Possible renegotiation of Korea-U.S. free trade agreement

The U.S. Trade Representative (USTR) has virtually made it official to reconsider its free trade agreement (FTA) with South Korea. “As a result (of the Seoul-Washington FTA), our trade deficit in goods with South Korea more than doubled,” the USTR said in President Donald Trump’s 2017 Trade Policy Agenda released on Wednesday (local time). “Needless to say, this is not the outcome the American people expected from that agreement. Plainly, the time has come for a major review of how we approach trade agreements.”

South Korea’s Ministry of Trade, Industry and Energy downplayed the report, arguing that the USTR did not directly mention “renegotiation” of the South Korea-U.S. FTA. However, such an attitude is too easy going. The ministry’s explanation is true that the USTR’s Trade Policy Agenda is an annual report and that Washington did not demand any immediate renegotiation. In international economy and trade, however, it is important to adopt a strategy that would catch the other side off balance on the basis of elaborate analyses, rather than raising voices. Considering the lengthy, 336-page USTR report, it should be assumed that the U.S. has finished reviewing what it would want for renegotiations. If Seoul takes at face value the U.S. rhetoric on positive progresses in the Seoul-Washington FTA and play down the possibility of renegotiations, South Korean will be unilaterally pushed to the corner in future renegotiations.

While the renegotiations per se would deal a blow to South Korea, what is more worrisome is that they would spread the negative impact of the U.S. trade protectionism around the world. A drastic reduction in global trade would deal a severe blow to the Korean economy with a small market for domestic consumption. The USTR’s policy line of redesigning the U.S. trade policy in the interest of Americans is nothing but a reversal of the previous administration’s position that free trade would provide opportunities for the middle class in the U.S.

U.S. trade protectionism has been predicted since Trump’s election as U.S. president. Seoul lost its opportunity to nurture its economic growth engine by promoting the services industry and facilitate mobility of human resources through labor reforms. Although Seoul is emphasizing the positive effects of the Korea-U.S. FTA through official channels, it would not be enough to fend off the Trump administration’s trade offensives. Seoul should prepare its own strategy in the event that Washington seeks renegotiation of the FTA, particularly in the automotive sector. For example, it would be necessary to fully mobilize political resources, including stressing Seoul’s contributions to the bilateral alliance by accepting the U.S. deployment of its advanced missile defense system to South Korea.