With Congress expected to consider a NAFTA-style trade deal with Korea in the coming weeks, distilled spirits companies have been claiming Kentucky bourbon sales will take off in Korea if the deal is approved. But this claim is misleading, and it papers over the expected job loss from the Korea deal.
First of all, Koreans don't actually drink much bourbon. The data show they overwhelmingly prefer domestic beer and native spirits like soju and makkoli. To the extent that Koreans drink foreign alcohol, they prefer scotch and Irish whiskey, which are a distant fourth, sales-wise.
In 2010, Korea was our 19th-largest bourbon market, with $6.9 million in U.S. exports. While this may sound impressive, consider that this puts the country below the impoverished nation of Latvia.
In contrast, our exports to our top five markets (United Kingdom, Germany, France, Australia and Japan) were five to 20 times that.
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Given the lack of Korean demand for bourbon, the spirits companies are basing their advocacy for the trade deal on its tariff cuts. But in the spirits sector, consumer preference decides demand. Bourbon could become cheaper than aged scotch, but if you want scotch, you buy scotch.
So, why are these companies pushing for a NAFTA-style agreement with Korea that the government's own numbers show will increase the overall U.S. trade deficit?
To start, it's important to recall that the main bourbon brands are owned by multinational corporations — many headquartered in Europe — that also own the European scotch brands. Korea is Europe's fourth most important whiskey market, and their whiskey sales are 18 times that of U.S. bourbon sales to Korea. Consequently, each of these multi-brand multinational corporations has some conflicted interests in the Korean market.
Increased sales of bourbon under the Korea trade deal would require that the main multinationals promote bourbon (one of their products) against scotch (one of their other products, with an over 90 percent share of imported spirits in Korea). It's unlikely that these companies would give up market penetration in one product line for another.
And, whether there are increased bourbon sales — or increased sales of anything — also depends on Korea not devaluing its currency to gain a trade advantage. Korea has a history of significant currency devaluations. If the country devalued its currency even 20 percent, it could wipe out the tariff reductions. The trade deal includes no provisions to counter currency manipulation.
Bourbon aside, this trade deal is just plain bad — all around. It's projected to be an overall loser for the U.S. economically, and it will be put over 70,000 Kentucky jobs in the auto, textile and apparel and other sectors at risk.
The Korea deal also contains NAFTA's limits on regulation of the financial sector. Under the pact, regulators will be prohibited from setting size limits on too-big-to-fail banks. Moreover, multinational banks and other corporations will have special rights to challenge public interest policies outside of our court system, and for taxpayer-funded compensation. In this time of budget cutting, America shouldn't be signing up for trade deals that put taxpayers on the line for payouts we can't afford to corporations that offshore jobs.
Even if the logic of the multinational spirits companies is a bit impaired, that doesn't mean the logic of our elected representatives has to be. With American jobs on the line, we should raise a glass to the members of Congress who stand up to the corporate tricks and vote down this flawed deal.