For Torrington-based Dymax, South Korea represents a major business opportunity.
The maker of adhesive sealants and light curing equipment, which employs nearly 200 people, has been exporting to the East Asian country for years and has seen its output there grow exponentially to nearly $3 million.
The company is so optimistic about its future business there that it opened a new office in Seoul earlier this year to help strengthen its sales force.
But things could be better. Even with its continued growth in South Korea, Dymax is at a competitive disadvantage to other foreign countries doing business there, because Congress has failed to adopt a free trade agreement between the two countries that was agreed to in 2007.
As a result, Dymax and other Connecticut companies have to pay a tariff — as high as 8 percent — on the products they send to the close U.S. ally.
“While we have been talking and not implementing the free trade agreement, other countries have been implementing it. That puts us at a competitive disadvantage,” said Greg Bachmann, Dymax’s president. “If you add import duties to our products, then people who buy them have to bear those costs, or we have to reduce our profit margin to keep our products priced lower in that market .”
The U.S.-Korea agreement was reached in 2007, but has been languishing in Congress because of concerns about its impact on the U.S. economy, especially the car industry.
Since that time, however, Korea has successfully concluded a free trade agreement with the European Union, and is in late-stage talks on an agreement with Canada.
The stakes are particularly high for Connecticut, which is the second most export dependant state in the country. Finding new markets and generating further growth with existing trade partners is seen as a key to the state’s economic development.
Korea, which has a $1 trillion economy, is already Connecticut’s seventh largest export partner. The state shipped $518 million in goods there in 2009 alone. But Congress’s failure to ratify the free trade agreement could be costing Connecticut $247 million in exports and $588 million in gross state and domestic product, according to a 2009 report by the Trade Partnership Worldwide.
That amounts to 4,048 lost jobs, the report said.
Han Duk-soo, South Korea’s ambassador to the United States, who recently visited Connecticut to garner support for the treaty, said the agreement would establish a level playing field in Korea for Connecticut workers and businesses, particularly in-state manufacturers and financial services companies.
“Expanded trade with Korea can be seen as an economic stimulus package with no additional cost to taxpayers,” Han said in an interview.
If Congress approves the free trade agreement, nearly 95 percent of bilateral trade in consumer and industrial products would become duty free within three years, and most remaining tariffs would be eliminated within 10 years.
Over 90 percent of aircraft and related equipment — and many other manufactured goods produced in Connecticut — would enter Korea duty free immediately, eliminating the 3 to 8 percent tariffs on those goods, Han said.
That would add $12 billion to the U.S. gross domestic product and around $10 billion to annual merchandise exports to Korea, according to the U.S. International Trade Commission.
Financial services companies in Connecticut also would have unrestricted access to world’s eighth largest insurance market with a premium value exceeding $92 billion. And the agreement would allow U.S. financial firms to offer new products in that country under the same rules that apply to Korean firms. U.S. companies would also be free to own up to 100 percent of Korean financial companies.
President Obama has come out in support of the treaty and is visiting Seoul in November for the G-20 summit, where he hopes to finalize any last-minute compromises. Obama, who announced earlier this year an initiative to double U.S. exports in five years, could present the treaty to Congress soon afterward.
For its part, Connecticut’s senate delegation is supportive of the agreement.
Sen. Joseph Lieberman, an Independent, has urged Obama to finalize the agreement and for Congress to swiftly approve it this year.
“Connecticut’s aerospace industry, in particular, and the many firms of all types that support that sector are poised to benefit greatly from finalizing this agreement and the reduction of other trade barriers throughout the world,” Lieberman said in a statement.
Sen. Christopher Dodd has echoed similar sentiments.
Free trade agreements are oftentimes controversial and the U.S.-Korean deal would be the most significant agreement signed by the U.S. in the past 16 years.
U.S. opponents of it include some unions and the auto industry, which has complained of an imbalance of auto trade with the East Asian country.
Last year, for example, South Korea sold over 476,000 cars in the U.S., while the U.S. sold only 8,000 cars in South Korea, Han said. Some say South Korea uses a variety of tariff, tax and non-tariff barriers to insulate its domestic manufacturers from foreign competition.
Critics also say Korea’s trade policies are contributing to the U.S. trade deficit, an idea Han rejects.
In fact, Han said the U.S. has a $940 million surplus with Korea in the first quarter of 2010. “I believe we can bring about mutual acceptable conditions,” Han said.
Anne Evans, Connecticut district director for the U.S. Department of Commerce, said the agreement would be especially beneficial to small-and-medium sized manufacturers, because they are put at the biggest competitive disadvantage.
“The small company’s tend to do well when there is a free trade agreement, because they are competing against a small company somewhere else,” Evans said. “Our competition is not in the next state, it’s usually Europe or Japan, especially in the high technology industries.”
For Bachmann, of Dymax, the free trade agreement means one thing: more jobs. Bachmann said his company has already added 50 workers this year. The growth potential of the Asian market, and Korea in particular, could mean more jobs down the road.
“If I get the business in Korea because my prices are competitive, I could create more jobs in Connecticut,” Bachmann said.
