Tightening of U.S. regulations could hit Korea

A Korean think tank released a warning about an upcoming regulation tightening by the U.S. government against countries it considers to be tampering with foreign currency exchanges.

The main targets are the three major Asian economies - China, Japan and Korea - which have enjoyed healthy trade account surpluses in exchanging goods with the United States.

The Korea Economic Research Institute (KERI) on Sunday released a report noting that ratification of the amendment to the Customs and Enforcement Act by U.S. Senators Michael Bennet, Orrin Hatch and Tom Carper is finishing up.

“The Bennet-Hatch-Carper amendment has passed both the U.S. House of Representatives and the Senate, and only needs signing by the [U.S.] president,” the report noted. “Once the amendment is enacted, it could affect economic policies including trade, foreign exchange, monetary policies and industries.”

The think tank said the customs bill will have stronger punitive actions than the Super 301 amendment, which imposes taxes on certain companies or products as retaliation for what the U.S. government considers to be unfair trading practices.

The new regulatory actions will be imposed on the trading country itself, such as making it difficult for the country to attract foreign direct investment or limiting access to U.S. procurement, tighter surveillance and limiting future trade agreements.

The amendment is thought to be particularly targeting Korea, as the U.S. Treasury Department in April released a report saying Korea had been intervening in its foreign exchange market.

“Balanced approaches to macroeconomic policy are particularly needed in the largest surplus countries, notably in Germany, China, Japan and Korea,” the report in April noted.

“The Korean authorities have intervened to resist won appreciation in the context of a large and growing current account surplus,” the report said. “The Treasury has intensified its engagement with Korea on these issues. We have made clear that the Korean authorities should reduce foreign exchange intervention, limiting it to the exceptional circumstance of disorderly market conditions, and allow the won to appreciate further. The authorities should also increase transparency of foreign exchange operations.”

An East-West Center report released in November by senior fellow Marcus Noland, who is also the executive vice president and director of studies at the Peterson Institute for International Economics, said when the revised bill goes into effect, Korea will among the most affected.

“These provisions from the [Bennet-Hatch-Carper] amendment have implications for Northeast Asia, possibly Korea in particular,” the report said. “If the Treasury comes under pressure to ‘do something’ to forestall more rash initiatives in Congress, Korea and Taiwan are likely to be at the top of the list. … If the amendment becomes law, it could undercut Korea’s efforts to attract direct investment from the United States and interfere with Korea’s ability to join the Trans-Pacific Partnership as part of the next round of entrants.”

Kim Seong-hoon at KERI said China and Japan, which have a bigger ripple effect politically and economically, will unlikely be the first targets of the amendment. The punitive actions will likely be implemented first in countries like Korea and Taiwan, which have enjoyed current account surpluses in their trading with the United States but whose economies are relatively smaller and also have relatively limited political influence.

The Korean government, however, isn’t too worried and believes the possibility of the United States taking punitive actions against Korea is low.

“Korea is not tampering with foreign exchanges,” a Korean Finance Ministry official said. “[Even if it were true,] it would be difficult to prove it.”

The Korean government has never admitted to the Treasury’s charges of explicit currency manipulation, claiming it has only intervened in the market when absolutely necessary.

BY KIM KI-HWAN, LEE HO-JEONG [lee.hojeong@joongang.co.kr]