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  Korea-US FTA Deal Faces Bumpy Road

By Henry M. Seggerman
President of International Investment Advisers

A substantive free trade agreement (FTA) between the United States and South Korea is as likely as long-term peace in the Middle East.

Normally, I criticize governments, but today I am criticizing people, too. Simply put, the people of the United States and South Korea are just too self-centered to permit any kind of meaningful free-market agreement between the two countries.

It is like trying to push together the ``North’’ ends of two magnets. You can’t do it.

Korean law stipulates the National Assembly must ratify any treaty.

The other day, about 84 percent of Korean lawmakers indicated they would reject the Korea-U.S. FTA. So, Roh and other government officials can continue to brag about the FTA, but right now Korea’s Assembly is poised to throw it right out the window.

Pundits in the West just will not shut up about Korea being xenophobic, the ``hermit kingdom’’ etc.

Foreign phobic

Stop for a second and recognize how much the American people hate foreigners, too. A few years ago, American businesses without much fanfare did the math on building factories in Mexico versus paying Mexicans to work in U.S. factories, and went with the second option.

Today, about 5 percent of the U.S. population is Mexican immigrant workers.

As for their undocumented status, most of these workers took one look at our post-September-11th Nazi immigration process and decided not to bother with it.

The result of this perfectly logical response to the inexorable pressure of globalization is a majority of the U.S. population is now in favor of closing off the Mexican border and thousands of heavily-armed, cheap-beer-swilling, vigilante thugs, the ``Minutemen,’’ swarming to the border, crazed with the idea of mowing down America’s most profitable workforce component the instant they cross the line in the sand.

And guess where 75 percent of the U.S. Navy’s ships are serviced? Dubai.

Why? Because Dubai has easy access, great yards and good weather. It is good business with good business partners.

But when a deal was closed with Dubai’s DP World to service U.S. ports, Congress reneged on it in the eleventh hour because the American public, inflamed with racist hatred of evil Islamic ``towel-heads,’’ disagreed in one of those instant TV polls.

Imagine trying to get a smart deal like that done after the Nail Polish Bomber plot. Even less likely.

In South Korea, you have to be careful using the ``P’’ word: pedang. That’s right. Don’t dare ask for more dividends.

A few months ago, a small 7 percent foreign shareholder of a company whose business is killing thousands of Koreans with lung cancer, had the audacity to ask for more dividends.

This led to more screaming ``Hostile Foreign Takeovers!’’ headlines in the Korean Press, and the governing Uri Party is now planning to issue anti-democratic ``golden shares’’ with exponential voting power, to managers of cancer companies, decadent chaebol dauphins, and anybody else who has diluted down their own shareholdings with endless rights offerings to finance mindless ``de-worseification.’’

These golden shares will be brought to you by the same administration whose court system recently told a business leader it had convicted that it was more important for him to serve as board chairman of a blue chip company than to serve out the prison term it had sentenced him to.

Why? Same reason. A small, 14 percent foreign shareholder had had the audacity to ask for more dividends.

Excuse me, but please digest these facts. There has never been a hostile foreign takeover in Korea.

In fact, there has never been any kind of hostile takeover in Korea, other than a very small handful of government string-pulling and palace back stabbings among feuding chaebol family members.

Agriculture subsidies and film quota system

Did you know that Korean consumers pay 4,000 won for 1,000 won worth of rice? God knows why they do this, but it’s true.

It is because Korean rice farmers have not turned a profit for decades.

Rice can be grown profitably in countries with per-capita gross domestic product (GDP) of $1,000, like Cambodia, but not in Korea whose GDP is over $15,000.

So, instead of investing in assets which can appreciate, Korean consumers are required by law to flush their hard-earned pay down the toilet to support one of the most consistently unprofitable (perpetual guaranteed 75 percent net loss margin) businesses in the history of the world. This moronic policy is one of the Korea-U.S. FTA’s primary obstacles.

