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.