USTR Report Includes 6 lines on Renegotiation of Korea-US FTA

US President Donald Trump is putting pressures on South Korea with “America-first” policies and protectionism.

The Donald Trump Administration has confirmed anti-dumping duties on Korean steel products for the first time since its inauguration. It is concerned that as the anti-dumping duties were higher than a preliminary ruling, the Trump Administration's protectionism policies are getting into their stride. Earlier this year, the US Department of Commerce decided to impose preliminary tariffs on Korea’s DOTP and ESBR, which are Korean chemicals, in January and February, respectively.

According to the Korea International Trade Association (KITA) on March 2, the US Department of Commerce finalized an 8.43 percent anti-dumping duty on Korean-made phosphor copper on February 28 (local time). The department imposed a tariff more than double that of the preliminary ruling (3.79%). Last year, Korea exported phosphor copper worth about US$35.6 million to the US.

Following putting the pressure on Korean products through anti-dumping tariffs, the US Trade Representative (USTR) directly addressed issues related to the Korea-US free trade agreement (FTA). The analysis says that the US Administration will review the US-Korea FTA. However, the Korean government cautioned against overestimation, saying, “The US administration repeatedly reiterated its position to conduct an overall review of all of its bilateral and multilateral trade agreements.” Korean officials say that the ruling is not different from a posture which the United States took before.

The key point of a passage about Korea in the President's 2017 Trade Policy Agenda released by the USTR on March 1 (local time), is that the Korea-US FTA more than doubled America’s trade deficit with Korea. The US’s exports to Korea dropped by US$ 1.2 billion (KRW 1.3 trillion won) from 2011 just before the entry into force of the Korea-US FTA to 2016 but the US’s imports of Korean products ballooned by more than US$ 13 billion (about 14.8 trillion won).

"The time has come for us to seriously review our approach to several trade agreements including the Korea-US FTA," the report says. This means that the US may review the renegotiation of the Korea-US FTA which seemed to subside. This is why many experts are concerned that the Trump administration will take aim at the Korea-US FTA after its formal withdrawal from the Pacific Partnership Agreement (TPP) and the renegotiation of the North American Free Trade Agreement (NAFTA).

However, there is an analysis that says that it is too premature to predict that the renegotiation of the US-Korea FTA will be realized with a few words in the report only.

"Most of the contents about nation-by-nation trade deficits are about China and contents about Korea were only six lines," said an official at the Korean Ministry of Commerce, Industry and Energy via reference data. "There is no direct reference to renegotiating the Korea-US FTA. The six lines are merely suggesting objective figures that the US trade deficit with Korea more than doubled in 2016 compared to 2011."

"The bilateral and regional negotiation and agreement section generally evaluates implementation by FTA partner countries and is positively evaluating the Korea-US FTA," the official said. “Both sides are actively discussing issues of interest on a regular basis through the Joint Korea-US Committee and sectoral action committees."

The government is also making defending cases. On February 28, Joo Hyung-hwan, Korean minister of commerce, industry and energy attended LG Electronics’s signing ceremony to build a large-scale home appliances factory in Tennessee, USA. The Korean minister also met the governor of Tennessee, Bill Haslam and said, "A strong cooperation environment named ‘the Korea-US FTA’ has driven massive investments in the US by Korean companies such as LG Electronics."

The Korea International Trade Association (KITA) also pointed out the necessity of changing the analysis method of the US Trade Representative's (USTR) report on the Korea-US FTA, and stated that it should highlight the positive effect of the US-Korea FTA.

Although the US's trade deficit with Korea has swelled since the Korea-US FTA, there are some parts that have nothing to do with US-Korea FTA tariff benefits,” said an official at the Korea International Trade Association. “It is necessary to analyze Korea’s export performances in relation to the Korea-US FTA by dividing Korea’s export items into those that benefited from the trade deal and those that did not."

"South Korea ought to utilize Trump's protectionist policies as an opportunity to diversify its export structure by diversifying its export engines such as items and markets," said an official at Korea Trade Investment Promotion Corporation (KOTRA). “Also, it is necessary for Corporate Korea to make a systematic strategy such as expanding high-value-added exports and reestablishing localization strategies from a perspective which sees the United States as a production market.”