Can the U.S. Scrap Its Trade Deal With South Korea? -- Update

By Kwanwoo Jun Features Dow Jones Newswires

The U.S. and South Korea wrapped up fruitless talks over a trade agreement that protectionist Washington blames for an imbalance requiring the pact's amendment or termination.

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"Both sides have reached no agreement," Trade Minister Kim Hyun-chong said after the daylong talks ended in Seoul Tuesday. Mr. Kim said both sides reaffirmed their opposing views: The U.S. insists on modifying the deal, but South Korea opposes any change without recommendation from an objective joint study.

U.S. President Donald Trump has said the agreement, called the Korus FTA, is a "horrible" deal. The U.S. had a trade deficit of $28 billion with South Korea last year. Five years earlier, the deficit stood at about $13 billion.

South Korea has said the five-year-old agreement has benefited both sides and the U.S.'s protectionist rhetoric doesn't tell the whole story.

"While we have a profit in goods trade with the U.S., we have a deficit in services trade with the U.S. We invest a lot more in the U.S.," South Korean President Moon Jae-in said last week.

Mr. Moon and others on the Korean side say the deal--which has removed 95% of tariffs on goods over the past five years, with remaining duties to be phased out over the next 10 years--has offset the global slowdown in trade and increased commerce between the U.S. and South Korea.

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American industrial reaction to the Korus FTA talks has been mixed. The U.S. beef industry has seen its market share in South Korea increase and it doesn't support a change in terms.

"Simply put, the Korus created the ideal environment for the U.S. beef industry to thrive in South Korea," said the heads of three leading beef-exporter lobby groups--the National Cattlemen's Beef Association, the North American Meat Institute and the U.S. Meat Export Federation--in a July 27 letter to the government.

And Tami Overby, senior vice president for Asia at the U.S. Chamber of Commerce, said the U.S. trade deficit would have widened even more had it not been for the pact. "U.S. businesses believe the Korea-USA FTA is working well," she told the Yonhap news agency on Aug. 16.

The Trump administration wants to renegotiate trade terms regarding cars and steel because the two sectors are where the U.S. has significant deficits, said Rajiv Biswas, IHS Markit's Asia Pacific chief economist.

The American auto and steel industries have expressed support for Mr. Trump and his protectionist policies. The U.S. exported $1.6 billion worth of passenger cars last year to South Korea, up from $417 million five years earlier. South Korean car exports to the U.S. last year, however, were 10 times higher at $16 billion.

On steel, American officials say South Korea is partly to blame for the global glut that has caused prices to fall. The Trump administration is conducting a probe that could result in broad barriers against global steel imports.

Korean researchers who monitor trade with the U.S. say Washington may want to make tweaks to Korus FTA, rather than conducting a deep negotiation, given the conflicting interests of individual industries. In addition, the Trump administration is focused more on renegotiating the North American Free Trade Agreement with Canada and Mexico.

Ahn Dukgeun, a professor at Seoul National University's Graduate School of International Studies, said South Korea can take cues from the Nafta talks, though he said Mr. Trump's threat to pull out of Korus FTA might not work.

"The U.S. needs South Korea's cooperation more than ever to address North Korea," he said.

Write to Kwanwoo Jun at kwanwoo.jun@wsj.com

(END) Dow Jones Newswires

August 22, 2017 07:24 ET (11:24 GMT)