11.05.2017 Author: Konstantin Asmolov

Economic Problems of US-South Korean Relations

564223As we have previously noted concerning the problem of “payment for the THAAD”, along with this demand, the US president announced plans for revising the free trade agreement with South Korea, calling its provisions “awful” in terms of profitability.

Earlier, the American leader had criticized the agreement, pointing out that it is not beneficial to the USA and will deprive the country of jobs. Surprisingly though, these bold words have demonstrably been followed by certain maneuvers towards their realization. A good example is the launch by the US of an anti-dumping and anti-subsidy investigation into the import of rolled carbon and alloy steel from South Korea. The decision to initiate the investigation was taken at the request of four American metal companies, which demanded that the government apply anti-dumping duties on the imported goods up to 33.96 – 43.25%, since overly cheap imported goods have caused irreparable damage to the business of American producers.

The product at issue is a special type of round rolled steel. Depending on its carbon content, the metal can be classified as ordinary or special. Recycled rolled steel is used to make steel wire, which is in turn used to make metal products like nails and screws, and other metal goods.

This is the first investigation of the activities of South Korean manufacturers after Donald Trump became US president, although the subject of the investigation is not limited to only South Korean wire rod, but also applies to similar products from nine other countries – Belarus, Great Britain, Italy, Spain, United Arab Emirates, Russia, Turkey, Ukraine and South Africa.

In many respects, this can be seen as a direct blow to the Republic of Korea, which ranks second behind Ukraine in terms of the volume of rod export to the United States. Last year’s index for South Korea was 92.504 metric tons for USD 45,600,000.

The US International Trade Commission is expected to announce the preliminary results of the investigation no later than May 12. The final results are expected at the beginning of next year, and many fear that a comprehensive restriction on the import of steel products will mean the beginning of a policy of protectionism.

Following these developments, on April 20, 2017, the Head of the White House signed a memorandum based on Section 232 of the Trade Expansion Act of 1962. According to this section, the President has the authority to restrict imports if they are proved to directly threaten national security interests. The act allocates 270 days for such an investigation. The United States is introducing trade embargoes on rolled steel imported from countries such as South Korea, China and Australia, imposing anti-dumping duties and accusing them of subsidizing steel exports.

US Secretary of Commerce Wilbur Ross and CEOs of the largest American metal companies attended the signing of the document. Then on April 25, in an interview with the Wall Street Journal, Wilbur Ross made a note that, based on the same Section 232, the US is considering the possibility of introducing additional measures to protect its shipbuilding industry, as well as industries producing semiconductors and aluminum. After mentioning the investigation into the situation with foreign steel imports, Wilbur Ross pointed to the priority that the country is placing on six industries dealing in aluminum, automobile and shipbuilding, aircraft manufacture, as well as the production of semiconductors. And at a briefing in the White House, while talking about a possible revision of the terms of the free trade agreement between the Republic of Korea and the US, he said that it’s been five years since the bilateral treaty was signed which today necessitates thinking about how it is going to play out in the future.

After a while, the “aluminum investigation” began. However, it turned out to be aimed more at China. As Ross explained, American manufacturers are not able to compete with foreign suppliers. In recent years, several factories have been completely shut down or suspended, although the latest models of US military aircraft, including F-35 fighters, require the production of high-purity aluminum, which is produced by only one plant in the US – Century Aluminum. The investigation is expected to establish whether the volume of domestic production corresponds to the needs of the defense industry. Assessments shall also be conducted on the impact of job cuts on national security.

What is the response from Seoul? A representative for the Ministry of Industry, Trade and Energy said that there were no official requests from the American side regarding the trade agreement. He also noted that it was being studied then under what circumstances and in what context Trump made this statement. The ministry also noted that South Korea has various ways of approaching the development of the situation, and therefore, it plans to continue its efforts of clarifying the mutually beneficial nature of the bilateral trade agreement to the US.

The importance of such a “clarification” cannot be overstated, since, in the event of some adjustments being made on the amounts of duties levied following the revision of the free trade agreement, South Korea could lose almost USD 2 billion in export revenue over the next five years. This is stated in the report of the Korean Institute of Economic Research, published on April 30. According to the report, the agreement on free trade has resulted in the annual growth of the US trade deficit relative to South Korea being more than USD 200 million. If the United States increases the taxes levied on the automotive, engineering or steel industries in a bid to return the trade deficit volume to the pre-2012 fixed level, South Korea could potentially suffer losses in export revenue reaching USD 1.7 billion, while 90,000 of its formally-employed citizens could lose their jobs.

On May 4, 2017, Minister of Industry, Trade and Energy of the Republic of Korea Joo Hyung-hwan, speaking at a seminar in Seoul with the participation of specialists from state research institutes on public policy and representatives of private companies, pointed out that Seoul was preparing for various options for the American trade policy, including the possibility of revising the free trade agreement, as the Government of the Republic of Korea had developed various ways of approaching the trade situation with the United States, and for each of them, separate response measures aimed at protecting national interests are being defined.

Another block of problems surfaced in the winter against the backdrop of the new US President Donald Trump’s tough policy on immigrants. It is worth recalling that on January 25, 2017, Donald Trump signed a decree specifically targeted at migrants, and on January 29, he also passed a decree suspending the reception of refugees and prohibiting the entry into the United States of citizens of seven countries that may pose a terrorist threat. The political asylum program was also suspended, and 10 million illegal migrants in the United States can be deported.

The decree, therefore, affects not so much North Korean defectors (which themselves are not that many) as many illegal migrants from South Korea, whose number according to the US Department of Homeland Security was 230,000 in 2011 alone.

On the same day, the MFA of the Republic of Korea categorically stated that the official Seoul was focused on strengthening cooperation with the relevant authorities in order to stabilize the status of South Korean illegal migrants in the United States. On January 31, Ministry Representative Cho Zhong Hyok said that the government of the Republic of Korea intended to monitor the situation with its citizens, and prepare various measures aimed at protecting their rights.

It is a foregone conclusion, therefore, that the main tug of war on these issues will begin earnestly under the new administration. In addition, the audience should bear in mind that as far as the US-South Korea relations are concerned, everything is not so clear and cut, and should not be simplified by presenting Seoul as an obedient Washington ally without its own opinion.

Konstantin Asmolov, PhD in History, Leading Research Fellow at the Center for Korean Studies of the Institute of Far Eastern Studies of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook.


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