BILL ANALYSIS �
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| Hearing Date:June 13, 2011 |Bill No:SJR |
| |4 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: SJR 4 Author:Harman
As Introduced: April 4, 2011 Fiscal: No
SUBJECT: United States - Korea Free Trade Agreement.
SUMMARY: Memorializes Congress to approve and enact the United
States-Korea Free Trade Agreement (Korea Agreement).
Existing federal law:
1)The United States Constitution, Article II, gives the federal
government the power to enter into treaties and trade agreements.
Federal law requires Congress to approve international agreements.
2)States treaties and international agreements are laws of the U.S.
and as such, are supreme over the laws of states (U.S. Constitution
Article VI).
3)Establishes, by executive order, the United States Trade
Representative (USTR) as an agency within the Executive Office of
the President to be responsible for international trade
negotiations.
4)Requires the USTR to secure advice from states on trade negotiations
through the Intergovernmental Policy Advisory Committee (IGPAC)
which is comprised entirely of state and local officials.
5)Establishes a state Single Point of Contact (SPOC) system in which
the governor of each state designates a single point of contact
within the state that is responsible for transmitting information to
the USTR and disseminating information from the USTR to state
officials.
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Existing law, the Government Code (GC):
1)Specifies that the Governor is the primary state officer
representing California's interest in international affairs. (GC �
99500)
2)Specifies the Business, Transportation and Housing Agency (BT&H) as
the primary state agency authorized to attract foreign investments,
cooperate in international public infrastructure projects, and
support California businesses, not otherwise assisted by California
Department of Food and Agriculture (CDFA), in accessing markets, and
requires the Secretary of BT&H to develop an international trade and
investment policy. (GC � 13996.45)
3)Specifies that the State's SPOC, within the executive branch, acts,
in compliance with federal practice, as the liaison between the
state and the USTR on trade-related matters. (GC � 99501)
4)Clarifies that the SPOC is often provided the opportunity to review
and comment on ongoing trade negotiations and requires the SPOC, in
addition to other duties assigned by the Governor, to do all of the
following:
a) Promptly disseminate information from the USTR to the
appropriate state agencies, departments, and legislative
committees.
b) Work with the Legislature and appropriate state agencies to
review the effects of any proposed or enacted trade agreement
provisions on California environment, businesses, workers, and
general lawmaking authority and to communicate those findings to
the USTR.
c) Serve as the liaison to the Legislature on matters of trade
policy oversight. (Id.)
1)Requires the Office of Planning and Research (OPR) to maintain and
update, a full and comprehensive list of all state agreements made
with foreign governments, updated within 30 days of the effective
date of each new agreement. (GC � 99502)
This Senate Resolution:
1) States the Republic of Korea engages in significant trade with the
United States and California.
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2) States that the Korea Agreement would substantially lower tariffs
and quotas and expand U.S. market access into major sectors of the
Korean market.
3) States that ratification of the Korea Agreement would lead to
increases in U.S. gross domestic product by $10 billion to $12
billion annually and the creation of 70,000 new jobs.
4) Finds that California's exports would expand significantly,
including computer and electronic products and agricultural
products.
5) Declares that it is in the economic interests of the U.S. and
California to reduce trade barriers between the U.S. and the
Republic of Korea.
FISCAL EFFECT: None. This measure is keyed "non-fiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. The Author is the Sponsor of this measure. According to
the Author, California would significantly benefit from this trade
agreement.
2. Office of the U.S. Trade Representative (USTR). Created in 1962,
by Executive Order as an agency within the Executive Office of the
President, the USTR negotiates directly with foreign governments on
internal trade agreements. The USTR consults states on provisions
of a trade agreement through direct consultation with a state
Governor and a state SPOC and IGPAC. Currently, when a trade
agreement is under negotiation, the USTR sends all correspondence
and requests to Governors. If a Governor agrees to bind the state
or state agency to the provisions or a procurement agreement, the
USTR includes the state or state agency as a bound party in the
appendix to the specific trade agreement. Past California
governors have bound the state to the terms of specific government
procurement provisions via the USTR directly.
