Korea pushed to balance trade with U.S.

Concerns are rising here over what is deemed as increasing U.S. pressure on Korea to do more to alter its trade practices and business environment.

The pressure, which is expected to escalate further in the lead-up to and beyond the U.S. presidential election in November, seems related mainly to the growing trade imbalance between the two sides.

Korea’s trade surplus with the U.S. jumped to $28.3 billion last year from $15.2 billion in 2012, when a bilateral free trade agreement came into force, according to figures from the Ministry of Trade, Industry and Energy.

(Yonhap)

In a lecture to a local forum last week, Mark Lippert, the U.S. ambassador to Seoul, urged the Korean government to fully implement the FTA with Washington and step up efforts to ease regulations. He particularly called for the full opening of Korea’s legal markets, which he said would help enhance the quality of services here, create more jobs and reduce legal fees and the cost of doing business in the country.

His remarks, made to an audience that included some of Seoul’s key economic officials, seemed to reflect the U.S.’ hardening stance on Korea and other major trading partners that have accumulated huge trade surpluses with the world’s largest economy.

In April, the U.S. put Korea on its monitoring list for foreign exchange policies, along with China, Japan, Taiwan and Germany. It marked the U.S. Treasury Department’s first implementation of provisions passed in Congress earlier this year as part of a trade bill that provided it with new tools to tackle unfair currency practices.

None of the five countries met the full criteria for enhanced scrutiny, which is triggered when a country has a significant bilateral trade surplus with the U.S., a material current account surplus and engages in persistent one-sided intervention in the currency market. 

In its semiannual report to Congress, the Treasury still said it would closely monitor their economic trends and foreign exchange policies. It urged Korea to limit its foreign exchange intervention “only to circumstances of disorderly market conditions and to increase the transparency of its foreign exchange operations.”

During his meetings with Korea’s finance minister and central bank governor in Seoul on Friday, U.S. Treasury Secretary Jack Lew reiterated the call to refrain from one-sided intervention in the currency market and come up with a “durable policy.”

A U.S. senator considered a key foreign policy adviser for the presumptive Republican presidential nominee, Donald Trump, last week expressed again his critical view of the trade deal between Seoul and Washington. In an interview with Politico, an American political-journalism organization, Sen. Jeff Sessions noted the U.S. trade deficit with Korea increased by 240 percent since the effectuation of the bilateral accord, which he said has brought little benefits to the U.S.

Many economists and economic commentators here express worry that Seoul officials remain too easy in responding to recent signals from Washington on the need to reduce the bilateral trade imbalance.

Chung In-gyo, professor of economics at Inha University, said the U.S. ambassador’s remarks should be viewed as “heating the floors” for further increases of pressure on trade and currency issues.

Trump has blasted free trade accords as having cost American jobs, pledging to change or scrap them if elected to the presidency. His stance, seemingly in touch with the prevailing U.S. voter sentiment, has prodded Democratic presidential front-runner Hillary Clinton to lean toward trade protectionism. To some extent, President Barack Obama’s administration is bound to reflect this sentiment in trade and other external economic policies during its last months in office, analysts said.

“It is necessary to grasp the current political configuration in the U.S. and make the structure of Korea’s trade surplus and currency movement well understood through effective economic diplomacy,” said Kang In-soo, head of the Hyundai Research Institute.

Economic commentators say long-term trade strategies should be worked out to brace for changes following the U.S. presidential election, suggesting substantial measures need to be taken to reduce trade surplus and accelerate deregulation.

As trade officials here tend to say, Washington’s pressure on the country is partly related to the intensifying trade friction between the U.S. and China. Chinese exporters accounted for nearly half of last year’s U.S. trade deficit of $736 billion.

A recent decision by the U.S. to impose an average 28.3 percent antidumping tax on three Korean steelmakers came with the U.S. Commerce Department’s measure to slap up to 451 percent punitive levies on Chinese steel companies.

Washington’s unusual step of blocking the reappointment of a Korean lawyer to the appellate body of the dispute settlement system in the World Trade Organization is also seen by officials here as a move aimed at precluding judgments favorable not only for Korea but also China. Chang Seung-wha, whose four-year term expired at the end of May, backed China in a case it filed against the U.S in 2014. Washington also appears to be seeking to replace Chang with a friendlier figure ahead of the appellate body’s decision on whether to grant market-economy status to China.

Because the U.S. and China engage in conflict across diverse areas, Chung noted, Korea should map out comprehensive responses in an interministerial framework rather than letting each ministry draw up measures on its own.

By emphasizing the need for Korea and the U.S. to be in greater regulatory alignment and coherence, the U.S. is also pushing Korea to cooperate with it not China in establishing regional trade rules. Experts also see the emphasis as heightening bars for Seoul’s entry into the U.S.-led Trans-Pacific Partnership, though the fate of the 12-nation trade bloc may be up in the air under the next U.S. administration.

By Kim Kyung-ho (khkim@heraldcorp.com)