U.S. Wins South Korea's Agreement to Amend Free-Trade Deal

(Bloomberg) -- The U.S. has won South Korea’s agreement to amend their trade deal, overcoming previous reluctance to change the five-year-old pact, which the Trump administration blames for increasing its trade deficit particularly for vehicles.

South Korea plans to start the necessary process for amendment, the nation’s trade ministry said in a statement after the second round of talks concluded in Washington. U.S. Trade Representative Robert Lighthizer said he will work to "resolve outstanding implementation issues as well as to engage soon on amendments that will lead to fair, reciprocal trade.”

No announcement was made regarding how the deal might be amended. The first set of talks ended in stalemate in August, with the U.S. calling for revisions to the agreement and South Korea balking and instead proposing a study on its economic impact. 

The trade friction comes as the military allies try to find ways to increase strategic cooperation in response to an increasingly aggressive North Korea. President Donald Trump has threatened to withdraw from the deal, known as Korus, if South Korea doesn’t agree to terms that would reduce America’s growing trade deficit with the country, though he hasn’t made any concrete proposals.

“It seems South Korea took a step back,” said Heo Yoon, a professor at Sogang University’s graduate school of international studies in Seoul. "The U.S. will play hardball in discussions," but South Korea must take a holistic approach and consider not just relations with the U.S., but also with North Korea and China, he said.

The U.S. is South Korea’s second-largest trading partner and this push to alter the deal comes at a difficult time for Seoul. Relations with its largest export market, China, have soured over the decision to allow the U.S. to deploy a missile shield south of Seoul, and there is no sign that North Korea or the U.S. are interested in trying to negotiate an end to the current tensions.

Autos Dispute

The U.S. efforts to narrow its trade gap will probably focus heavily on the auto industry, meaning the administration may push to increase the number of American-made cars that can be sold in South Korea, Troy Stangarone, senior director of congressional affairs and trade at the Korea Economic Institute in Washington, said before the talks. Autos are a source of tension, given that the U.S. has an $18.8 billion trade deficit in vehicles.

South Korea treats the first 25,000 U.S.-made vehicles imported by each manufacturer per year as compliant with local safety and testing regulations, so long as the vehicles meet U.S. standards. Lifting that cap would boost U.S.-made vehicle imports, says Matt Blunt, president of the American Automotive Policy Council, a Washington-based group that advocates for General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV on trade issues.

“There’s a long list of regulations that are problematic, which we would argue have a disproportionate impact on U.S. automobile manufacturers,” Blunt said. “We think a way to cut through that would be to remove that 25,000-vehicle cap.”

Hyundai Motor Co., the South Korean automaker, said the agreement has been beneficial to both nations.

"Hyundai has always supported free trade and highly values the trade pact between the United States and Korea," it said in a statement. The deal "is particularly important from a geopolitical and strategic perspective," it said.

The U.S. also could pressure South Korea to accelerate the reduction of agricultural tariffs, many of which are being phased out slowly over 10 years or longer, David Salmonsen, senior director at the American Farm Bureau Federation, told Bloomberg BNA prior to the meeting.