January 5, 2018 / 3:36 PM / 10 months ago

U.S-Korea trade talks pit pickup trucks against nuclear threat

WASHINGTON/SEOUL, Jan 5 (Reuters) - Talks starting Friday to amend a U.S.-South Korean trade deal must balance President Donald Trump’s domestic agenda against the need to contain a nuclear armed North Korea and will have to be completed swiftly, officials from both sides told Reuters.

The U.S goods trade deficit with South Korea has doubled since the 2012 signing of the US-Korea Free Trade Agreement (KORUS). Almost 90 percent of the 2016 shortfall of $27.6 billion came from the auto sector, an issue the United States is expected to press hard in the Washington talks.

A quick deal could give Trump his first trade victory at a time when NAFTA negotiations are dragging on without agreement and pressure on China to change trade practices has yielded little progress.

The talks, led by Assistant U.S. Trade Representative Michael Beeman and Yoo Myung-hee, director general for FTA negotiations at South Korea’s trade ministry, begin at a time of heightened tensions with Pyongyang.

A trade ministry official in Seoul said South Korea was waiting for Washington’s formal proposals and substantial negotiations would not take place on Friday over a deal Trump has repeatedly threatened to scrap.

“The U.S. brought up lowering non-tariff barriers, especially for their auto industry. At the moment, we are not sure whether the U.S. will ask that but we will be prepared (for the U.S. demand),” said the official, who spoke on condition of anonymity as he was not authorized to talk to the press.

A top priority for the Americans is maintaining a 25 percent tariff on Korean pickup truck imports, which was meant to have been phased out from 2019 under the current deal, according to a U.S. official and a South Korean car industry source.

South Korea has two major automakers, Hyundai and Kia, both of which are heavily reliant on exports due to the small size of their domestic market. Critics charge that South Korea discriminates against imports with a range of non-tariff barriers.

South Korean auto companies believe that Washington will also seek to increase the 25,000-vehicle per U.S. automaker threshold for U.S. car shipments to South Korea that can enter the country without meeting Seoul’s domestic industry regulations.

The official at a South Korea auto company, who was not authorized to speak to the media, also said the United States was interested in easing Seoul’s vehicle emissions targets. These are viewed as discriminating against U.S. autos.

NUCLEAR THREAT

Since Kim Jong Un rose to power in North Korea in 2011, Pyongyang has conducted a series of increasingly powerful nuclear tests and ballistic missile launches, drawing ever tighter sanctions and a freeze on contacts between the two Koreas.

This week, however, Seoul agreed to high-level talks with the North in response to a New Year’s speech by North Korean leader Kim Jong Un which offered an opening to diplomacy.

Pyongyang has a long history of seeking to play off Seoul and Washington as well as Beijing and Moscow in its diplomacy. Washington is wary of separate approaches and there are concerns that disagreements over KORUS could fuel a rift between South Korea and the United States.

The election of a left of center government in South Korea has raised concerns in Washington that Seoul may now be more willing to engage in talks. Under two previous right of center South Korean administrations, economic and other links between the countries were severed. “I have a feeling that we will not take any precipitous action on KORUS for the time being,” a senior U.S. official said while acknowledging that Trump and trade hawks within his administration had concerns with deal. (Additional reporting by Matt Spetalnick in Washington, and Jane Chung in Seoul; Editing by David Chance and Andrew Hay)

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