US, South Korea overhaul 6-year-old free trade agreement

The Donald Trump administration said it has widened United States access to South Korea’s car market while providing American manufacturers protection from South Korean imports.

While not directly impacting agriculture, the renegotiated deal addresses vehicle exports between the countries and establishes a quota for South Korean steel exports to the U.S. The Asian nation remains exempt from tariffs the Trump administration recently imposed on steel and aluminum imports.

The United States and South Korea have reached an agreement to overhaul the six-year-old U.S.-Korea Free Trade Agreement. President Donald Trump had called the original Korea pact a job killer.

The new deal doubles—to 50,000—the cars each U.S. automaker can export annually to South Korea, reduces bureaucratic barriers to American products and extends a 25 percent U.S. tariff on South Korean pickup trucks by 20 years, through 2041.

U.S. Trade Representative Robert Lighthizer and Republic of Korea Minister for Trade Hyun Chong Kim announced the deal in a joint statement. The nations have also agreed on terms for a country exemption for the Republic of Korea from tariffs imposed on steel imports under Section 232 of the Trade Expansion Act of 1962 pursuant to Presidential Proclamation 9705, as amended.

“At the instruction of the ministers, negotiators are finalizing the terms of the KORUS FTA negotiations, which are subject to domestic procedures in both nations before provisions can be brought into force,” the statement read. “The revised agreement addresses issues related to investment, tariffs, trade in automobiles and trade remedies. Additional progress was made in the areas of pharmaceuticals, customs and textiles to smoothly implement the KORUS FTA.

“The arrangement with respect to steel imports is expected to take effect on May 1, 2018. This represents important progress in improving U.S.-Korea trade and economic relations, based on their strong and enduring security relationship.”

With the deal, South Korea escapes America’s new 25 percent tariff on imported steel but must accept quotas on steel exports equal to 70 percent of its average annual shipments to the United States from 2015 to 2017.

The United States in March began imposing the steel tariffs, saying imports jeopardized U.S. national security. But it has been suspending the duties on allies like the European Union, Canada and Mexico.

The U.S. Treasury Department is also in talks on a deal to prevent Seoul from deliberately pushing its currency lower to give South Korean exporters a competitive advantage. A formal agreement on currency would be unprecedented—but it would include no enforcement mechanism.

Americans for Farmers and Families spokesman Kevin Lawlor reacted to the agreement in a statement.

“The announcement that President Trump and his administration have successfully negotiated revisions to the U.S.-Korea Free Trade Agreement is an encouraging sign for America’s farmers and rural families. President Trump is committed to maintaining, but updating existing trade agreements so that they are best positioned to work well for American consumers, farmers, manufacturers and workers well into the 21st century,” the AFF statement said.

“With negotiations ongoing between the United States, Canada and Mexico on the North American Free Trade Agreement, the KORUS revisions demonstrate there is a way forward to preserve and improve trade agreements delivering more jobs and opportunity for our nation.”

Included in the trade framework is an “agreement in principle,” which will not impact the market access for U.S. coarse grains and co-products.

Deb Keller, U.S. Grains Council chairman and farmer from Iowa, said in a statement, “This announcement is welcome news as South Korea has been a vital market for U.S. coarse grains and co-products for decades.”

The agreement in principle is not formally part of KORUS but does include an agreement by South Korea to a product-by-product export cap of 70 percent of the average volume from the past three years. In exchange, the deal includes a permanent exemption for South Korea from the recently announced 25 percent steel tariff, but not from the 10 percent duty on aluminum imports.

The agreement also does not affect the market access provisions provided by KORUS for U.S. corn, barley, sorghum, ethanol and distillers dried grains with solubles. These favorable trade terms complement the council’s work in South Korea since 1972 offering expertise on how to use corn, DDGS and, most recently, ethanol. This work has transformed the South Korean livestock and feed grain sectors over time and made the country one of the largest and most loyal customers of U.S. grain.

“The free trade agreement with South Korea solidified one of the council’s greatest success stories,” Keller said. “The market access provided by KORUS has contributed significantly to the long-standing and positive relationship with one of our consistent, top-five corn importers.”

South Korea was the third largest market for U.S. corn in 2016-17, hitting a six-year high at 5.6 million metric tons (220 million bushels). South Korea was also the third largest market for U.S. DDGS, setting a new record for the fifth year in a row at 979,000 tons. More than 96 percent of feed producers in South Korea now use DDGS in their rations, following USGC’s efforts to introduce and advocate for the feed ingredient.

The National Pork Producers Council said in a statement it was very pleased with the outcome of the negotiations. Under the terms of the renegotiated deal, agriculture is not impacted and U.S. pork will continue to flow to South Korea with no tariff.

“Last year, the U.S. shipped $475 million of pork to South Korea—a 30 percent increase over 2016—making it the No. 5 U.S. pork export market. President Trump said final execution of the agreement may be delayed until pending nuclear arms talks with North Korea are seen to be progressing in a positive direction.”

The U.S. trade deficit in goods with South Korea—nearly $23 billion last year—widened after the original pact took effect in 2012, one reason Trump has denounced it. Trade in autos has been especially lopsided: South Korea last year exported to the United States 929,000 passenger vehicles worth $15.7 billion. By contrast, the U.S. shipped to South Korea fewer than 53,000 autos, worth just $1.5 billion, according to the U.S. Commerce Department.

The United States says South Korea has used nontariff barriers, such as rigorous customs inspections, to block U.S. products.

Trump’s complaints about South Korean trade practices have caused friction between the two allies at a crucial time, as he prepares for a meeting with North Korea’s reclusive leader, Kim Jong-un.

Unions at South Korea’s two largest automakers, Hyundai Motor Co. and Kia Motors Corp., have already blasted the new agreement for blocking access to the fast-growing U.S. pickup truck market.

“It is a humiliating deal that accepts Trump’s strategy to preemptively block South Korean pickup trucks,” Hyundai Motor Co.’s labor union said in a statement.

AP Economics Writer Paul Wiseman contributed to this report.

Larry Dreiling can be reached at 785-628-1117 or [email protected].