Korea avoids currency manipulator label

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Korea avoids currency manipulator label

Korea has once again avoided being labeled as a currency manipulator by the U.S. government. However, it has remained on the monitoring list along with other major U.S. trading partners - China, Japan, Germany and Switzerland.

The report, released on Wednesday by the U.S. Treasury, comes as U.S. President Donald Trump is scheduled to make his maiden voyage to the peninsula in the first week of November since he was elected a year ago.

During his visit, the U.S. President is expected to discuss trade with South Korean President Moon Jae-in, among other issues including the North Korean threat.

The two governments agreed to discuss changes to the bilateral free trade agreement earlier this month, as the U.S. government has been stepping up non-tariff protectionism against South Korean goods, and in particular possible safeguarding measures against Korean washing machines.

The U.S. Treasury’s report noted Korea’s recent efforts to reduce the trade imbalance.

“After several years of substantial asymmetric foreign exchange intervention to limit won appreciation in the context of large and growing current account surpluses, Korean authorities have reduced net foreign exchange intervention even as the exchange rate has appreciated moderately against the dollar,” the treasury report said.

It concluded that Korea’s current account surplus has relatively shrunk in the first half of this year to 5.3 percent of the country’s GDP.

According to the U.S. Treasury, Korea’s goods surplus with the United States shrunk by $8 billion between June 2016 and June 2017 compared to the same period a year earlier.

Yet citing the International Monetary Fund (IMF), the U.S. government has again urged the Korean government to take a more assertive action in “enhancing” the transparency of exchange rate intervention. This is the reason that Korea is still on the monitoring list.

“It is important that the Korean authorities act to strengthen domestic demand and avoid reverting to excessive reliance on external demand for growth,” the treasury report said.

“The IMF continues to describe Korea’s current account surplus as stronger, and its exchange rate as weaker, than justified by medium-term economic fundamentals.”

The U.S. government passed the Trade Facilitation and Trade Enforcement Act in February 2016 that labels a trading partner as a currency manipulator when meeting three requirements: having a trade surplus with the United States exceeding $20 billion; current accounts exceeding 3 percent of the country’s GDP; and consistent intervention by the government of shoring up foreign currency worth a minimum 2 percent of the country’s GDP for a year or longer.

The U.S. government under President Trump has been pushing an America First policy.

In fact in its latest trade report, the U.S. Treasury stressed that the U.S. government will no longer tolerate trade imbalance.

“The Administration remains deeply concerned by the significant imbalances in the global economy,” the report said.

“The United States should not and will not bear the burden of an international trading system that unfairly disadvantages our exports and unfairly advantages the exports of other trading partners, whether through imbalanced macroeconomic policies or unfair trade barriers.”

A recent study by the Korea International Trade Association, however, noted that the United States has been stepping up its protectionism as it has the largest number of import restrictions, including antidumping tariffs and safeguarding measures, against Korean goods.

Among the 190 import restrictions against Korean goods this year, those imposed by the United States account for 16 percent, or 31 restrictions.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
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