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.