US Trade Rep Requests "Special Session" on Korea Trade Deal

20 July 2017

US Trade Representative Robert Lighthizer sent a formal notification to Seoul last week calling for a "special session" of the joint committee under the bilateral US-Korea Free Trade Agreement (KORUS FTA).

The reason for the request, according to a press release from the US Trade Representative (USTR), is to “start the process of negotiating to remove barriers to US trade and consider needed amendments to the agreement.”

The US has “real concerns about significant trade imbalance with Korea,” the statement says. Addressing trade deficits with various partners has been stated repeatedly as one of the Trump Administration’s top trade policy objectives, and White House officials have flagged the KORUS FTA as one of the existing trade agreements where they would like to see changes.

The KORUS trade deal was signed in 2007 and was later partially renegotiated in 2010. It was then ratified in both countries the following year, entering into force in March 2012. The deal aimed at slashing goods tariffs, opening up markets for agricultural products and automobiles, and liberalising trade in services between the two countries, among various other provisions.

US lawmakers call for consultations

The USTR request sparked a response from several top US legislators on trade, with Senate Finance Committee chairman Orrin Hatch of Utah and ranking member Ron Wyden of Oregon pairing up with House Ways and Means Committee chairman Kevin Brady of Texas and ranking member Richard Neal of Massachusetts to submit a joint letter to Lighthizer.

Hatch and Brady are Republicans, while Wyden and Neal are Democrats. The four lawmakers asked that the US trade chief “consult closely” with the US legislature, noting that doing so would be in line with both legal obligations and past precedent, along with allowing Washington to present a “united front” to its trading partners.

“There are a host of areas in which our trade relationship with Korea can be enhanced.  A high-level dialogue with Korea also presents an opportunity to address longstanding concerns with respect to implementation of existing commitments on automotive trade, services, customs, and other key matters,” they said.

However, they added that the US “cedes no sovereignty to the joint committee” and flagged the legal roles of both the US president and Congress in advancing any KORUS changes.

Special session

While KORUS already dictates that the joint committee meet annually, co-chaired by the respective trade ministers or other designed officials from both sides, the call for a special session must come at a party’s particular request. The joint committee is meant to examine ways to develop deeper trade ties or address disagreements that have emerged, along with looking at how the deal has operated in practice.

It can also “consider amendments to this agreement or make modifications to the commitments therein,” among other possibilities.

Earlier this year, US President Donald Trump suggested to the Washington Post that terminating the agreement could be one option going forward, though US officials have since moved away from that characterisation.

While the details on how exactly the US is going to tackle the deficit issues are not yet clear, Korea has received questions from the US on the implementation of KORUS in the past. In addition, a 2017 USTR report on “foreign trade barriers” highlighted both the gains from the trade deal, along with some questions on certain hurdles that US businesses have allegedly faced in different areas.

South Korea has not yet released an official statement regarding the US request. Generally, however, South Korean officials have noted the gains seen on both sides in the five years since KORUS took effect. Commerce Minister Joo Hyung-hwan, while visiting the US in March this year, noted the deal’s benefits in comments to the Financial Times and expressed an interest in building upon it further.

According to Korean news sources, Seoul officials have pointed out that Korea has not agreed to negotiating changes to the trade deal, while suggesting that there could be other options for dealing with the issues raised by Washington.

Under  the agreement’s procedures, unless otherwise agreed by the parties, the joint committee would convene within 30 days of the request. While the US suggested that Washington serve as the location, KORUS terms indicate that the joint committee meets either in the respondent country or at another mutually agreed location.

Weighing the impacts

How to assess the impacts of KORUS has been a recurring question both during the deal’s negotiation and since its entry into force, particularly given sensitivities on both sides with certain key sectors.

Prior to the KORUS’ enactment, several studies explored how the agreement might impact the two economies. In 2007, the US International Trade Commission estimated that US GDP would increase by US$10.1 billion to US$11.9 billion upon full implementation. Their estimates suggested the expansion of US goods exports to Korea, which some other analyses issued in subsequent years similarly predicted, though others were less optimistic.

The Korea Institute for International Economic Policy assessed in 2005 the potential impact on Korea’s economy, suggesting an increase of 0.42 percent to 2.27 percent of GDP.

According to a USTR fact sheet released in 2016, under the previous administration of US President Barack Obama, “the US-Korea trade and investment relationship is substantially larger and stronger than before the KORUS agreement.” In particular, the Office of the USTR said that the agreement has created benefited US exporters of various manufactured and agricultural products, as well as services and intellectual property works providers.

The USTR statement released last week under the Trump Administration, however, refers to the effects of the US-Korea accord as “quite different from what the previous Administration sold to the American people when it urged approval of this agreement.”

South Korea is currently US’ sixth largest trading partner. The US has been running a deficit in goods trade with South Korea “for nearly two decades,” according to Lighthizer.

Data from the US International Trade Commission and the US Department of Commerce’s Bureau of Economic Research suggests that goods trade “imbalances” have been steadily rising before the agreement came into force, resulting from overall bilateral trade expansion.

However, exports of some goods on both sides have improved over time, including from when KORUS entered into force, with results varying depending on the sector. US exports of capital goods, minus automobiles, are ranked by the Bureau of Economic Research as the top export to the Asian economy, while the top imports from South Korea are automobiles and their associated parts. In services trade, the US is keeping a steady trade surplus.

ICTSD reporting; “Trump: ‘We may terminate’ U.S.-South Korea trade agreement,” THE WASHINGTON POST, 28 April 2017; “US to renegotiate South Korea trade pact,” FINANCIAL TIMES, 17 April 2017; “US pressuring on KORUS renegotiation, S. Korea says joint investigation first,” THE HANKYOREH, 14 July 2017; “South Korea and US wrangling over where to host KORUS FTA committee special session,” THE HANKYOREH, 14 July 2017.

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