US-Korea Trade Talks Continue with Steel Tariffs in the Background

22 March 2018

Negotiators from the US and South Korea met last week in Washington to continue discussions on amending their free trade agreement, known also as the KORUS FTA. The talks come at a time of heightened trade tensions between the two trading partners, particularly with the US set to impose tariffs on imported steel and aluminium on Friday. 

The original KORUS FTA was reached in 2007 under former US President George W. Bush and was later partially renegotiated under former US President Barack Obama, after which it was ratified under both the US and Korean legislatures in 2011. It went into effect in March of the following year. 

Details on progress were limited at press time, however, and dates for the next round were not yet publicly announced. “Officials from the United States and the Republic of Korea held discussions and are expeditiously negotiating amendments and modifications to the KORUS agreement,” a spokesperson for the Office of the US Trade Representative told Reuters. 

Yonhap, the Korean government-supported new agency, reported that officials continued talks around Seoul’s auto market and Washington’s planned steel tariffs during last week’s meetings. 

Current landscape

The KORUS FTA has come under scrutiny under the administration of US President Donald Trump, which has raised concerns over Washington’s trade deficit with Seoul. In an April 2017 interview with the Washington Post, Trump suggested that he might withdraw the US from the deal if negotiations to update it fail.

“With the Korean deal, we terminate and it’s over,” Trump said at the time. “I will do that unless we make a fair deal. We’re getting destroyed in Korea.”

Since then, US and Korean negotiators have met to address possible areas for updating the deal to better suit their respective needs. Two special sessions of a “joint committee” under the FTA were held in August and October of last year. 

Officials have since held two formal negotiating rounds this year. Among the issues that have reportedly emerged in the discussions are automobile tariffs and market access, as well as investor-state dispute settlement (ISDS) and trade remedies. The latter two are priorities for Seoul, MOTIE said in a press release

Prior to this month’s negotiations, US President Donald Trump called Korean President Moon Jae-in to discuss the talks’ progress and future direction, according to a Korean government statement cited by Reuters.  

Tariffs in the background

The meetings also coincided with a recent US announcement that it would be imposing a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminium, due to take effect on Friday 23 March. (See Bridges Weekly, 8 March 2018

Although exceptions will be carved out, at least temporarily, for the US’ partners in the North American Free Trade Agreement (NAFTA), Mexico and Canada, South Korea will have to seek out an exemption if it wants to avoid the duties. Exemptions can be requested at the country level and/or at the product level, subject to certain conditions. 

“[Seoul] will deploy all possible means to respond to US steel tariffs measures and make an all-out effort,” South Korean Finance Minister Kim Dong-yeon said in remarks reported by Reuters. Seoul is one of the top exporters of steel to the United States. 

The topic of tariffs came up during last week’s discussions in Washington. "The two sides made some headway in some of the key issues and agreed to promptly conduct follow-up negotiations," the Korean MOTIE said in a statement reported by Yonhap. "The partners will continue to talk about the steel duties."

South Korean officials suggested that they were optimistic about Seoul’s ability to negotiate exemptions. "I think there will be a good result within this week if we wait for the results," Trade Minister Paik Un-gyu said in remarks reported by the Yonhap news agency. 

ICTSD reporting; “South Korea will ‘deploy all possible means’ to respond to U.S. tariffs: finance minister,” REUTERS, 12 March 2018; “S. Korea to Discuss US Steel Tariffs in KORUS FTA Talks,” KBS WORLD RADIO, 9 March 2018; South Korea, U.S. to hold third round of free trade talks on Thursday,” REUTERS, 14 March 2018; “U.S. seen as using steel tariffs as leverage for KORUS FTA talks,” YONHAP NEWS AGENCY, 9 March 2018; “Trump: ‘We may terminate’ U.S.-South Korea trade agreement,” THE WASHINGTON POST, 28 April 2017 “S. Korea, U.S. discuss steel tariff exemption, autos in FTA talks,” YONHAP, 17 March 2018; “US may exempt our steel from tariffs: S. Korea,” BUSINESS STANDARD, 19 March 2018; “Trump asked South Korea officials to show flexibility in trade talks – Seoul,” REUTERS, 17 March 2018.

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