The Peninsula

What the Updated U.S.-Korea Trade Terms Signal for Investors and Policymakers

The joint U.S.-South Korea fact sheet published November 13 offers long-awaited clarity on how Washington will treat Korean goods, investment, and digital services under the emerging “Trump Round.” With global markets watching for signals on Section 232 tariffs, supply-chain stability, and changes to U.S. industrial policy, the document lays out the initial rules of the road, revealing both where the two governments are aligned and where future negotiations will be essential.

At first glance, the joint fact sheet affirms many of the parameters already known. The USD 350 billion fund for investments in the United States (segmented into USD 150 billion for the shipbuilding sector and an additional USD 200 billion for additional investments) was upheld, with additional consideration displayed for the foreign exchange market stability of the Korean Won. Importantly, the fact sheet reiterates the USD 20 billion annual cap on investments, with a carveout allowing the Korean side to request adjustments to the timing and allotment of the fund should it cause market instability.

The two sides subsequently signed and released an official “ROK-US Strategic Investment MOU” on November 14 offering written clarification on the parameters and execution of the investments, including the caveat that investments are “approved by an Investment Committee,” chaired by the U.S. Secretary of Commerce, in consultation with a Korean government consultation committee. The MOU also stipulates that “where feasible and available,” projects will “select Korean vendors and suppliers in lieu of comparable foreign vendors and suppliers.” No mention appeared to have been made of the official profit split of the investment fund.

The fact sheet also outlines specific provisions on Korea’s treatment in the context of both the all-but-officially-abrogated KORUS agreement and the competing Most Favored Nation (MFN) rate as well as existing and upcoming Section 232 tariffs on imports such as semiconductors, pharmaceuticals, autos and auto parts, and other sectors. Accordingly, Korea will receive the higher of either the KORUS or MFN rates or the reciprocal tariff rate of 15 percent. In practice, however, this may have little effect on the existing trade terms of the July 30 deal. Goods which would have traded tariff-free under KORUS will transit at either the 15 percent IEEPA and Section 232 auto rate or at the individual-level Section 232 rate for sectors, and through the tariff rate set for autos, Korean car companies lose the 2.5 percent reduction they had under KORUS against competing importers from MFN countries.

Still, the joint statement’s recognition of Korea as a heretofore FTA partner of the United States is significant, ensuring that the negotiations which had gone into this status did not go completely unnoticed.

As for upcoming semiconductor Section 232s, where previous announcement regarding Korea’s treatment under it stated that Korea would be treated no worse than “any other country,” the new language in the fact sheet now states that Korea’s 232 tariffs on semiconductors will be “no less favorable than terms that may be offered in a future agreement covering a volume of semiconductor trade at least as large as Korea’s, as determined by the United States.” This language slightly alters the original parameters to maintain Korea’s 232 rate on chips to the same rates as their competitors but doesn’t guarantee equal rates with countries which would potentially trade at a lower volume. Pharmaceutical tariff rates are also locked in at 15 percent while the fact sheet also added that the United States will remove tariffs on select aircraft parts from Korea.

Lastly, the joint statement creates some substantially tangible policy outcomes.

As in the statements surrounding the July 30 deal, Korea will agree to remove the 50,000 vehicle import cap on U.S. auto imports as part of the agreement to open their market to U.S. goods, but it remains to be seen how this may will also expand market access, as the United States already exports less than that amount.

Digital services measures had been absent from the previous iteration of the U.S.-Korea Trump Round deal. Where digital services regulations had been an intensifying feature of U.S.-Korea business relations—President Trump had threatened tariffs on countries that impose such regulations within hours of his Oval Office meeting with Lee—the joint statement fact sheet gives provision to this, avowing that U.S. companies “are not discriminated against and do not face unnecessary barriers” when it comes to digital services, in addition to a combined commitment to support the WTO’s permanent moratorium on customs duties for electronic transmissions.

The U.S. and Korea had also agreed to work to address non-tariff barriers on food and agricultural products, cooperate on intellectual property rights protection, and commit to protecting internationally recognized labor rights. Korean negotiators had previously iterated that Seoul’s “red line” on not opening Korea’s beef and rice markets was maintained in the July 30 deal, but no specific mention of this was made in the agricultural section of the fact sheet.

To cement progress toward these measures, the commitment pledges to create a plan of action to “memorialize commitments” and “address non-tariff barriers,” to be adopted by “KORUS Joint Committee” before the end of the year. To this end, The Office of the U.S. Trade Representative (USTR) and Korea’s Ministry of Trade, Industry and Energy have agreed to meet in December to go over some of the outstanding issues in non-tariff trade barriers.

Conclusion

Even with a fact sheet out on the new terms of trade, questions within Korea about whether it needs to be ratified could forestall its full implementation further. There is currently a split between left and right over whether the MOU on the USD 350 billion investment needs to be ratified by the National Assembly. With the 15 percent auto and auto parts tariff depending on the terms of this MOU being in effect, this could possibly extend the timeline further. Any delay to its implementation could exacerbate the impact on Korean exporters to the U.S., or even jeopardize the full operationalization of the deal itself.

Nonetheless, sustained adherence to the agreement and continued engagement from both sides on trade and investment will do well to calm the volatility surrounding the new Trump Round of trade and ensure Korean pathways for U.S. investment remain in shape. For both sides, it is going to take continued commitment to faithfully abide by the terms of this agreement and sustain the political will necessary to maintain it as the grounding document to shepherd through the next phase of U.S.-Korea trade relations and beyond.

 

Tom Ramage is Economic Policy Analyst at the Korea Economic Institute of America (KEI). The views expressed are the author’s alone.

Feature Image from The White House.

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