Obama, South Korea’s Lee Promote Trade Agreement’s Benefits for Automakers

President Barack Obama told workers at a General Motors Co. (GM) plant near Detroit that the government’s aid to U.S. automakers “paid off” in saving the U.S. automotive industry and creating jobs.

The cars being made at GM’s Orion assembly plant “are a testimony to the American spirit,” Obama said after touring the factory with South Korean President Lee Myung-bak to showcase a free trade agreement approved by Congress this week and defend a federal “investment” to help GM and Chrysler LLC reorganize under bankruptcy in 2009.

Lee told plant workers that the free trade agreement won’t cause jobs to migrate to other countries. “Rather it will create more jobs for you and your family,” he said through a interpreter.

The accord with Korea provides GM, Ford Motor Co. (F) and Chrysler Group LLC wider access to the Korean market while protecting the U.S. industry against a surge in imports from Seoul-based Hyundai Motor Co. (005380) and affiliate Kia Motors Corp. (000270)

For Obama -- facing re-election next year with unemployment stuck at 9.1 percent nationwide and 11.2 percent in Michigan -- congressional approval of the agreement on Oct. 12 marked the end of a four-year stalemate. It was also a rare display of bipartisan cooperation on an agreement that offers prospects for new jobs in a battered industry.

Helping Auto Industry

“There’ve been a lot of policies benefiting the auto industry, starting with the GM-Chrysler bankruptcy bailout and electric-car battery plants,” said Matt Grossmann, assistant professor of political science at Michigan State University in East Lansing. “The overall message for Michigan is that when other people were saying ‘let the American automotive industry fail,’ they were behind it.”

Obama called Detroit a city “where a great American industry is coming back to life and the industries of tomorrow are taking root.”

Using a phrase from his 2008 presidential campaign he said, “For every cynic that’s out there saying, ‘It can’t be done,’ there are folks out there saying, ‘Yes we can.’”

Obama told plant workers that some people said the auto industry shouldn’t have received federal assistance. “In fact, there are some politicians who still say that.”

Former Massachusetts Governor Mitt Romney, in an Oct. 11 debate among Republican presidential candidates, criticized the bailout. “Should they have used the funds to bail out General Motors and Chrysler?” Romney asked. “No, that was the wrong source for that funding.”

Ending Tariffs

Trade deals with South Korea, Colombia and Panama that were approved by Congress this week reduce or end tariffs faced by U.S. exporters and are the biggest since the North American Free Trade Agreement took effect in 1994. The Korean deal would end tariffs on about 95 percent of U.S. exports of industrial and consumer goods within five years and support about 70,000 American jobs, according to the White House.

They are a “major win,” Obama said, citing anticipated increases in exports, support for tens of thousands of jobs and protection of labor rights, the environment and intellectual property.

Obama will sign the bill in “coming days,” he said yesterday at a joint news conference with Lee.

’Very Dynamic’

Lee, 69, is “very dynamic, very charismatic, in many ways very Western in his behavior,” said Victor Cha, former director of Asian affairs at the National Security Council. There’s “a chemistry with Obama,” and Lee is one of the very few foreign leaders who can claim such ties with the U.S. president, he said.

Obama, making his ninth visit to Michigan as president, will see the assembly line at a GM factory that was dedicated by President Ronald Reagan. It was idled during GM’s bankruptcy. The automaker reorganized in 2009 with the help of $49.5 billion in federal funds.

In October 2010, Detroit-based GM reversed plans to close the plant, and retained 1,550 hourly and salaried jobs there to build the Chevrolet Sonic, which replaces its Korean-made Aveo. The subcompact was engineered in South Korea.

“There’s a mutual recognition of the auto industry as a global economic engine on both shores,” said Greg Martin, GM’s director of Washington policy and communication. Martin wouldn’t offer any export projections as a result of the trade agreement.

U.S. Exports

U.S. exports of motor vehicles and parts to South Korea are expected to increase by 54 percent, or about $194 million, as a result of the trade accord, the International Trade Commission said. Because South Korea starts with a bigger role in the U.S. auto market, the 11 percent gain it may receive represents $907 million, the commission said.

Hyundai and Kia are South Korea’s two largest carmakers. Combined U.S. sales for the two, which operate separately, were 860,319 this year through September and should reach 1.1 million units in 2011, according to Jesse Toprak, an industry analyst in Santa Monica, California, for TrueCar.com.

Lee told the U.S. Chamber of Commerce in Washington on Oct. 12 that the agreement will create “good, decent jobs” in both nations and will be “beneficial to workers, to small businesses.”

South Korea is the U.S.’s seventh-largest trading partner with two-way trade of $87.7 billion in 2010, up 29 percent from the previous year, Census Bureau figures showed. The South Korea accord may help Obama achieve his goal of doubling exports to $3.14 trillion a year by the end of 2014, from $1.57 trillion in 2009.

Limited Exports

While the Michigan-based auto industry stands to boost exports to South Korea, immediate increases will be limited, analysts said. The trade agreement’s tariff reductions won’t be enough to draw buyers away from Hyundai and Kia, according to Bill Visnic, an auto-industry analyst.

“It’s not just about the mechanical things like tariffs and duties and taxes,” Visnic, of Santa Monica, California- based Edmunds.com, said in an interview. “The populace itself has to be accepting of the notion of imported cars and imported makes. It will probably be decades before you see a significant change in the mix there like we have here.”

South Koreans are unlikely to buy U.S. cars that they consider less safe and fuel-efficient even if the trade agreement makes it less costly for them to do so, said Christian Yang, a market analyst at IHS Automotive in Seoul.

‘Minimal’ Benefits

“The benefits that U.S. automakers will see are minimal,” Yang said in an e-mail. “Consumers purchase cars in Korea for the brand, style, safety. The U.S. auto companies still have some work to do to better meet the wants and needs of the Korean consumer.”

The South Korea agreement was first negotiated under President George W. Bush. The United Auto Workers union, initially opposed to the deal, changed course after changes were made.

“The revised agreement creates significantly greater market access for American auto exports and contains strong, auto-specific safeguards to protect our domestic markets from potentially harmful surges of Korean automotive imports,” UAW President Bob King said in a statement.

Lori Wallach, director of Public Citizen’s Global Trade Watch, said in a statement that the “job-killing” agreements represent “a complete flip-flop for President Obama, who won crucial swing states by pledging to overhaul our flawed trade policies.”

Meredith Broadbent, former assistant U.S. trade representative for industry and market access in the Bush administration, said the South Korea deal may bolster other trade negotiations, such as the Trans-Pacific Partnership between the U.S. and eight other Pacific nations.

“It’s a really strong deal for autos,” she said. “It’s going to jump-start the trade agenda.”

To contact the reporters on this story: Roger Runningen in Lake Orion, Michigan, at rrunningen@bloomberg.net Eric Martin in Washington at emartin21@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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