The United States called for stricter standards for imported steel raw materials at the South Korea-US Free Trade Agreement (FTA) amendment negotiations. It is part of its strategy to see whether South Korea serves as a base for transshipment of Chinese low-priced steel products.
According to some officials from trade authorities on Feb. 22, the U.S. Trade Representative (USTR) asked to strengthen the rules of origin for steel products from the current three changes in the first four to six digits of HS Code at the KOR-US FTA amendment negotiations held twice earlier this year.
The rules of origin are the criteria needed to determine the national source of a product so that it can benefit from preferential tariff at a FTA. The KOR-US FTA has the three standards – three changes of the HS code, added values that determine how much domestic components were used and processing process that examine whether fabrics go through some specific processing processes.
The U.S. is asking to strengthen the standards for three changes of the current four to six levels for steel products. For instance, when South Korea makes cold rolled steel sheets (HS Code 7209) with imported hot rolled steel sheets (7208), the products can be considered Korean products with the Change of Tariff Heading (CTH), which allows three changes in the first four digits, under the current rules. However, they will not be recognized as Korean products if the Change of Chapter (CC), which refers to change in the first two digits, is applied as the U.S. requested. The same rules apply to items under the Change of Tariff Subheading (CTSH) – change in the first six digits.
The U.S. intends to see how much Chinese steel products are imported to the U.S. through South Korea. South Korea was the largest importer of Chinese steel with 14.22 million tons as of 2016.
Market experts express concerns that the U.S. can limit the imports of South Korean industrial products made of steel, including automobile, when the rules of origin for steel products are strengthened. Under the current KOR-US FTA, the added value ratio of South Korean cars is 35 percent. South Korea’s car exports to the U.S. can face crisis when intermediary steel materials turn out to be Chinese as domestic automakers barely meet the standards.