By Jonathan Cheng and Kwanwoo Jun
The Wall Street Journal
March 15, 2017 7:04 a.m. ET
SEOUL–American and Korean captains of industry gathered on Wednesday in a convention center here to mark the fifth anniversary of the U.S.-South Korean trade pact. But it was a nervous celebration.
Many were worried the U.S. will try to renegotiate or even abrogate the hard-fought agreement, which they tout as exemplary, after U.S. President Donald Trump deemed it detrimental to American interests. Mr. Trump already scrapped American participation in the Trans-Pacific Partnership, which was structured on the Korean deal.
Then on Tuesday their worries deepened when Mr. Trump’s nominee for U.S. Trade Representative singled out Mexico and South Korea during his Senate confirmation hearing as sparking American trade deficits.
“In some case, the rules don’t seem to be working as well as others,” said Robert Lighthizer, the nominee.
Robert Lighthizer, nominee for U.S. Trade Representative. AFP photo
Critics say the deal has led to a flood of Korean cars, auto parts, memory chips, motors and pumps in the U.S., weighing on American competitors and jobs. A U.S. Trade Representative report this month said the pact, the largest one implemented during the Obama era, doubled the U.S. trade deficit in goods with South Korea despite projections when it took effect in 2012 that the deficit would narrow. “Needless to say, this is not the outcome the American people expected from that agreement, ” the report said.
The pact’s defenders say the Korea-U.S. Free Trade Agreement, known as Korus, should be safe: It’s a bilateral deal, the kind that Mr. Trump favors, and incorporates the wisdom Washington has accumulated from prior trade pacts.
These people, both in the U.S. and in South Korea, say a more holistic view is needed, one that considers not only the benefits of more than $100 billion in annual bilateral trade but also those of a vital strategic alliance. South Korea–home to 28,500 U.S. troops–serves the U.S. as a bulwark against North Korea’s military threat and China’s geopolitical rise. The military ties are set to deepen with the deployment of a costly U.S.-built missile-defense array this year.
“Korus has been good for America, and it’s good for Korea,” Jeffrey Jones, a former chairman of the American Chamber of Commerce in Korea, said at Wednesday’s anniversary event, calling the U.S. report “harsh words.”
Korean officials say the pact–which eliminated 95% of tariffs on consumer and industrial products over a five-year period–benefits the U.S. even on a narrow economic basis. The deal, supporters say, has helped both sides withstand the sluggish global trade environment, resulting in an increase in the U.S. exports of aircraft, vehicles, beef and natural gas to South Korea.
The pact allowed American shipments of cars to South Korea to rise an annual average of 36% for the past five years to $1.7 billion in 2016, Korean officials say, and helped Hyundai Motor to invest billions of dollars in U.S. plants.
American automakers complain over unclear and burdensome environmental and certification procedures that they blame for limiting their market share to roughly 15%, less than half their share of many developed countries.
The Trump administration has signaled the importance of the U.S.-Korean alliance, sending Secretary of State Rex Tillerson to Seoul for meetings on Friday with the acting president and the foreign ministry. That followed another stopover by U.S. Defense Secretary Jim Mattis to Seoul last month.
But any optimism over Mr. Tillerson’s trip was tempered by unease over his mission. The U.S. will seek “economic engagement with Asia in a way that not only promotes growth but also promotes the interests of the United States,” said Susan A. Thornton, a top State Department diplomat accompanying Mr. Tillerson on the trip. She said the U.S. wanted to find a way of “leveling the playing field.”
Any Korus renegotiation is bound to be complex. The pact took six years to complete. Negotiations began in 2006 and a deal was signed a year later only to be renegotiated in 2010 as the U.S. forced through more open rules on auto sales before going effect two years later.
The new administration’s more U.S.-centric perspective on trade and skepticism toward Korus has alarmed Korean officials and industry.
Joo Hyung-hwan, South Korea’s top trade official, traveled to Washington last week to try to sway Commerce Secretary Wilbur Ross over Korus’s benefits, pledging to buy more U.S. shale gas to help address the trade imbalance. Mr. Joo also dismissed comparisons between Korus and the North American Free Trade Agreement, which took effect in 1994.
“The Korea-U.S. Free Trade Agreement is just turning five years old,” Mr. Joo said after his talks with Mr. Ross. “It is not fair that the deal is treated the same was as 23-year-old Nafta.
Next week, Sung Ki-hak, chairman of the Korea Federation of Textile Industries, will lead a delegation of 20 executives to North Carolina to discuss possible partnerships, but is bracing for a potential shift in the trade landscape.
“There is a fear of unpredictability,” Mr. Sung said. “We don’t know exactly what is the intention of the new administration.”
In an editorial on Wednesday, South Korea’s Joongang Daily argued that “Seoul must do its best to help Washington see reason” and understand the benefits of the trade deal, urging the country to stand up to Mr. Trump.
“We must prepare for the assault,” the editorial said.
In the U.S., opinions are divided.
Lori Wallach, director of Public Citizen’s Global Trade Watch, a progressive consumer watchdog group, criticized Korus for worsening the U.S. trade deficit with South Korea in part because it didn’t include safeguards to prevent Seoul from weakening its currency. “Replacing Korus with good rules is the best option, and abrogation is the next best option,” Ms. Wallach said.
South Korea has denied that it manipulates its currency.
Tami Overby, senior vice president for Asia at the U.S. Chamber of Commerce in Washington, defended Korus as good for American industry.
“Of course in a relationship that large, there will be tensions,” she said. “Korus is the highest standard trade agreement that the U.S. has in force. For the most part, it’s working.”
William Mauldin in Washington and Timothy Martin in Seoul contributed to this article.
Write to Jonathan Cheng at firstname.lastname@example.org and Kwanwoo Jun at email@example.com
Tags: aircraft, American Chamber of Commerce in Korea, beef, China, Donald Trump, Hyundai, Hyundai Motor to invest billions of dollars in U.S. plants, Korea-U.S. Free Trade Agreement, Korus, natural gas, North Korea, Robert Lighthizer, South Korean trade, U.S., U.S. President Donald Trump, U.S. Trade Representative, U.S.-South Korean trade pact, vehicles