3. U.S. Trade Agreements. The U.S. Constitution grants the federal
government the power to enter into treaties and trade agreements.
The power, however, is vested in the U.S. Congress to ratify trade
agreements with a two-thirds vote of approval. Throughout the
trade agreement negotiation process, the U.S. has potential to
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influence policy reforms, using a relationship with the U.S. as
leverage and incentive to bring about potential and positive
change.
According to the USTR official website, Congress has not yet
ratified trade agreements the U.S. has signed with three individual
nations; Columbia, South Korea, and Panama. The USTR website also
reports the U.S. is in negotiations of a regional, Asia-Pacific
trade agreement, known as the Trans-Pacific Partnership (TPP)
Agreement with the objective of shaping a high-standard,
broad-based regional pact.
4. California's Trade Economy. California is the eighth largest
economy in the world with a state gross product of over $1.7
trillion. International trade-related commerce represents
approximately one-quarter of California's economy. California's
shipments of merchandise in 2010, totaled $143.3 billion, with
exports supporting 738,000 jobs in California making it the 11th
largest exporter in the world. In 2008, 2.7 million people were
employed by businesses related to trade, transportation and
utilities.
Trade agreements have been beneficial to California's exports.
Since the implementation of the U.S.-Chile trade agreement in 2004,
California's exports to Chile have grown 272%. In terms of Korea,
California exported $7.2 billion in goods from 2008-2010 and may
experience a similar expansion after approval of the agreement.
5. The Korea Agreement. The Korea Agreement was signed on June 30,
2007 with additional provisions signed on December 3, 2010. The
Korea Agreement seeks to eliminate tariffs and other barriers to
goods and services, promote economic growth and expand trade
between the U.S. and South Korea. South Korea is the
seventh-largest trading partner of the U.S. and the U.S. is South
Korea's third-largest trading partner. If passed by Congress, this
would be the United States' most commercially significant free
trade agreement in more than 16 years.
Specifically, The Korea Agreement provides the following:
a) An increase in bilateral trade and investment flows,
including an addition of $10-12 billion in annual U.S. GDP
and $10 billion in exports to Korea.
b) New markets for California exports.
i) Computers and Electronics: From 2008-2010, $1.8
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billion was exported. After the removal of tariffs,
digital integrated circuitry, semiconductors,
telecommunications equipment, radio and television parts,
and magnetic tape would become much more competitive and
affordable to Koreans.
ii) Machinery: $1.4 billion was exported from
2008-2010. This includes refrigeration compressors,
valves, renewable energy equipment, and engine parts.
Agricultural and construction equipment will be duty-free.
This would increase the competitiveness of U.S. exports.
iii) Transportation: From 2008-2010, $581 million in
transportation was exported including autos, auto parts,
aircraft, and fishing vessels. Most duties will be
immediately eliminated, including 68 percent of automotive
exports.
c) Significantly, California agriculture would be
greatly impacted particularly dairy, beef, vegetables,
fruits, and tree nuts, granting improved access to highly
protected Korean markets for these goods.
According to the Congressional Research Service (CRS), the December
3, 2010 modifications to the Korea Agreement focused on phase-out
periods for tariffs on autos, a new safeguard provision on autos,
and concessions by South Korea on allowing a larger number of U.S.
cars into South Korea under U.S. safety standards. The issue of
full U.S. beef access was not resolved because of the political
sensitivity of the issue in South Korea; however, the U.S. beef
sector remains resolute in their support for the agreement.
6. Labor Concerns. This agreement enjoys the support of the U.S.
business community which includes auto manufacturers and the United
Auto Workers (UAW) union, though the Korea Agreement still faces
opposition from other labor unions.
Domestically, according to a study conducted by the United States
International Trade Commission (USITC), changes in aggregate U.S.
employment would be negligible given the much larger size of the
U.S. economy compared to the South Korean economy. Some sectors,
like livestock producers, would experience increases in employment,
while others, such as textile, wearing apparel, and electronic
equipment manufacturers, would be expected to experience declines
in employment.
