Seoul clinches new trade deal with Trump
“The revision of the Korea-U.S. FTA [free trade agreement] has been settled ‘in principle,’” said Kim Hyun-chong, Korea’s trade minister, on Monday as he announced the results of his four-week visit to the United States at a press briefing at the government complex in Seoul.
In January, Seoul and Washington began renegotiations of some of the terms in their bilateral free trade agreement, which U.S. President Donald Trump described as a “horrible deal” during his election campaign. During three rounds of talks, the industries most discussed were agriculture and autos.
According to the trade minister, the United States will not revive a 2.5 percent tariff on auto imports from Korea that was ended in 2016. But it will extend a tariff on pickup truck imports by an additional 20 years to 2041, which is likely to keep Korean pickups out of the United States.
The annual number of U.S.-made vehicles that can be sold in Korea without having to meet domestic safety guidelines will be doubled from 25,000 cars per brand under the terms of the FTA to 50,000.
Kim noted that the 50,000 figure does not guarantee that many imports from the United States, noting that the actual number imported by each major U.S. auto company last year remained below 10,000 - for Ford 8,107, GM 6,762 and Chrysler 4,843.
The current emission standards will be maintained until 2020, but it promised new standards effective from 2021 to 2025 that will take the “global trends such as the U.S. standards” into consideration, Kim added. Washington has been demanding Korea ease environmental regulations for U.S. automobiles.
After making concessions on cars, Kim and his team were able to convince their American counterparts to exempt Korea from new tariffs slapped on steel imports.
Trump ordered the tariffs earlier this month, citing section 232 of the Trade Expansion Act of 1962, which allows the U.S. government to slap tariffs to protect “national security.”
“Korea became the first country to be exempted from the 25 percent tariffs on steel by the United States,” said Kim. “Accordingly, Korean companies will be able to avoid 25 percent tariffs even after May 1, which is the expiration date of a temporary exemption [that Korea obtained last week].”
The steel tariffs would have had a dire effect on Korean steel companies.
Data by the Trade Ministry showed that Korean producers exported 3.6 million tons of steel to the United States last year, making the U.S. the third-largest market for local steelmakers after China and Japan.
The tariffs would have led to a reduction in the steel trade of $880 million per year, according to an estimate by the Hyundai Research Institute made earlier this month.
But Korean companies will still be affected by a new quota on steel imports imposed by the Trump administration. Korea’s yearly exports to the U.S. are capped at around 2.68 million tons, about 74 percent of the amount exported in 2017.
Seoul made it clear to Washington that opening up the agricultural sector was a “red line” that could not be crossed, Kim explained.
“After clearly indicating our ‘red line,’ the strategy was to finish the talks as quickly and narrowly as possible,” Kim said. “Our trade surplus with the United States was $17.9 billion last year, 73 percent, or about $13 billion, of which come from automobiles, which made the United States shift its focus to the auto sector.”
Still, Korea is not immune to the trade war escalating between the United States and China.
Trump on Thursday signed a maximum of $50 billion in tariffs on Chinese imports. China responded the next day, announcing $3 billion worth of reciprocal tariffs on U.S. products.
The Hyundai Research Institute projected that global trade volume will shrink if major economies began levying heavier tariffs.
“If the global average tariff increases from the current 4.8 percent to 10 percent, Korean exports will shrink by $17.3 billion,” said the institute.
BY CHOI HYUNG-JO [email@example.com]