McGraw: The Korean Free Trade Agreement Is a Test of Our Commitment to Markets

On Friday, the Obama administration announced that it had reached a free trade deal with the South Korean government in Seoul. Trade organizations for both the automakers and meat growers chimed in with support for the pact. But Senator Max Baucus, the Montana Democrat, has said he is "deeply disappointed" with the agreement. It's not clear whether Baucus will attempt to block the treaty from being approved in the Senate.


I decided to speak with Terry McGraw, Chairman and CEO of McGraw-Hill Companies . McGraw is a strong advocate of free trade. He is chairman of the Emergency Committee for American Trade (ECAT), chairman of the U.S.-India Business Council, chairman of the United States Council for International Business, as well as a member of the U.S. Trade Representative’s Advisory Committee for Trade Policy and Negotiations (ACTPN).

McGraw was in Korea for the G-20 Business Summit. He also spread the message of the importance of opening the markets while he was in India with President Obama last month. I started the discussion on what impact this agreement will have on the U.S. economy.

TM: This is a significant deal to stimulate growth and jobs in America. The International Trade Commission estimates that America’s economic output will grow more from the U.S.-Korea agreement than from the United States’ last nine trade agreements combined. Merchandise exports to Korea are projected to increase by $10 to 11 billion. On top of that, American companies will have more open access to Korea's $560 billion services market.

Korea will be our second-largest trade agreement behind NAFTA, and will really open the door to much more substantial U.S. engagement in the fast-growing Asia-Pacific region, where there are so many economic opportunities.

LL: Auggie Tantillo, executive director American Manufacturing Trade Action Coalition says this agreement puts thousands of American manufacturing jobs in jeopardy to outsourcing. Do you agree?

TM: Opening markets will help employers—and employment—expand, not the other way around. In terms of manufacturing jobs, I saw that Governor Engler, who leads the National Association of Manufacturers, congratulated the Administration on the Korea deal. He said the agreement is critical for manufacturers in America and means jobs, jobs, jobs.

LL: Can this agreement spark job creation?

TM: Absolutely. The Korea agreement and freer trade and investment around the world are all about growth—job growth and economic growth. With most of the world’s population and purchasing power outside our borders, the United States needs to do more to access foreign markets to sell our goods and services. As American companies enter and expand into new markets, it creates jobs everywhere.

LL: Autos trumped beef in this agreement. Do you think beef should have been excluded?

TM: The issue is not what is or is not included on beef in the FTA. The Koreans have already committed to the United States to accept, subject to international standards, imports of U.S. beef of every age and cut, into its marketplace. Most importantly, pursuant to that commitment, U.S. sales of beef are growing in Korea. We now would like to see the Koreans fully implement that commitment. Senator Baucus has said that he is going to work with the Administration on this issue, and I think that’s going to be very helpful. Congress needs to approve the agreement. I think you’ll see that once the agreement is implemented we will have increases in overall demand for everything, not just items outlined in the agreement.

LL: Senator Max Baucus has said he will make sure America's ranchers and farmers are not left behind. Do you think this agreement will be passed in Congress?

TM: The business community needs to strongly support the entire package. Ultimately, I believe it will garner substantial support on both sides of the aisle, and we’ll work hard to get it approved.

LL: Japan has not been able to ink a similar deal with the United Stated or Europe. Do you think this new deal might spark the Japanese to strike one with the United States in the future?

TM: The U.S.-Korea FTA has renewed interest in a U.S.-Japan agreement, an idea the business communities in both countries consistently have supported. But we shouldn’t just be talking about Japan. The broader Asia-Pacific region should be part of trade discussions as we move forward. We need to improve commercial relations with China and commit to a deal by the end of next year on the Trans-Pacific Partnership (TPP) negotiations.

The United States is currently in negotiations with eight of our Asia-Pacific partners to create the beginning of a true free-trade area in the Asia Pacific. Countries like Australia, Malaysia, New Zealand, Singapore and Vietnam are all at the table. These countries have a combined GDP in the neighborhood of $2 trillion.

The TPP needs to be a top American priority. If successful it will create a new platform of growth—for companies and workers—here at home and throughout Asia-Pacific.

LL: The President has been criticised for not expanding and pushing our trade agreements in Asia as our European counterparts have been able to. Do you agree?

TM: The President has really stepped up and led on trade recently, particularly in Asia. If you look at the impact of the Korea agreement, it’s just huge. As I said when the President was in India talking about creating dynamic two-way growth between the U.S. and India, that was the first time I saw him as Salesman-in-Chief. Whether you’re the President, a Governor or CEO you have got to convince people that you are on the right path. And you have got to sell it. Certainly the President’s comments at the G20 and in India, and the progress we’re seeing with the U.S-Korea FTA, demonstrate his commitment to creating jobs through trade liberalization.

LL: The United States has had long-stalled trade agreements with Colombia and Panama. Are you confident in 2011 we could see some resolution here?

TM: I hope we see progress. We will work hard with the Administration and Congress to get the Colombia and Panama trade agreements considered next year. Colombia and Panama are important strategic allies. Right now our relationship is one-sided, with their imports coming in duty-free into our market. It’s time to more fully develop these relationships and make sure that U.S. farmers, manufacturers and service companies are able to trade on a level playing field with these countries.

LL: What does the President need to do to strike agreements with Colombia, Panama and in Asia?

TM: To start with, he can build on the momentum from the U.S.-Korea FTA. The Korea deal will help restore confidence in many countries that the U.S. is truly committed to opening markets. It’s a powerful signal.

We also need better communication and dialogue about the benefits of trade so we can overcome some of the protectionist sentiment out there. Ninety-five percent of the world’s customers live outside our borders. Together, they represent 80 percent of global purchasing power. And over the next five years, 87 percent of the world’s economic growth will take place beyond our borders. That means we must look abroad to drive demand for U.S. goods and services.

The President has set a goal of doubling exports over the next five years. We’ll need free trade agreements with Columbia, Panama and better economic ties with Asia to get there. This is a perfect opportunity for the business community to work with the President and Congress on an important issue and reenergize economic growth.


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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."