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According to the CRS, the Kaesong Industrial Complex (KIC), a North
Korean region located six miles north of the Korean Demilitarized
Zone and operated as a collaborative economic development with the
South Korean government, is another topic of concern. South Korea
secured preferential treatment for products from this region
despite U.S. concerns for work exploitation for North Korean
workers and the income KIC provides for the North Korean
government. These revenue streams to North Korea are small but not
insignificant.
The Korea Agreement addresses these concerns by creating a Labor
Council made up of officials responsible for labor matters in each
country and establishing a Labor Cooperation Mechanism whereby the
two countries would develop and work in areas pertaining to labor
rights in each country. South Korean labor rights, apart from
North Korea, are generally considered strong and rank in the top
third of the Organization for Economic Co-operation and Development
(OECD) for employment protection for regular workers.
7. Implications for a U.S. - South Korea Alliance. According to the
CRS, South Korea benefits from increased trade with the U.S.
Ongoing competitive pressure from Japan and China has threatened
South Korean long-term competitiveness, particularly in the
services industries. South Korea views the Korea Agreement as
essential to their economic survival.
It is difficult to determine if the Korea Agreement would make a
significant difference to the U.S. and South Korea strategic
relationship, as it is unlikely to alter either country's
fundamental interests on the Peninsula or in Northeast Asia.
However, a collapse of the Korea Agreement could have a profound
symbolic effect, including what the CRS calls a "psychological
blow" to many South Korean policymakers who would see the
Agreement's collapse as a betrayal. These policymakers have made
politically costly concessions on autos, beef, labor, and the
environment to help ensure a favorable reception for the Korea
Agreement in Congress.
8. Similar and Related Legislation. SB 460 (Price) of 2011 requires
the Secretary of BT&H to convene a statewide business partnership
for international trade marketing and promotion that includes, but
is not limited to, representatives of public airports, land ports
of entry, seaports, ocean carriers, marine terminal operators, air
carriers, warehouse operators, railroads, trucking companies,
foreign trade zones, and shippers, specifically including
agricultural exporters, manufacturers, post-consumer secondary
material handlers, and retailers. The bill also requires the
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partnership to advise the Secretary on what role the state should
play in international trade marketing and promotion, as specified.
The bill is pending assignment in the Assembly.
SCR 33 (Price) of 2011 expresses the sentiment of the Legislature
that the federal EB-5 visa program is beneficial to California's
economic development and provides important opportunities for
foreign direct investment to California. The resolution is pending
assignment in the Assembly.
AB 1409 (Assembly Committee on Jobs) of 2011 requires that the
next update of the international trade and investment strategy by
BT&H include policy goals, objectives and recommendations from the
state Goods Movement Plan (GMAP), as well as related measurable
outcomes and timelines. The bill is scheduled to be heard in this
Committee on June 20, 2011.
AB 1410 (Assembly Committee on Jobs) of 2011 reorganizes the
statutory placement of the California-Mexico Affairs Office and the
California-Mexico Border Relations Council from a general title
within state government to a more specific title on foreign
relations within the Government Code, but does not make any changes
to the content of sections. The bill is scheduled to be heard in
this Committee on June 13, 2011.
AB 2443 (Perez, 2010) required the SPOC to provide specified
Legislative committees with copies of any official position taken
or comments that any entity within the executive branch of state
government provided to the USTR relating to a pending trade
agreement. The measure was vetoed by the Governor. In his veto
message, the Governor wrote that the "bill would not only cause
confusion but also undermine the strength of California's position
by allowing the Legislature to insert itself into international
trade agreement discussions and negotiations."
AJR 27 (Torrico, Chapter 145, Statutes of 2010) memorializes
Congress that the California Legislature opposes the United
States-Colombia Trade Promotion Agreement.
AB 1558 (Assembly Committee on Jobs, 2009) aimed to recodify and
reorganize sections of the Government Code to create one
comprehensive code for the state's international trade activities
and programs. The measure was amended to deal with reorganization
of the state's economic development programs. The measure was held
in the Senate Committee on Appropriations in 2010.
