Shipping containers sit stacked among gantry cranes at the Busan Port Terminal (BPT) in Busan, South Korea. (Photographer: SeongJoon Cho/Bloomberg)

Trump Seeks Fix to South Korea FTA Amid Nuclear Tensions

(Bloomberg) -- President Donald Trump is seeking a quick fix to the U.S. free-trade agreement with South Korea even as he exchanges insults with the Asian nation’s nuclear-armed neighbor.

U.S. and South Korean negotiators will meet Friday in Washington to discuss changes to the pact between the two countries, known as Korus. The Trump administration has cast the deal as a failure, noting America’s trade deficit with South Korea has doubled since the pact took force in 2012.

Trump has blamed what he sees as unfair trade deals for hollowing out America’s manufacturing sector and entrenching the nation’s overall $505 billion trade gap. But his efforts to rebalance trade are complicated by the U.S.’s alliance with South Korea to defuse North Korea’s nuclear-weapons program. This week, Trump boasted he has a bigger “nuclear button” than North Korean leader Kim Jong Un.

It’s the first round of Korus negotiations since the U.S. in July invoked a clause in the accord that enables either side to seek amendments. So far, Trump hasn’t notified lawmakers that he plans to seek their approval under a law that gives the president authority to “fast track” trade deals through Congress.

Using fast-track authority would give Trump scope to push for sweeping changes to the deal, as he’s seeking in the North American Free Trade Agreement with Canada and Mexico. But under that he’d need to spell out negotiating objectives supported by Congress and any revisions would be put to a vote by lawmakers. Even though Congress is Republican controlled, some members of Trump’s party have urged him not to backtrack on free trade.

The top Democrat on the Senate Finance Committee is concerned that the Trump administration has left the public “in the dark” about what it’s trying to achieve by revising Korus. “It is disappointing that the administration is continuing negotiations with Korea without following basic transparency and consultation requirements,” Ron Wyden, of Oregon, said in an emailed statement.

Since Trump isn’t seeking congressional approval, the U.S. will probably propose narrow changes to the agreement, such as amendments to tariffs or the rules of origin that set content requirements for products like cars, said Troy Stangarone, senior director of congressional affairs and trade at the Korea Economic Institute of America in Washington.

Stangarone said trade in autos is likely to be a major focus of the discussions, given the U.S. has an $18.8 billion trade deficit in vehicles with South Korea. The U.S. overall deficit in goods with South Korea narrowed to $21.6 billion in 11 months through November, down 18 percent from the same period a year earlier, according to U.S. data released Friday.

The U.S. is South Korea’s second-largest trading partner and the push to alter the deal comes at a difficult time for Seoul, which is already grappling with the nuclear threat to the north. Thwarting the risk from North Korea has risen in prominence on Trump’s agenda since he took office, and seemed to be the dominate theme above trade during his November trip to Asia. In South Korea, he discussed both topics in a meeting with President Moon Jae-in.

“South Korea will probably take a defensive stance during the negotiations to minimize changes to the deal, whereas the U.S. may ask for changes in areas spanning manufacturing goods to agriculture and services,” said Heo Yoon, a professor at Sogang University and president of the Korean Association of Trade and Industry Studies. “Even though South Korea has announced that further opening for agricultural goods is impossible, the U.S. can still ask for it to get concession in other areas.”

The Korus talks don’t appear to be a priority for the Trump administration, which is also seeking an ambitious overhaul of Nafta and changes to its economic relationship with China, said Matthew Goodman, a senior adviser for Asian economics at the Center for Strategic and International Studies.

“Korus could be the sacrificial lamb to show toughness on trade generally, because the Trump administration is going to face a lot more backlash from the U.S. business community, the U.S. agriculture community if for example they walk away from Nafta or do something really radical on China,” Goodman said.

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