WASHINGTON, Feb. 17 (UPI) -- Three weeks ago, President Bush took a "blame Detroit" approach to the auto industry by saying that U.S. automakers doesn't make "relevant products." That's like saying the consumer electronics industry doesn't make relevant products. That industry, and so many other manufacturers have been driven overseas even though their products are in great demand in the U.S. President Bush is simply dodging responsibility by not acknowledging that there are serious imbalances on the playing field of trade.
U.S. automakers are making "relevant products," but they are also struggling with immense costs not faced by their foreign counterparts, including ballooning pension and health care costs. They are competing with currency manipulation by other countries -- including China, Japan and Korea -- which gives their vehicles and other products an unfair price advantage in our market. Our manufacturers also face trading partners that have markets that are closed to U.S. products, and a number of other unfair trade practices.
Automotive manufacturing in the U.S. has been a lynchpin of our economy, accounting for nearly 4 percent of the U.S. gross national product and providing generations of workers a good standard of living and quality of life. That is now at risk. Since January 2001, we've lost 2.8 million manufacturing jobs, with no improvement in sight. The U.S. auto industry alone has lost nearly 200,000 jobs since November 2000. Our overall trade deficit hit a record $726 billion in 2005, and much of this deficit is in the automotive sector. Delphi's bankruptcy and the layoffs at General Motors and Ford Motor Company should be a wake-up call that it is time to take action and change the policies that are hurting this important manufacturing industry.
Instead of aggressively fighting for U.S. interests by challenging illegal trade practices before the World Trade Organzation, however, President Bush continues to tolerate unfair trade practices and pursue the same failed trade policies that have led to record trade deficits that displace thousands of American workers each year.
Most harmful to U.S. automakers is currency manipulation. For instance, since 2000, Japan has followed an aggressive policy of massive currency interventions in global markets in order to keep the value of its yen artificially weak against the dollar. Japan has spent over $420 billion on currency interventions in less than 5 years. The clear purpose of this policy has been to provide Japan's export industries with a subsidy that creates a significant competitive disadvantage for U.S. manufacturers and other key U.S. industries.
Despite strong economic growth, over the past five years Japan's currency has been undervalued by as much as 36 percent against the dollar. This means a $20,000 car imported from Japan has had an unfair subsidized cost advantage of $2,400 to more than $7,000 over U.S. cars, and U.S. exports to Japan face the equivalent of $2,400 to more than $7,000 in "tax". Although Japan hasn't intervened directly in foreign currency markets in the last 18 months, senior Japanese government officials have continued to "jawbone" global financial markets by threatening to intervene.
The Bush administration has also failed to take action on China's currency manipulation. By rigging its currency at a level independent experts estimate at between 15 and 40 percent below its appropriate value, China is giving a subsidy to its exports to the United States and imposing a direct cost on U.S. exports to China.
Korea has also engaged in long-term currency manipulation. Despite a May 2005 announcement by the Bank of Korea that it would no longer intervene in foreign exchange markets, Korea's foreign exchange reserves rose by $4.3 billion in the first half of January 2006, a clear indication that Korean financial authorities had stepped up their intervention to slow the won's appreciation against the dollar.
On top of all of these problems, the administration is now proposing two new free trade agreements, one with Korea and one with Thailand, that could tip the scale even further against the U.S. auto industry.
Despite two separate automotive trade agreements negotiated in 1995 and 1998 between the United States and Korea to open Korea's auto market, sales of imported vehicles in Korea from every country in the world totaled only 31,000 autos in 2005, or 2.72 percent of Korea's total domestic auto market. Only about 4,000 of these autos were from the United States, about the same number sold by U.S. manufacturers to Korea in 1996.
Although Korea remains closed to U.S. automakers, it exports 70 percent of its automobile production. Korean auto sales into the U.S. increased from approximately 132,000 sold in 1996 to approximately 731,000 sold in 2005. Korean passenger cars now make up almost 6 percent of the U.S. market for passenger cars. In the meantime, U.S. automakers continue to face significant barriers to entry in their attempts to sell into Korea's auto market. Even Japan, with its notoriously protected automotive market, imports a greater percentage of vehicles, with 5 percent of its total vehicle market comprised of foreign-made vehicles.
Daimler-Chrysler Corporation, Ford Motor Company, and General Motors Corporation have made extensive efforts to increase sales in Korea. Based on the companies' sales performance in every other major market in the world, the shockingly low Korean sales levels are inexplicable and cannot be attributed to marketing, design, or lack of interest.
Korea's barriers to imported automobiles range from an 8 percent passenger vehicle tariff compared to the 2.5 percent U.S. tariff, to consumer bias against imports promoted by government sponsored anti-import policies such as subjecting owners of foreign cars to tax audits. Korea's tax system disproportionately taxes larger engines, which tend to be imports, significantly inflating the price of imported cars. Korea also maintains a burdensome standards and certification process that can exclude vehicles built outside the country due to high testing costs, coupled with the low rate of sales for those vehicles.
When the 1998 agreement was reached, both the Office of the United States Trade Representative and the industry said they were pleased with the agreement. The chief USTR negotiator pointed to the language of the agreement as being tighter than anyone thought Korea would agree to. Even with this supposedly air tight language, Korea failed to keep its commitment to "substantially increase market access for foreign passenger vehicles in (Korea)." U.S. negotiators expected the agreement to result in an increase in the number of U.S. cars sold in Korea. It did not. We learned that any progress made in removing one area of standards and certification was negated by new issues that arise in other areas. I am therefore highly skeptical that we can have an agreement with Korea that will result in increased sales of U.S. vehicles.
Because of these concerns, Senator Voinovich and I, as co-chairs of the Senate Auto Caucus, recently sent a letter to the Bush administration expressing serious concern about a U.S.-Korea Free Trade Agreement.
The Thailand free trade agreement that is currently under negotiation poses additional risks to domestic manufacturers. In fact, more than 25,000 U.S. pickup truck assembly jobs are directly at stake. If Thailand is granted privileged access to the U.S. pickup truck market, that access will be used by third-country automobile producers in Thailand, who restrict U.S. access to their home markets, as a backdoor into the U.S. market. Thailand will be used as an export platform by third-countries such as Japan, South Korea and India, but they would not be required to reduce their own tariff and non-tariff barriers to U.S. automotive products.
Thailand is already the world's second largest producer of pickup trucks because many producers from outside of Thailand have moved their pickup truck production there. Negotiations on access to such critical segments of the U.S. automobile market should not be done bilaterally. These negotiations should be multilateral and should focus on both tariff and non-tariff barriers specific to the automobile industry.
The U.S. auto industry is facing dire circumstances that put the jobs of millions of hard-working Americans at risk. It is imperative that we not aggravate the already difficult position of an important U.S. industry through a Korea FTA or a U.S. Thailand FTA. U.S. auto manufacturers can compete effectively anywhere in the world if they are given a fair chance. Right now they don't have that chance and they are being forced to compete with the odds stacked firmly against them.
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(Democrat Carl Levin is the senior U.S. Senator from Michigan, and ranking member on the Senate Armed Services Committee.)
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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)
