Daily photo illustration by Laura Vernon|
If Congress approves a free-trade agreement with South Korea, negotiated April 1 by the Bush administration, Alabama is likely to export more North Alabama chicken and import more South Korean cars and their parts. Several area businesses see a potential market in South Korea, however, and look forward to the opportunities the agreement would present.
with S. Korea
U.S. agreement could help area businesses
By Eric Fleischauer
A proposed trade agreement between South Korea and the U.S. is generating opposition nationally, but local business leaders and state officials expect it to be a boon to Alabama’s economy.
The Bush Administration completed negotiations on the agreement, called Korus, on April 1, but it needs congressional approval. Congress is soured by past trade agreements, particularly the North American Free Trade Agreement’s reduction of tariffs to and from Mexico, which nearly demolished Alabama’s textile industry. Korus’ passage is far from certain.
South Korea is Alabama’s seventh largest trading partner, accounting for almost $500 million of our exports.
Hilda Lockhart, director of international trade for the Alabama Development Office, said she expects that export number to jump with Korus adoption.
For North Alabama, Korus promises to have a strikingly different impact than did free trade with Mexico.
NAFTA’s main North Alabama legacy has been to encourage companies, like Wolverine Tube, to outsource labor-intensive production to Mexico, costing jobs here.
South Korea, though, is not Mexico.
Per capita income in South Korea is comparable to that in Morgan County, and more than double that in Mexico. South Korea’s industrial production growth rate is more than double Mexico’s.
Rate of growth
Most astounding is South Korea’s rate of growth. In 1963, its gross domestic product on a per capita basis was $100. Now it exceeds $25,000. Eighty-six percent of its households have Internet access.
Free trade with Mexico was destined to have at least a short term negative impact on Alabama wages. No such assumption can be made with South Korea.
South Korea packs 50 million people into a country the size of Indiana, almost 1,300 people per square mile. Mexico has about 141 people per square mile.
That means agricultural products — a staple of Alabama’s exports — have much more potential in land-strapped South Korea.
Lockhart said Alabama exported $3.8 million of cotton to South Korea last year, much of it from North Alabama, and that was with tariffs in place.
North Alabama’s poultry industry stands to gain even more. Alabama meat exports to South Korea, dominated by poultry, jumped 31 percent from 2005 to 2006. Wayne Farms in Decatur stands to benefit hugely from tariff reductions, which run as high as 20 percent.
Free trade with South Korea could create losers, too. The country is a major exporter of steel, and reduced tariffs could cut into Nucor’s market share.
The impact on auto assemblers in the state will be mixed.
“(Automobiles) were a big issue in the free trade agreement,” said Lockhart. “Mercedes right now is our largest (exporter) of vehicles. Hopefully, we’ll see some of those export figures go up in that market as well, because tarriffs would be lifted. There are vehicles going into Korea, and I think those numbers would increase.”
Alabama is a major importer, however, of Hyundai vehicles and their parts. While Hyundai assembles its Santa Fe and Sonata in Alabama, it imports its other products from South Korea.
Also, according to Gary Smith, manager of Hyundai of Decatur, many of the parts assembled in Montgomery — including the engines — are imported from South Korea.
Lockhart acknowledges some Alabama companies would be hurt by Korus, but she believes the overall impact will be positive.
“It’s a two-way street,” she said. “When you have bilateral economic ties, I think it really strengthens both economies. I don’t look at it as a win-lose situation. In most instances it’s a win-win situation.”
Area companies already involved in the export market welcome Korus.
Ropak Manufacturing Co. of Decatur, which builds machines that package individual sweetener packets, has a robust export market in countries that include Taiwan and the Philippines. South Korea is not on the list, but several companies there have expressed an interest in the equipment.
Norm Spires, Ropak sales manager, hopes Korus would change interest into sales.
The benefit of a free trade agreement, he said, is not just the pricing benefit that comes from tariff reductions.
“It allows companies like Ropak to get products to those regions without a lot of the hassles getting it over the border,” Spires said.
Another benefit in free trade agreements, Spires said, is it permits Ropak to market to American-based companies with plants in the other country.
Decatur’s Letco Companies has been an aggressive exporter for years; it won the Governor’s Trade Excellence Award last year. Owner Don Letson said his company’s marketing push in South Korea is a diagnostic system similar to a pulse oxymeter. It measures oxygen content in the blood and helps detect sleep apnea.
His efforts are a lesson in the odd benefits that come with foreign trade. South Korea has an advanced health-care system, but, said Letson, has an “almost nonexistent home health-care system.”
The IDS System Letco is trying to market is designed for use at home.
Similar devices in South Korea require a hospital stay.
“They are beginning to see the cost advantages of home health-care options like this,” Letson said. “Selling overseas takes a lot of patience. You just have to keep at it.”
Difference from NAFTA
Another difference between free trade agreements with Mexico and South Korea involves shipping. Alabama has suffered from NAFTA in part because of its proximity to the Mexican border. Several textile mills process cloth in Alabama, ship it to Mexico for assembly, and bring it back to prepare it for sale. Minimal shipping costs, combined with tariff elimination, make this feasible. It also decimated the jobs of many of Alabama’s textile workers.
The same equation does not work so well with South Korea, which is more than 7,000 miles from Alabama by air and a whole lot farther by ship.
How Korus would play out for Alabama is a long-term question, Lockhart said.
“We may not know the end result in our lifetime, but I do see that when we lower these tariffs, it really benefits both economies.”
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