Bourbon distillers watch free-trade debate closely

WASHINGTON — Distillers of bourbon — Kentucky's trademark spirit — are hopeful that a long-stymied free-trade agreement with South Korea will boost U.S. liquor exports.

Industry proponents say a provision in the free-trade agreement with South Korea would recognize bourbon as a uniquely American product and therefore offer protections that would help stave off bootlegging.

The agreement also would immediately eliminate a 20 percent South Korean tariff on bourbon while phasing out tariffs on other types of whiskeys and scotch over several years. Bourbon boosters say the move would give a needed advantage in gaining a foothold in Korea, which distillery analysts say is the 11th largest spirits market in the world.

Kentucky produces 95 percent of the world's bourbon, according to the Kentucky Distillers Association, a trade group. Exports of Kentucky whiskeys totaled $192 million in 2010, according to the U.S. Census Bureau, ranking it one of the state's largest agricultural exports.

"One of the biggest obstacles to our signature bourbon industry is taxes and tariffs overseas," said Eric Gregory, president of the Kentucky Distillers Association in an interview Thursday.

Opponents to the deal say Korean palates prefer other brews, so it's fruitless to pin hopes for a bourbon boon on a free-trade agreement.

"Koreans don't actually drink much bourbon," Todd Tucker, a research director for Public Citizen's Global Trade Watch, an advocacy group that monitors trade issues, said in an interview Thursday.

The data show they overwhelmingly prefer domestic beer and native spirits such as soju and makkoli, Tucker said. To the extent that Koreans drink foreign alcohol, they prefer scotch and Irish whiskey, he added.

Nonetheless, in their highly politicized push to get the president to send to Congress free-trade agreements with Panama, Colombia and South Korea, Republicans such as Senate Minority Leader Mitch McConnell of Kentucky have made the case that continued delays hurt state businesses.

Those efforts gained traction last week, as Republicans and Democrats worked to negotiate the details of worker-assistance programs and trade preferences. The Senate on Thursday passed a related measure to pay for job retraining for American workers affected by free-trade agreements with the United States and other nations.

The measure now goes to the House. Republican leaders in both chambers said last week that the Senate's vote should clear the way for Obama to move forward with the South Korea, Colombia and Panama free-trade agreements.

"Republicans in Congress have been urging the president to pass these agreements for nearly three years, and yet they've languished on his desk for no good reason," McConnell said Tuesday on the Senate floor. He voted against the job retraining bill Thursday, saying the Senate should focus on the larger free-trade agreements.

"It's time to send them up, so we can act," McConnell said.

The trade agreement with South Korea is of special interest to Kentucky's bourbon industry. Advocates for the measure say they're competing against European nations to gain a foothold in the Korean spirits market. A free-trade deal between the European Union and Korea will eliminate tariffs on scotch and Irish whiskey over a three-year period.

The U.S. agreement with South Korea, which has been mired in partisan politics since Obama took office, could increase American exports to Korea by more than $10 billion a year, according to the U.S. International Trade Commission. The Congressional Research Service predicts the South Korea agreement would create 280,000 American jobs.

There is heightened tension over the trade agreements because they are "one way potentially to stimulate the economy on which there will be strong Republican support and one that could have a significant impact on the economy," said Randall Strahan, a political science professor at Emory University in an interview.

The lobby that represents distilled spirits is spending big bucks to ensure lawmakers get that message.

This year alone, the Distilled Spirits Council, a trade association in Washington, spent more than $2.5 million to lobby members of the U.S. House and Senate on matters that included the Korea-U.S. free-trade agreement, according to federal lobbying records.

Labor unions such as the Teamsters, which has chapters in Kentucky, worry that a free-trade agreement with South Korea would send American jobs with American benefits to countries with cheap labor, wobbly workers' rights regulations and few benefits.

Unions and their advocates also worry about the effect on the automobile manufacturing and textile industries. Kentucky's automobile and textile sectors would be hard hit, Tucker said.

"What politicians are calling 'free trade' is actually freedom for CEOs to trade our jobs for more big salaries and bonuses," Teamsters president James Hoffa wrote in an op-ed piece published earlier this year in the Detroit News. "I'm concerned about the trade deal with South Korea because it's likely to have an impact very similar to the North American Free Trade Agreement."