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S. Korea further opens auto market in return for U.S. steel tariff exemption

All Headlines 11:30 March 26, 2018

By Kim Eun-jung

SEOUL, March 26 (Yonhap) -- South Korea agreed to further open its auto market to the United States in return for an exemption from steel tariffs during negotiations to amend their free trade agreement (FTA), Seoul's trade ministry said Monday.

Seoul and Washington have "in principle" reached an agreement on some of the key issues to fix the six-year-old deal against the backdrop of negotiations to get the country off the list of countries that will be slapped with 25 percent tariffs on steel exports to the U.S.

Washington is moving to impose tariffs on imports on national security grounds.

"The two sides agreed to exempt South Korea from the list of steel tariffs based on Section 232," the Ministry of Trade, Industry and Energy said in a statement.

South Korea received an annual import quota of 286 million tons, or 70 percent of the average of steel exports to the U.S. in the last three years, the ministry said. Steel exports exceeding the quota will be subject to higher duties.

In return, Seoul largely accepted U.S. demands in the auto sector, the most contentious issue in the past three rounds of trade talks.

The U.S. will extend a tariff of 25 percent on imports of Korean pickup trucks by 20 years to 2041, setting hurdles for Korean exporters beyond the previously agreed deadline.

The agreement calls for Seoul to double the 25,000-vehicle unit threshold for U.S. car shipments that do not have to comply with domestic industry regulations, which would enable 50,000 vehicles to enter South Korea more easily.

Seoul also will apply eased vehicle emission standards for cars shipped from 2021-25 when setting new import regulations. American manufacturers complained that the environmental regulations act as non-tariff regulations on their cars.

The tentative agreement, which came less than three months since dialogue began, reflects U.S. President Donald Trump's desire to cut trade deficits in the auto sector.

While the FTA has boosted the auto trade between the partners, South Korean companies have enjoyed greater benefits thanks to the bigger size of the U.S. auto market, which is about 10 times that of the Korean market.

South Korea's auto exports to the U.S. jumped 80 percent from 2011 to $18.49 billion in 2015, while its imports of American-made cars have soared 380 percent from 2011 to $1.68 billion in 2015, according to the government data.

Meanwhile, Seoul's trade ministry said it didn't negotiate on the agriculture market, which it has repeatedly said is a "red line" it can't cross.

The farming industry has strongly opposed the negotiations, claiming that they have suffered massive damage due to cheaper U.S. food products over the past five years.

The two sides also agreed to make minor edits to the investor-state dispute settlement (ISDS) clause and to improve the transparency of the trade dispute settlement process, the ministry said without going into detail.

With the ISDS provision, investors can sue countries for alleged discriminatory practices through international arbitration bodies. Local experts have expressed concerns that large multinational companies could exploit the clause, leading to the infringement of South Korea's judicial sovereignty.

Working-level officials are currently working on the final draft of the deal before a formal signing at an early date, the ministry said. The revised deal will go into effect after undergoing the ratification process of parliaments in the respective countries.

The U.S. is South Korea's second-largest trading partner after China, with bilateral trade reaching $119.3 billion in 2017, according to government data.

South Korea's trade surplus with the U.S. fell from $25.8 billion in 2015 to $17.8 billion last year on sluggish sales of autos and steel and as the country imported more American beef and natural gas.


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