Prompted by urging from President Trump to reduce the United States’ roughly $28 billion trade deficit with South Korea, the Office of the U.S. Trade Representative yesterday formally called for a special Joint Committee meeting under provisions of the U.S.-Korea Free Trade Agreement (KORUS) “to start the process of negotiating to remove barriers to U.S. trade and consider needed amendments to the agreement.”
During the election campaign, Trump repeatedly denounced the five-year-old trade pact with South Korea concluded by the previous administration as a “job killing” deal that he described as having been a “disaster” for workers and which he claimed had left America “destroyed.”
In April, Trump told Reuters that KORUS was “horrible” and said it would be targeted for renegotiation after his team had completed a revamp of the North American Free Trade Agreement.
“It is unacceptable, it is a horrible deal made by Hillary,” Trump said. (In fact, it was negotiated by both the Bush and Obama administrations.) “It’s a horrible deal, and we are going to renegotiate that deal or terminate it.” When asked at the time when he would announce his intention to modify the deal, Trump said: “Very soon. I’m announcing it now.”
During a summit at the end of June with newly elected South Korean President Moon Jae-in, Trump renewed his attacks on KORUS, saying it had been “rough” for the U.S. owing to it be being “not exactly a great deal” and even claimed, much to everyone’s surprise, that the two countries “are renegotiating” the agreement – something that not only wasn’t actually true at the time, but invoked a word considered “toxic” to Korean officials.
In his letter to South Korean Trade Minister Joo Hyung-hwan, USTR Robert Lighthizer said the U.S. wants to hold a meeting in Washington next month to “consider matters affecting the operation” of the trade pact, “including possible amendments and modifications.”
“I believe that this session and follow-on negotiations will provide an opportunity to review progress on the implementation of the Agreement, resolve several problems regarding market access in Korea for U.S. exports, and, most importantly, address our significant trade imbalance,” Lighthizer said in the letter.
“Korea is an important ally and key trading partner and in order to strengthen our relationship, we need free, fair, and balanced trade,” he said. Lighthizer also noted that the U.S. and South Korean leaders had committed to “foster expanded and balanced trade while creating reciprocal benefits and fair treatment” when they met in Washington last month.
“It’s imperative that we work together to ensure that the economic partnership between our two countries is not only strong and vibrant, but also fair, and that the KORUS Agreement benefits the U.S. economy as much as it does that of Korea,” he said.
Lighthizer said that reducing trade deficits with its trading partners around the world is a key focus of the Trump administration, and the U.S. has “real concerns about our significant trade imbalance with South Korea,” noting that the U.S. has had a persistent goods deficit with Korea for nearly two decades.
“When the KORUS Agreement was negotiated, expectations were high that both of our economies would realize significant gains,” the USTR said. “However, our overall deficit with Korea has increased, and our goods deficit has doubled since the Agreement entered into force,” he said. “It is critical that we achieve real progress that fosters a truly fair and level playing field, and a more balanced trade relationship.”
Korean businesses have been confounded by Trump’s insistence on renegotiation, saying that the White House’s obsession with a trade imbalance calculated solely on export and import amounts makes no sense – a view backed by experts who point out that although the U.S. has a deficit in merchandise trade, the country has enjoyed surpluses in services trade under the deal.
In a report last year, the U.S. International Trade Commission concluded that the Korea deal has been good for American interests, finding that the agreement is estimated to have improved bilateral merchandise trade balances by $15.8 billion in 2015. In other words, had it not been for the deal, the U.S. trade deficits would have been larger.
South Korean officials argue that the deal has been good for both countries. Yeo Han-koo, Director General of Korea’s Bureau of Trade Policy, is quoted today as saying his government “basically recognizes the South Korea-U.S. free-trade agreement as mutually beneficial, and so do the businesses from both countries,” indicating that the Moon administration “wants to keep the framework as it is, not shaking it up greatly.”
In an interview with Reuters, Yeo stipulated that the proposed joint committee meeting does not necessarily mean that South Korea will renegotiate the deal. “We will meet and discuss mutual interests and concerns. Our stance is that we have not agreed on renegotiation of the deal,” he said, adding that “the two countries need to first establish whether the U.S. trade deficit with South Korea is caused by the trade deal or is a result of other fundamental economic issues.”