The U.S. and South Korea have agreed in principle on a revised free trade pact, which senior Trump administration officials said will make American automakers more competitive by helping to boost exports and reduce the trade deficit that the country runs with its Asian ally.
Under the amended trade pact, the U.S. will extend its 25% tariff on imports of Korean pickup trucks. The U.S. tariff on South Korean pickup trucks, which was slated to be phased out by 2021, will now be extended by 20 years and phase out in 2041.
The U.S. has also agreed to exempt South Korea from President Donald Trump's 25% tariff on U.S. steel imports in exchange for a reduction in South Korean steel imports to the U.S. The steel imports will still be subject to an annual quota.
Speaking on background with reporters March 27, Trump administration officials unveiled the details, noting that U.S. Trade Representative Robert Lighthizer and South Korean Trade Minister Kim Hyun-chong reached an agreement to amend the United States-Korea Free Trade Agreement, or KORUS, in order to expand export market access for U.S. automakers. The KORUS trade pact went into effect in March 2012.
The revised agreement will also double the number of automobiles U.S. carmakers can export to South Korea under U.S. safety standards to 50,000 per year, which the administration officials said will double the export opportunity for U.S. automakers.
U.S. automakers can export as many cars as they like to South Korea, but they are subject to a 25,000-vehicle cap if the companies want to meet only U.S. safety standards. Anything over that cap is subject to Korean safety standards, which the administration says creates more regulatory and cost burdens. The doubling of the cap, along with reducing non-tariff barriers will allow U.S. companies to sell more cars in South Korea, the officials said.
South Korea also agreed to align its standards with those of the U.S., meaning it will accept American testing data when issuing testing certificates for U.S. vehicles in South Korea.
This provision will reduce costs for U.S. automakers exporting to Korea, the officials said.
"While some of these [amendments] seem small individually, they ... help our automakers reach a level playing field in Korea," the official said.
South Korean car producers have enjoyed success in the U.S. market, while American automakers have had a different experience in South Korea because of what the Trump administration has said are burdensome regulations and other contributing factors within KORUS.
As part of the deal reached between the two countries, the U.S. officials said that South Korea will be exempt from Trump's 25% tariff on U.S. steel imports, though the country will be subject to an annual export quota.
South Korea's Ministry of Trade, Industry and Energy said in a March 26 statement that the U.S. agreed to exempt South Korea from the steel tariffs in exchange for a quota of roughly 2.68 million tons of annual steel exports, which is about 70% of the annual average South Korean steel exports to the U.S. over the three years between 2015 and 2017.
"This will result in a significant reduction of Korean steel shipments to the U.S.," one of the administration officials told reporters. "This is a huge win."
The official said no deal was cut with South Korea on aluminum, saying it will still be subject to the 10% tariff signed by Trump earlier in March.
KORUS, which went into effect in 2012 under the Obama administration, has been targeted by Trump, who has called it a "disastrous deal."
Lighthizer has also made reducing the United States' $27.6 billion goods trade deficit with South Korea a priority.
That figure, from 2016, was more than double the $13.2 billion deficit the U.S. had with South Korea in 2011, according to the USTR office, which also contends that American exports to the Asian ally declined by 2.7% to $42.33 billion over that five-year period.
According to the USTR office, the U.S. deficit with South Korea in the auto sector is $24 billion, which represents roughly 90% of the $27.6 billion goods deficit figure, and a 77% increase since 2011.
Once completed, the new KORUS deal will mark the administration's first successful trade agreement renegotiation, a rallying cry throughout much of Trump's campaign in 2016.
The officials also said that a currency deal was reached as a side agreement not to be included within KORUS. Though not enforceable, the officials said the currency agreement could also help with the renegotiation of the North American Free Trade Agreement as well as other trade pacts.
The U.S. and South Korea held two special sessions in August and October 2017 to discuss a potential reworking of the agreement, talks that began with tension from the Asian counterparts, who disputed the root of the U.S. trade deficit.
A formal renegotiation effort began in January, when U.S. and South Korean trade officials met twice.