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AB 1276 (Skinner, 2009) would have prohibited a state official,
including the Governor, from binding the state, or giving consent
to the federal government to bind the state, to provisions of a
proposed International Trade Agreement, including the government
procurement rules, unless a statute is enacted that explicitly
authorizes a state official to bind the state or to give consent to
bind the state to that trade agreement. The measure was vetoed by
the Governor. In his veto message, the Governor wrote that the
bill "places unnecessary hurdles on international trade and
unnecessarily complicates processes. Additionally, the bill would
defy current agreements with the World Trade Organization and
existing trade agreements."
AJR 55 (Villines, 2008) would have memorialized Congress that the
California Legislature supports the United States-Colombia Trade
Promotion Agreement. The measure was refused adoption in the
Assembly Committee on Jobs, Economic Development, and the Economy.
SJR 29 (Ackerman, 2008) would have memorialized Congress that the
California Legislature supports the United States-Colombia Trade
Promotion Agreement. The measure was refused adoption in this
Committee.
AB 3021 (Nu�ez, Chapter 621, Statutes of 2006) establishes the
six-member California-Mexico Border Relations Council (Border
Council) comprised of all Agency Secretaries and the Director of
the Office of Emergency Services for the purpose of coordinating
activities of state agencies. The Border Council is required to
report to the Legislature on its activities annually.
AJR 14 (Jeffries, Chapter 73, Statutes of 2007) memorializes the
President of the U.S. and Congress to enact legislation to ensure
that a substantial increment of new revenues derived from customs
duties and importation fees be dedicated to mitigating the
economic, mobility, security, and environmental impacts of trade in
California and other trade-affected states across the U.S.
SB 1513 (Romero, Chapter 663, Statutes of 2006) establishes the
California Trade and Investment Act of 2008. This bill gave
authority to BTH to undertake international trade and investment
activities and directed the development of a comprehensive state
trade policy, implemented through a trade strategy that engages
California's business community in a meaningful way.
SB 1762 (Figueroa, 2006) would have prohibited the Governor from
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binding California to provisions of international trade agreements
without consent from the Legislature. The measure was held in the
Assembly Committee on Jobs, Economic Development and the Economy.
SB 348 (Figueroa, 2005) would have prohibited a state official,
including the Governor, from binding the state, or giving consent
to the federal government to bind the state, to provisions of a
proposed International Trade Agreement, including the government
procurement rules, unless a statute is enacted that explicitly
authorizes a state official to bind the state or to give consent to
bind the state to that trade agreement. The bill was vetoed by the
Governor. In his veto message, the Governor wrote that "the IGPAC
provides the appropriate venue for the Legislature to express its
views on international trade agreements".
9. Arguments in Support. Supporters note that agreements like the
Korea Agreement ensure that the U.S. and California continue to
gain access to world markets. The California Chamber of Commerce
(Cal Chamber) states that with immediate removal of many tariffs,
exports will become more competitive and affordable to Koreans.
Supporters also state that the Korea Agreement is a big win for the
California economy and enjoys support of union groups, as well as
President Barack Obama and many members of Congress from both
parties.
10.Arguments in Opposition. The California Conference of Machinists
and California Teamsters Public Affairs Council contend that this
agreement could further exacerbate unemployment concerns in the
U.S., stating that "the agreement could not come at a worse moment
for the millions of unemployed workers." Opponents are also
concerned over language regarding labor standards, implementation
of dispute mechanisms and government procurement. With regard to
automobiles, opponents believe that provisions regarding the rule
of origin allowing for 65 percent of foreign content in autos that
are eligible for lower tariff treatment is higher than the
percentage permitted in the EU-Korea agreement.
SUPPORT AND OPPOSITION:
Support:
California Chamber of Commerce
California Coalition for Free Trade
Oxnard Chamber of Commerce
State Board of Equalization Vice Chair Michelle Steel
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Opposition:
California Conference of Machinists
California Teamsters Public Affairs Council
Consultants: Jonathan Ma and Sarah Mason