Each month, the U.S. government steals from my paycheck money to pay subsidies out to sugar and cotton farmers who have also not made a profit in decades and never will.

Sugar and cotton can be grown profitably in countries like Ghana with per-capita GDP of $1,000, not in the U.S. with a $40,000 GDP.

So, instead of investing in assets which can appreciate, U.S. taxpayers, including myself, are required by law to flush their hard-earned income down the toilet to support one of the other most consistently unprofitable businesses in the history of the world.

Western Europe’s agricultural subsidies are just as bad, and countries like France refuse even to consider eliminating them.

Artificial, anti-economic price supports such as Korea’s, and subsidies, such as in the U.S. and Western Europe, lead to massive surpluses because the normal laws of supply and demand have been castrated.

The countries dump these surpluses at huge discounts anywhere in the world they can sell them.

As a result, when poor countries in Southeast Asia and Africa bring their decently-priced crops to market, they simply cannot sell them.

And since they have little besides agriculture in their economies, millions of people starve to death. So, next time you eat a 1,000 won worth of rice your government forced you to pay 4,000 won for, and the next time I see the Federal tax withholding on my paycheck, we should both realize someone in Africa is dying to support our ridiculous, unprofitable agriculture industries.

This is one of the reasons the recent Doha Round conference just collapsed and was nicknamed ``Doha Aground.’’

Koreans make great movies, and Korean audiences prefer them over Hollywood films. About 60 percent of films open in Korea are locally produced.

Farmers, laborers and civic group members hold a large-scale rally in downtown Seoul to protest the government’s move to sign a free trade agreement with the United States in this file photo last month.
/ Yonhap
In this happy situation, what logical reason on earth exists to perpetuate a 40 percent protectionist Korean film quota system?

The free market has already given superior Korean film products an edge over inferior foreign competition.

Isn’t it kind of wimpy for Korea to demand the screen quota system when it is not needed?

Inter-Korean industrial complex in Kaesong

Hyundai Group have subsidiaries manufacturing products in many countries around the world, and when these products are made, they are usually sold on the spot, for local consumption or as exports out of those countries.

Newsflash: North Korea is a sovereign country, just like Malaysia, Thailand, or anyplace else where a Hyundai company sets up an overseas operation.

We all know how much George Bush ``loathes that dwarf,’’ so it has been almost comical watching these FTA big shots quibble about some low-grade North Korean pots and pans.

To South Koreans, these pots and pans trigger misty-eyed reunification fantasies, though massively overpriced. To George Bush, they should be locked away in Axis of Evil kitchens forever.

People who support protectionism are destroying their own financial future. It’s obvious to anyone with a brain that wasting money to support unprofitable businesses damages the economy.

It is just as stupid for the Minutemen to get their way and deport twelve million Mexicans.

What these people think is that the companies will hire Americans for these low-level manufacturing jobs. But that is not the case because they will just go back to their first game plan, building factories in Mexico, which will be more harmful to the Minutemen idiots.

Stopping the inexorable momentum of globalization with these foolish and puny protectionist measures is as likely to work as stopping a mighty river rushing downhill into the sea.

People want good deals for products and services so they go online to find the best deals.

This is when they click ``add to cart.’’ And they sure aren’t going to do it to buy 1,000 won rice for 4,000 won.

This applies even more absolutely to businesses. To keep up with the exponentially building pressure for lower prices worldwide, all competing businesses have no choice but to reduce raw material acquisition costs to absolute minimum, and to seek out the most efficient labor solutions available worldwide.

A single worldwide currency and a single worldwide stock market are also likely as a logical outgrowth of this process.

I would predict these will be in place by 2050.

When our children look backwards from that time frame, they will view these FTAs as quaint baby steps on the way to a unified international free-market economy like lug nuts on Wilbur and Orville Wright’s biplane look to an astronaut today.

08-29-2006 16:45

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