Washington Insider: US-South Korean Summit, Trade

Bloomberg is reporting while North Korean threats may top the agenda when South Korean President Moon Jae-in meets President Donald Trump later this week, the President's call to renegotiate the "job-killing" Korea-U.S. Free Trade Agreement will be difficult to ignore.That is especially true since the U.S. Commerce Department and the Office of the U.S. Trade Representative are due to submit their omnibus report on trade deficits by June 29, coinciding with the two leaders' meeting.Bilateral trade and U.S. exports of goods and services increased from 2011-2015, but the administration has focused on the $27.7 billion trade deficit in goods that the U.S. has with South Korea.It also will be President Moon's first summit with a foreign leader and he is planning to have more than 50 business leaders in tow. Whether trade issues are officially on the table or not, those business leaders will be meeting with their U.S. counterparts and plan to make investment pledges during the trip, analysts say.South Korean officials are tight-lipped about whether the issue of the free trade agreement will surface. But if it does, South Korea won't be the one to advance it, Kim Hyung-joo, research fellow at the Seoul-based LG Economic Research Institute, said.He added that, "Korea won't act rashly. Since the U.S. is the one applying pressure, the important thing is to play defense rather than bring up the items (to renegotiate in the FTA)," Kim told Bloomberg, suggesting that the discussion might take place after the North American Free Trade Agreement and U.S.-China trade talks unfold.He said he thinks Korea's Cabinet may wait and act cautiously, with the prime minister urging preparations in the event of a renegotiation. "Korea is not as good at negotiations as the U.S. is," Prime Minister Lee Nak-yeon said during his confirmation hearing last month. "If we enter a situation in which the U.S. leads the renegotiation, there's a possibility to be attacked where we are weak."Whenever the issue does surface, Moon may agree with Trump to rehash parts of the agreement, since both countries' economies have been restructured in the past 10 years. During his election campaign this spring, Moon said KORUS could be updated to correct "toxic" clauses disadvantageous to South Korea, but he still hasn't detailed how those clauses should be addressed.In a phone call last week, South Korean Finance Minister and Deputy Prime Minister Kim Dong-yeon told U.S. Treasury Secretary Steven Mnuchin that the Korean government would work to mitigate trade imbalances and hold consultations on pending issues, according to the finance ministry.A public-private group of trade experts said South Korea should brace for bad news from the omnibus report. Last week, they urged Korea to persuade the Trump administration that KORUS had a limited negative effect on the trade deficit and jobs in the U.S., adding that 70% of South Korea's exports to the U.S. are components and intermediate products, not consumer goods.The Korea Economic Research Institute estimates that South Korea could see export losses of up to $17 billion over five years under a renegotiated trade pact. However, U.S. exporters would be hit harder than their Korean counterparts if tariffs were raised, said Kim Ba-woo, senior researcher at the Korea Institute for Industrial Economics and Trade. "For Korea, even the nullification of KORUS would be beneficial in the short run, and the effect of a renegotiation will be limited," he told Bloomberg. Most tariffs are already lowered, and Korea's pre-FTA tariffs were higher than those of the U.S. The institute urged South Korean industries with large trade imbalances to prepare for possible new trade barriers.Whether trade reaches the Moon-Trump table, the numerous business leaders accompanying Moon to meet with U.S. counterparts intend to make their priorities known. The companies will make investment pledges during the trip, which may assuage Trump, who wants to create more jobs for Americans, according to the Korea Chamber of Commerce and Industry.It's also a tricky moment for Samsung and LG, which U.S. home appliance maker Whirlpool Corp. accused of illegally undercutting the prices of their washing machines. The U.S. International Trade Commission is investigating the case, with both companies denying the claims.So, the initial fight that was expected to be with Mexico but may have moved to South Korea, where geopolitical problems abound and the United is working to shore up local defenses, especially aimed at North Korea. Thus, the upcoming Korean talks will assume an enhanced importance and should be watched closely by producers as they proceed, Washington Insider believes.