 percent in 2005-06, despite a significant decline in Japanese exports in recent years.  Developing East Asia’s share grew from 17.8 percent to 32.3 percent over the same period.  In 2005-06, developing East Asia accounted for more than two thirds of the total component trade of developing countries.

Significantly, ICT and electrical goods together accounted for almost three fourths of total East Asian exports in 2006-2007.  And in accord with the logic of this cross border production strategy, a growing percentage of this trade activity involves parts and components.  And, a growing share of this parts and components trade now takes place between different East Asian countries. The Asian Development Bank summarizes the situation as follows:

Disaggregating manufacturing trade into final products on the one hand and parts and components on the other shows… [that] intraregional trade in Asia is mainly concentrated in parts and components.  The intraregional share of developing Asia’s parts and component trade rose by almost 20 percentage points over the past decade, reaching 62 percent in 2005-2006, as compared to an 8 percentage point increase in total trade in manufacturing over the same period.

China has come to play a central role in the overall operation of this multinational corporation controlled production strategy.  As the Asian Development Bank describes:

there is the cluster of highly interdependent, open, and vibrant economies in East Asia and Southeast Asia . . . . With the PRC at the center of the assembly process and with exports going mainly to the U.S. and Europe, production in and trade among these economies have been increasingly organized through vertical specialization in networks, with intense trade in parts and components, particularly in the ICT and electrical machinery industries.

The share of parts and components in China’s imports of manufactures from East Asia rose from 18 percent in 1994-1995 to 46 percent in 2006-2007.  The import share of parts and components in the machinery and transportation equipment category (which includes both ICT and electrical goods) soared over that same period from 46.1 percent to 73.3 percent.

China’s unique position as the region’s production platform for the export of final goods is highlighted by the fact that it is the only country in the region that runs a deficit in parts and components trade, and whose exports are overwhelmingly final products.  It is this unique position that has enabled China to increase its share of world exports of ICT products from 3 percent in 1992 to 24 percent 2006, and its share of electrical goods from 4 percent to 21 percent over the same period.  Of course, these are not truly Chinese exports, but rather exports produced in China.  Approximately 60 percent of all Chinese exports are produced by foreign corporations; the share is 88 percent for high-tech goods. 

The Asian Development Bank highlights the significance of this process for East Asian economic activity as follows:

even though intra-Asian trade has been expanding more rapidly than Asia’s trade with the rest of the world, Asia has become ever more closely linked by globalization to the major global markets of the G3 [the United States, EU, and Japan]. This stems from the nature of Asian trade, with intra-Asian trade driven by vertically integrated Asian production chains and extra-Asian trade driven by G3 demand for the final goods produced in these networks. 

The rapid growth in the region’s dependence on the G3, and the U.S. market in particular, is well captured by the following trends: the correlation between the growth in East Asian intraregional exports and U.S. non-oil imports increased from .01 during the 1980s, to .22 during the 1990s, and .63 during the first half of the 2000s. Similarly, the correlation between the growth in East Asian exports and G3 non-oil imports rose from .21 during the 1980s, to .34 during the 1990s, and .77 during the first half of the 2000s. 

Drawing on the above, we can better understand why China now looms so large in U.S. trade discussions.  The rest of East Asia has largely stopped producing final goods for export to the U.S., producing instead parts and components for export to China.  China, in turn, has also become increasingy export oriented, producing the final products destined for sale in the U.S. market.  As a result, our trade deficits with other East Asian countries have fallen while our trade deficit with China has increased.  China is the face of a broader multinational corporate dominated East Asian production system.

In other words, our economy is being restructured in line with the economies of East Asia.  We are being reshaped, just like East Asia, by a multinational corporate strategy, which also is supported by large U.S. firms.  As noted above, approximately 90 percent of China’s high technology exports to the U.S. are produced by multinational corporations and many of them are being bought and sold in the U.S. by other multinational retailers. 

Working people in China are struggling in the face of multinational corporate demands that the Chinese government keep wages low and working conditions profitable.   And workers in other East Asian countries are also suffering as their governments are forced to implement similar repressive labor policies in order to keep multinational corporations producing in their countries.  In short, Chinese workers are not stealing our jobs.  Rather working people in East Asia and the U.S. are suffering from very similar pressures being generated by the very same dynamic.  Said more simply, our problems are at root caused by contemporary capitalist dynamics.  Forcing China to become more open to capitalism is not going to help us or them.  

Of course, this is a framing that the media and business and corporate elite are not eager to promote.   Better that we think our system is great and that the problem is that the Chinese government has not yet fully committed to promoting a similar one.       

Written by marty

January 21st, 2011 at 8:05 am