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South Korea Still Mum on US Trade Deal Renegotiation

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South Korea Still Mum on US Trade Deal Renegotiation

President Moon steered clear of Trump’s earlier call for a renegotiation of the five-year-old trade deal.

South Korea Still Mum on US Trade Deal Renegotiation
Credit: Cheong Wa Dae

Fresh off his first summit with a foreign leader last week in Washington, South Korean President Moon Jae-in and his government are still pondering how to address Donald Trump’s demands to revisit the Korea-U.S. Free Trade Agreement.

“Regarding next steps, nothing much has been developed yet from the Korean side,” Seo Jee-yeon, foreign media spokeswoman for the Ministry of Trade, Industry and Energy, said in an interview, adding that ministry officials who had accompanied Moon to the United States were discussing the issue. “We need more time … depending on what is the real intention of the U.S. administration after Trump’s remarks on the future of the Korea-U.S. FTA in front of the media.”

In a joint statement after their meeting, the two leaders committed to “foster a truly fair and level playing field, including working together to reduce the global overcapacity of such basic materials as steel, as well as non-tariff barriers to trade.”

Despite Trump’s claims that “the trade deal is up” and that the United States would start working on a deal that’s fair for both sides, Moon steered clear of Trump’s earlier call for a renegotiation of the five-year-old free trade deal, known as KORUS.

“We concluded the discussions with a counterproposal, and without agreement, that if there is still room for improvement, if you want to talk about non-tariff barriers, the two countries can establish a working-level task force to examine and analyze the effects of the FTA,” Moon was quoted as telling reporters in Washington on Saturday.

“It was unclear what exactly the administration was seeking vis-a-vis Korea,” Wendy Cutler, a former assistant U.S. trade representative who negotiated the bilateral trade deal, said in an interview.

She said implementation problems were highlighted, and that Moon indicated a willingness to work through those issues.

“What is unclear, though, is how the administration will go forward with respect to any renegotiation of KORUS and what exactly they would want to achieve in a renegotiation,” she said.

Moon may have been wary to commit to anything because a renegotiation would not be his decision, Kim Hyung-joo, research fellow at the LG Economic Research Institute (LGERI), said in an interview.

“The reason why President Moon was careful about making any comments on the FTA is because it’s not a thing that he can say yes or no to. I think it was a good strategy not to make an immediate answer,” Kim said. “Whether a renegotiation should be made or not depends on the practicing departments, not on a president.”

The lack of clarity around Trump’s specific demands leads some South Korean trade experts to doubt that the renegotiation will actually occur.

Bawoo Kim, senior researcher at the Korea Institute for Industrial Economics & Trade (KIET), said the FTA can’t be upgraded much more than it is now. The only other option would be to downgrade some terms such as bringing goods tariffs back up, which would hit U.S. firms harder than their Korean counterparts, he said.

“As [Trump] did around the summit, trade issues can be superficially addressed at a high profile [meeting]. But the actual effect will be very limited since there aren’t many things to discuss deeply,” Kim said.

Trump’s lack of details means it is uncertain what the Moon administration would have to give up, said Rhee Dong-eun, assistant professor of international studies at Korea University.

“Even if the administration were to act in the position of giving something up, it would probably be from a minor area and be done as a political gesture,” Rhee said.

The Trump administration’s concerns over the automotive sector — which Commerce Secretary Wilbur Ross called the largest single contributor to the $27.7 billion goods trade deficit — cannot be resolved through trade talks either, as the majority of the U.S. auto trade partners had a surplus over the United States, Kim of KIET said.

“This means bilateral trade imbalance of the automotive sector can be understood as a structural imbalance, which cannot be resolved with a tariff intervention. The U.S. can exit the World Trade Organization and impose an unrealistically high tariff on the automotive sector, but this will create a huge loss in economic efficiency,” he explained.

In fact, the automobile tariff was only eliminated completely in January 2016 — four years after the FTA entered into force, said Seokyoung Choi, a former ambassador and visiting professor at Seoul National University.

“Trump and his new administration continuously argued that the KORUS FTA was one of the main culprits for causing the chronic trade deficits in the U.S. But President Moon was not necessarily persuaded by this argument,” Choi said.

Brandon Walcutt, economics professor at Hankuk University of Foreign Studies, said that if the prices of U.S. cars in Korea were adjusted, there would be much higher demand.

“Technical methods [could be to] continue reduction of import tariffs. But unless something like a voluntary export restraint is adopted, not many other options are readily available other than possible incentives given to increase production at Korean auto factories in the U.S.,” Walcutt said in an interview.

He predicts the Moon administration will delay decisions on renegotiating the free trade deal, a financially and politically costly process for both sides.

“Renegotiation might create more issues with Korean domestic exporters, which would make Moon’s job to bring about other changes, such as changes in temporary worker status, more difficult,” Walcutt added.

Korean trade experts say there is room to address pending issues such as the United States’ claim that South Korea is a currency manipulator or unfairly dumping steel. Cutler said KORUS could be usefully updated and modernized, especially concerning the rapidly evolving e-commerce environment.

“I would hope Korea would address the different bilateral implementation concerns that the [Trump] administration is raising,” she added.

The two countries should also resolve their “perception gap” over the causes of the U.S. trade deficit, according to Choi.

If Trump does eventually request to change or renegotiate the agreement, the timing and scope are still unknown, Choi said. As his administration must inform Congress 90 days before the start of negotiations, the earliest start to potential negotiations would be later this year or early next year.

Choi believes Trump’s stance has softened over time.

“Trump in the past mentioned provocative statements about renegotiating the terms or even termination, but nowadays he does not mention anything about termination,” Choi said. “In my view, the changes would be relatively minimal because the existing agreement is already quite robust for both countries. So both sides may not want to undermine the main letter and spirit of the agreement.