The United States and South Korea agreed to revise a trade pact sharply criticized by US President Donald Trump, Seoul said on Monday, with US automakers winning improved market access and Korean steelmakers hit with quotas but avoiding hefty tariffs.
The planned changes in the US-Korea Free Trade Agreement (KORUS) were seen as limited, leaving South Korea's key passenger car exports untouched and helping soothe fears that
Trump's tough approach could start a spiralling global trade war.
Trump's tough approach could start a spiralling global trade war.
In April, Trump told Reuters he would either renegotiate o terminate what he called a "horrible" trade deal that has doubled the US goods trade deficit with South Korea since 2012. Asian shares steadied on Monday, stemming last week's hefty losses after Trump's action on steel and aluminum, and his plans to slap tariffs on up to $60 billion in Chinese goods.
The agreement means South Korea will be forced to cut its steel exports to the US by 30 percent of the past three years' average, in exchange for becoming the first US ally to receive
an indefinite exemption on steel tariffs imposed by Trump.
an indefinite exemption on steel tariffs imposed by Trump.
"We had heated discussions," South Korean Trade Minister Kim Hyun-chong said at a media briefing in Seoul. "The latest agreement removed two uncertainties," he said, referring to
steel tariff exemptions and KORUS renegotiation.
steel tariff exemptions and KORUS renegotiation.
The US Trade Representative's office in Washington did not respond on Monday morning to requests for comment on theannouncements in Seoul. But White House trade adviser Peter Navarro told CNBC television, "It looks like we're going to have a very, very good result" from the negotiations with South Korea.
Last week, Trump temporarily excluded six trade partners, including Canada, Mexico and the European Union from import duties of 25 percent on steel and 10 percent on aluminum, which
came into effect on Friday.
came into effect on Friday.
South Korea has received a quota of about 2.68 million tonnes of steel exports, or 70 percent of the annual average Korean steel exports to the United States between 2015-2017,
which will be exempt from the new tariffs, the ministry said in a statement.
South Korea is not allowed to export steel products exceeding that quota to the US market, a ministry official said.
"This leaves a bad precedent of exchanging steel tariffs - which is a breach of international trade law - for a legitimate free trade agreement, in negotiations," said Wonmog Choi, professor of law at Ewha Womans University.
Trade war fears
South Korea is the third-largest steel exporter to the United States and the world's top importer of Chinese steel, leading to concerns it was a conduit for China's excess capacity.
Trump was elected in 2016 after promising to punish what he saw as unfair trade practices by other countries, particularly China.
While Trump was adamant the KORUS deal needed renegotiating the trade spat risked undermining relations between Seoul and Washington at a crucial time, as Washington and Seoul work closely to try to contain a nuclear-armed North Korea.
"We are at a time when US-South Korea cooperation is needed more than ever ahead of the inter-Korean summit and the summit between North Korea and the United States," said a senior
official at South Korea's presidential Blue House, who was not authorized to speak to media.
official at South Korea's presidential Blue House, who was not authorized to speak to media.
South Korean officials said that while the deal agreed was the best they could hope for, further pressure on trade was likely under Trump's presidency.
Shares in South Korean steelmakers rallied on Monday, with Dongbu Steel leading gains as tariff exemptions were confirmed.
US shares also climbed on Monday after steep falls last week as fears of a US-China trade war eased on news that US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer were negotiating to resolve difference with their Chinese counterparts.
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