The Future of KORUS

Dear Friends,

As you have likely seen in the press over the past few days, there has been a good deal of speculation about whether the Trump Administration would withdraw from the Korea-U.S. Free Trade Agreement (KORUS).  While it is still a possibility, it appears that the decision has been placed on hold for the time-being.

As you know, one of the big focuses for the Trump Administration is addressing bilateral trade deficits (i.e., a country exporting more goods and services to the United States than the United States exports to that country).  This view drives much of the President’s trade policy (and rhetoric).  The effort to combat trade deficits is central to the U.S. position in the NAFTA renegotiations (and our relationship with Mexico, in particular), as well as our relationships with China, Germany and others.

As for Korea, there is more than just trade involved here (e.g., North Korea).  These other geo-political concerns likely played a big role in the decision not to withdraw from KORUS at this time.  We expect that the parties will continue to negotiate to address the Administration’s concerns (the United States ran a net trade deficit of $17 billion with Korea in 2016 — for just goods, the deficit was $27.7 billion; but for services there was a surplus of $10.7 billion).  If the deficit concern is not addressed to the Administration’s satisfaction (which Korea has not done to date), withdrawal is a real possibility.

As a result, we recommend that all companies that rely on KORUS, either for imports into the United States, or exports to Korea, review their long-term contracts to make sure they are covered in case the Administration does decide to withdraw.  For example, if you entered into a contract assuming that the goods would be able to be imported duty free (into either country), would you (or your customer) be able to get out of the contract if the U.S. withdraws from KORUS?  Who will bear the significant increase in duties?  Better to think about these types of issues now, so you are prepared if it actually happens.

We hope this is helpful.  If you have any questions about these issues, please let us know.

Best regards,
Ted

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International Trade-Related Executive Orders

Dear Friends,

What an interesting time to be working in international trade! 

We are writing to make sure you saw the Executive Orders President Trump issued over the past few days on international trade issues.  All of the Executive Orders are available here.

The Presidential Executive Order Addressing Trade Agreement Violations and Abuses was signed on April 29, 2017.  It directs the Secretary of Commerce and the United States Trade Representative to conduct “comprehensive performance reviews” of all international trade and investment agreements the United States is a party to, as well as trade relations with those WTO member countries with which the United States does not have a trade agreement, but does have a significant trade deficit in goods. The goal of these reviews is to (i) identify violations or abuses by our trading partners, (ii) trade or investment agreements that have not created new U.S. jobs, had favorable effects on our trade balance, increased U.S. exports, etc., and (iii) make recommendations to address the issues identified in (i) and (ii). 

Based on statements President Trump has made to date, we expect that NAFTA as it relates to trade with Mexico, the Korea-U.S. Free Trade Agreement, the WTO Government Procurement Agreement and others to receive negative marks under the standards to be used in the performance reviews.  What will be more interesting are the recommendations that are made to address those perceived shortcomings (e.g., revising rules of origin, withdrawing from agreements, etc.).  The performance reviews must be submitted to the President by October 26, 2017.

The Presidential Executive Order on Establishment of Office of Trade and Manufacturing Policy was also signed on April 29, 2017.  It creates a new Office of Trade and Manufacturing Policy (OTMP) within the White House.  The stated mission of the OTMP “is to defend and serve American workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defense industrial bases.”

These Executive Orders encapsulate much of the President’s trade policy, which is focused on (1) seeking to identify and remedy unfair trading practices, and (2) reducing the trade-in-goods deficits the United States has with other countries.  Companies should be viewing these Executive Orders as a creating an opportunity to engage with the Administration to help shape the recommendations for addressing the problems that they perceive exist with trade.

We are assisting numerous clients navigate these issues.  If you would like to discuss your specific situation and what you should be doing further, just let us know.

Best regards,
Ted