Now is not the time for US-South Korea trade tensions
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On Aug. 22, the second day of the annual joint military exercises between American and South Korean troops, trade officials from both countries held a tense meeting in South Korea’s capital.

American officials were there to ostensibly discuss implementation issues and possible amendments to the U.S.-Korea Free Trade Agreement (KORUS) after the Trump administration raised concerns about the deal during President Moon Jae-in’s June visit to Washington, D.C. In Seoul, however, it appears both sides mostly talked past each other and left without any specific plans for re-engagement.

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If not handled carefully, the latest impasse could lead to renewed trade tension between the U.S. and Korea. It also takes place at a time, after exceedingly threatening North Korean missile tests, when the bilateral alliance could not be more important.

 

But renewed trade tensions are not inevitable with a mutual commitment to genuinely listen to each side’s concerns and work together in good faith to find a path forward. We have come too far in our bilateral trade relationship to allow this current impasse to lead to a downward spiral.

It is easy to forget that the U.S. and Korea have historically found themselves at odds over trade. Things improved during the George W. Bush administration and hit a groove in 2005 when Korea hosted the Asia-Pacific Economic Cooperation (APEC) forum. This favorable atmosphere led to the launch and ultimately successful conclusion of the KORUS negotiations in 2007.

There was nothing easy about those negotiations and their aftermath, but after tough renegotiation talks in 2010 and a difficult legislative effort in Washington and Seoul, the agreement finally came into effect in March 2012.

Implementation over the five-plus-year history of KORUS has been mixed. U.S. concerns have repeatedly surfaced in such areas as customs, financial services, autos and competition policy. This has led many early KORUS supporters in Congress and the U.S. business community to become at best lukewarm on the agreement.

With the Trump administration’s focus on bilateral trade deficits, coupled with a growing U.S. goods trade deficit with Korea through 2016, KORUS has unfortunately moved to the limelight as an example of a “failed” free trade agreement.

This takes us to the Seoul meeting on Aug. 22. Korea explained that the agreement has brought benefits to both sides and that the trade deficit is primarily the result of macroeconomic factors. The U.S. delegation shared its view that the benefits of the agreement have flowed mainly to Korea, and the focus now should be to “address implementation concerns as well as to discuss potential modifications and amendments to remedy the large U.S. trade imbalance with Korea.”

These different perspectives have led to an impasse. As both sides consider their next moves, they should remember that the U.S.-Korea bilateral alliance is too important to walk away from and let these talks falter. Following the fruitless meeting in Seoul, here are five steps U.S. and Korean trade officials should take to get the bilateral trade relationship back on track:

  1. First, the U.S. should welcome Korea’s suggestion to undertake an objective analysis of the impact of KORUS on both economies, including an examination to the causes of the overall U.S. bilateral trade deficit. The big question around KORUS is, “Do its benefits outweigh the problems?” I believe an analysis would show in most sectors, KORUS has delivered benefits to companies, workers and citizens of both countries and that macroeconomic factors, not KORUS, are indeed largely responsible for the bilateral trade deficit.
  1. Both sides should then focus on those areas where the agreement appears to have fallen short of expectations. With a new president and trade minister in Korea, there is an opportunity to take a fresh look at U.S. implementation concerns, as well as concerns expressed by civil society, and elevate the discussions among the Korean ministries.
  1. For those issues that cannot be addressed through implementation, the U.S. and Korea should consider possible amendments to the agreement, recognizing that this exercise would be a two-way street. In doing so, both sides would need to keep in mind the other’s sensitivities and the balance struck in the agreement. This does not mean that such issues should be off the table, but it means that they should be dealt with carefully and respectfully, and may have a high price.
  1. The U.S. and Korea should also consider proposals to update the agreement in areas like digital trade, state-owned enterprises, customs and agricultural and industrial standards. KORUS has been in force for just over five years, but most of agreement was negotiated more than 10 years ago.
  1. The U.S. should also regularly update Korea on the NAFTA renegotiations, focusing on issues that may have direct impact on possible proposed amendments that the U.S. may be seeking in KORUS, including rules of origin, currency and investor-state dispute settlements (ISDS).

KORUS has been the economic cornerstone of a strong U.S.-Korea alliance. While not perfect, it has delivered economic benefits to both sides and has made us closer partners. It’s in our mutual interest to find a path forward that works for both sides, particularly in light of the recent developments on the Korean Peninsula.

Wendy Cutler was the chief U.S. negotiator for the U.S.-Korea (KORUS) Free Trade Agreement. She is the vice president and managing director for the Washington, D.C. office of the Asia Society Policy Institute, which targets policy challenges confronting the Asia-Pacific in security, prosperity, sustainability and the development of common norms and values for the region.


The views expressed by contributors are their own and not the views of The Hill.