Seoul and Washington have a trade deal issue left to resolve after their recent summit.
US President Donald Trump said as he met with President Moon Jae-in, “We are renegotiating a trade deal right now as we speak with South Korea.”
His remark effectively made the renegotiation of the free trade agreement an established fact.
After meeting wth Moon, he told reporters that he will work to create “a level playing field” for US exporters. He demanded Korea give US automakers “a fair shake” to sell more cars and stop exporting “dumped steel.”
When he campaigned, Trump called the Korea trade accord a “horrible deal” and vowed to renegotiate or terminate it.
But the Korean presidential office denied Trump’s remark, saying “both sides have not agreed to renegotiate it.”
Moon told Korean correspondents in Washington that any talk of renegotiation of the free trade pact between South Korea and the US was “outside of the agreement” he reached in summit talks with Trump.
It is regrettable that Moon and Trump told different stories about the trade deal renegotiation.
Nonetheless, Trump’s remarks and the White House follow-up moves should not be taken lightly.
White House spokeswoman Sarah Huckabee Sanders said after the summit talks that the US trade representative, Robert E. Lighthizer, was calling a joint committee meeting with his Korean counterparts that would start an amendment process.
A categorical refusal to renegotiate looks difficult, considering Trump’s strong will to rewrite the pact and the possibility that the US will terminate the deal unilaterally, though such action seems unlikely.
Renegotiation of the deal is a tough proposition for the South Korean government. If renegotiation starts, changes in trade will be inevitable.
South Korea may well prepare for renegotiation, even if it is not agreed upon explicitly. Trump’s remark that the US was renegotiating the trade deal with South Korea may be a tactic to drive a hard bargain.
If renegotiation starts, the process will be complex and time-consuming. Renegotiation of the whole deal does not look certain, but partial revisions look unavoidable. Developments should be watched carefully to grasp what Washington intends to get out of such a renegotiation.
If Seoul and Washington try to address some trade barriers, the first thing to do is to set the effects of the deal straight.
Korea’s exports of goods to the US have increased since the deal took effect in March 2012, while its imports of American goods have declined.
But in service sectors including travel and intellectual property rights, Korea’s imports have increased after the deal. The US has an absolute advantage in the service trade.
The government needs to highlight that Korea is a big buyer of US weapons -- a fact that is not reflected in official trade statistics.
Trump has put pressure on foreign firms to invest in the US. Korea’s direct investment there totaled $51.2 billion in the five years after the pact, more than double the $20.2 billion the American companies invested in Korea.
A total of 52 South Korean companies visited Washington with Moon with 40 trillion won ($35.2 billion) of investment and purchase plans.
Samsung Electronics announced investments worth $1.9 billion. SK is to invest up to $4.4 billion in energy. Hyundai Motors pledged $3.1 billion in investment.
If South Korea gains little even with these investment plans, the playing field may be slanted to the US‘ advantage.
The urgent thing for South Korea to do is to set up a trade control tower as fast as possible. The minister of trade, industry and energy has not been appointed yet.
Korea needs not only counter US demands but demand corrective action on such matters as service trade imbalances and unfavorable articles in the trade deal.
If renegotiation becomes unavoidable, the government should sit at the table with unbiased data and rational alternatives based on reciprocity.
It should first prepare refined responses to expected demands, whether they are for a full-scale renegotiation or a partial revision.