THE TTALK QUOTES
On Global Trade & Investment
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The Global Business Dialogue, Inc.
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No. 17 of 2017
THURSDAY, MARCH 29, 2017

Click here for Tuesday's NAFTA quote from Rep. Lynn Jenkins (R KS) 
 KORUS - THE DEAL IS DONE (ALMOST)

"I think it's very good news for the American people.  I think it's good for Korea also because we continue the agreement."

Ambassador Robert Lighthizer 
March 28, 2018 
CONTEXT
The rabbit of a revision to KORUS, the U.S.-South Korea Free Trade Agreement, poked its nose out of the Administration's hat on Tuesday, when White House press secretary Sarah Huckabee Sanders was asked about the negotiations. She said:

We [the United States and Korea] have come to an agreement in principle, and we expect to roll out specific details on that very soon.

Yesterday, announcements and fact sheets on the Korea trade talks were available on the White House and USTR websites.  And yesterday morning, standing on the White House lawn, U.S. Trade Representative Robert Lighthizer talked about the results of the U.S.-Korea talks with Joe Kernen of CNBC's Squawk Box.  As the Ambassador explained it:

THREE AGREEMENTS. You have to think of this as really three agreements that are independent but that define a relationship.  The first is KORUS. ... The second is The Steel Agreement.  ... The Koreans have agreed to cut their steel shipments from their average shipments over the last three years by 30 percent. ... The third part is this issue of currency, where the United States and Korea are wrapping up an agreement.

It probably makes sense to keep this short, as there will be a lot more - and more informed - analysis of these new arrangements with Korea once the U.S. and Korea are able to publish the final text of each of the three agreements.     
COMMENT
We put the word "almost" in our headline.  It was not unfair to do so.  With respect to the currency agreement, for example, Ambassador Lighthizer himself used the phrase "wrapping  up" to describe where Treasury Secretary Mnuchin and his Korean counterpart are in their efforts to finish a deal on currency.  That said, we don't think the announcements of the last couple of days are premature.  The essentials of the deal do seem be there, and we'll permit ourselves a short note on each of the three areas. 

KORUS, The Truck Tariff.  In his CNBC interview, Ambassador Lighthizer said the U.S. had accomplished a number of things in the revision to KORUS.  The biggest of these, he said, was that "We've agreed that we are not going to have a phaseout of the 25 percent truck tariff for 20 more years."  This ancient tariff - it dates from the so-called Chicken War with Europe in the 1960s -- had been scheduled to be phased out for light trucks from Korea by 2021.  Now that phase out will not occur until 2041. 

Not everyone is happy, of course.  In their editorial discussion of the agreement today, The Wall Street Journal lamented "This is the upside down world of Trump trade logic in which punishing American consumers with higher prices is a virtue."  Our view is that the Journal may be giving President Trump too much credit.  The question of whether America's trade policy should be concerned with the viability of industries as well as the welfare of consumers is as old as America.  We happen to be in a period when that question and the related one of which industries to favor in negotiations - the Journal's choice is services - are at the top of the political agenda. 

The Steel Agreement.  On this we confess to a certain confusion.  In some settings the U.S. Trade Representatives has said that Korea has agreed to limit their steel exports to the United States to 70 percent of what they have been in recent years.  That sounds like a voluntary restraint agreement.  The USTR fact sheet on the agreement, however, explains the issue this way:

Korean imports of steel products into the United States will be subject to a product-specific quota equivalent to 70% of the average annual import volume of such products the period of 2015-17.  This will result in a significant reduction in Korean steel shipments to the United States. 

And so we are left with the questions: Is this a voluntary restraint agreement? A quota? A tariff-rate quota (you just have to pay the extra 25 percent tariff over the limit and you can ship all you want)? Does it matter?  Presumably, the lawyers will clarify all of this in due course.

The Currency Agreement.  As Ambassador Lighthizer described this agreement, it will include provisions on transparency and commitments to avoid competitive devaluations.  Our guess, and it is only a guess, is that the currency leg of this tripod may be more about establishing normative rules than curbing specific Korean policies. 

What Next?  At the House Ways and Means Committee hearing last week, Representative Teri Sewell, a Democrat from Alabama, pressed Ambassador Lighthizer on the difference between the renegotiation of KORUS and the renegotiation of NAFTA.  Hyundai has a plant and some 3,000 employees in Montgomery, Alabama, and so Ms. Sewell's interest in U.S.-Korea trade is well beyond academic.  She wanted some assurance that Congress would be consulted on whatever was to be done in the KORUS talks. 

And Congress will be consulted.  The law requires a 60-day consultation period with Congress before any amendments to KORUS can take effect. However, as Ambassador Lighthizer explained to Representative Sewell, the amendments to Korus do not involved any changes to U.S. law, and Congress will not be asked to vote on them.

The negotiations for a revised and up-dated NAFTA are different.  They are being conducted under the rigorous requirements of U.S. trade promotion authority legislation.  So if there is a NAFTA 2.O agreement, and certainly if it is an agreement that would change U.S. law, Congress will have to pass an implementing bill before it can go into effect. 

Our Two Cents.  We think the Administration - and particularly USTR - deserve high marks for getting the KORUS adjustment done and largely off the table.  Quarrels about individual elements such as the steel agreement will continue, but with luck the rhetoric will cool, the focus will shift even more to NAFTA, and that too will end with the announcement of a deal.  The sooner, the better.

SOURCES & LINKS
  Lighthizer on Korus is a link to Ambassador Lighthizer's CNBC interview yesterday.  This was the source for today's featured quote.

Outcomes From the Korea Talks takes you to a USTR summary of the results from U.S.-Korea negotiations to amend KORUS.

A Question from Alabama is a link to the YouTube video of Ambassador Lighthizer's testimony before the House Ways and Means Committee on March 21.  His exchange with Congresswoman Teri Sewell (D AL) begins, roughly, at 2:12:50.

Note: Article 24.2  of the Free Trade Agreement Between the United States of America and the Republic of Korea read:

The Parties may agree, in writing, to amend this Agreement. An amendment shall enter into force after the Parties exchange written notifications certifying that they have completed their respective applicable legal requirements and procedures, on such date as the Parties may agree.



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