Specialty fabrics manufacturers are likely to be latest FTA collateral damage
The U.S. specialty fabrics industry, one of the thriving textile sectors in the U.S., took a direct hit yesterday when the House and Senate majority voted in favor of the Korea-U.S. free trade agreement (KORUS).
Under the win/lose terms of KORUS, South Korean goods will immediately enjoy duty-free entry into the U.S. market; but U.S. exports to South Korea will still be subjected to a 10 percent Value Added Tax (VAT). Through its VAT system, South Korea will be allowed to maintain what amounts to a permanent 10 percent tariff on U.S. exports to their market.
Moreover, South Korea has complete freedom to raise its VAT rate above the current 10 percent at any point in the future. According to Ruth Stephens, Executive Director of the United States Industrial Fabrics Institute (USIFI), "It was a major error on the part of U.S. negotiators not to address this inequity as part of KORUS, as border taxes are a persistent example of foreign practices that place domestic companies at a competitive disadvantage."
USIFI is a division of the Industrial Fabrics Association International, a trade group with over 1,800 member companies which has represented the U.S. specialty fabrics industry for nearly 100 years. The world market for specialty fabrics is estimated at $126 billion in 2011--$29 billion of that in the U.S. In fact, this is one segment of the domestic textile manufacturing base which now thrives thanks to continuous technical innovation.
USIFI commended the 151 House of Representative Members and 15 Senators who understood the serious disadvantage to U.S. manufacturing and voted "no" on the U.S.-Korea Free Trade Agreement (KORUS) last night, Oct. 12, 2011. Both bodies of Congress ratified the agreement; the House vote was 278 to 151 and the Senate vote was 83 to 15.
Unfortunately, says Stephens, no one is looking at the free trade agreement results data. The claim that enormous numbers of U.S. jobs will be created by the passage of this agreement is unfounded, based on government results data collected since past trade agreements such as NAFTA and CAFTA were implemented. Free trade partners can (and do) sell more to the U.S. than vice versa. During the lifetime of the country's existing free trade agreements the U.S. has run a cumulative $2.1 trillion deficit with our free trade partners.
According to Stephens, "The specialty fabrics industry is particularly concerned because Korea has a very sophisticated, vertically integrated industrial textile industry, recently receiving massive government financial support to build extra manufacturing capacity."
The impacts of KORUS on the extended domestic supply chain for coated and laminated membranes used in industrial and military applications such as fuel cells, oil booms, rapidly deployable shelters/tents, radar attenuating covers, safety and protective gear, and many more advanced applications, including automotive fabrics are expected to be extensive.
Stephens warns that many companies participating in this supply chain also support the military needs of our warfighters. Their ability to innovate and responsively supply the military is dependent on an overall healthy domestic market and industry.
"A likely decline in U.S. textile output because of increased Korean market penetration almost certainly means the loss of U.S. textile jobs," she says. "Textile job skill sets are not easily transferred to segments such as agriculture which might see a slight gain because of the agreement."
Stephens also notes that the U.S. International Trade Commission admits that U.S. textile production is expected to decline as a result of the KORUS agreement. USIFI and other industry associations predict that more than 10,000 U.S. textile and apparel manufacturing jobs will be lost in the first seven years after implementation as result of flaws in the textile chapter of KORUS.
Because U.S. government figures show that approximately three additional jobs are lost to the U.S. economy for each textile job that is eliminated, the total estimated job loss climbs to nearly 40,000. It is also important to note that these figures do not account for job losses as a result of a likely surge in illegal Chinese transshipments via South Korea, which are expected to be significant.
Specialty fabrics is a segment of the domestic textile manufacturing base that has not only survived decades of bad trade policies and relentless import pressures but which, though continuous technical innovation, has grown and competed in the world marketplace--until now.
Says Stephens, "Until we address the issue of border taxes (VATs), we will never have true free trade....every other major country in the world uses border adjusted taxes, usually in concert with duty rates (as the duty revenue goes down, the VAT goes up to compensate). As one of our members says, 'We're playing checkers, and everyone else is playing chess."