SEOUL (Reuters) - The United States and South Korea agreed to revise a trade pact sharply criticized by U.S. President Donald Trump, Seoul said on Monday, with U.S. automakers winning improved market access and Korean steelmakers hit with quotas but avoiding hefty tariffs.
The planned changes in the U.S.-Korea Free Trade Agreement (KORUS) were seen as limited, leaving South Korea’s key passenger car exports untouched and helping soothe fears that Trump’s tough approach could start a spiraling global trade war.
In April, Trump told Reuters he would either renegotiate or terminate what he called a “horrible” trade deal that has doubled the U.S. goods trade deficit with South Korea since 2012.
Asian shares steadied on Monday, stemming last week’s hefty losses after Trump’s action on steel and aluminum, and his plans to slap tariffs on up to $60 billion in Chinese goods.
The agreement means South Korea will be forced to cut its steel exports to the U.S. by 30 percent of the past three years’ average, in exchange for becoming the first U.S. ally to receive an indefinite exemption on steel tariffs imposed by Trump.
“We had heated discussions,” South Korean Trade Minister Kim Hyun-chong said at a media briefing in Seoul. “The latest agreement removed two uncertainties,” he said, referring to steel tariff exemptions and KORUS renegotiation.
The U.S. Trade Representative’s office in Washington did not respond on Monday morning to requests for comment on the announcements in Seoul. But White House trade adviser Peter Navarro told CNBC television, “It looks like we’re going to have a very, very good result” from the negotiations with South Korea.
Last week, Trump temporarily excluded six trade partners, including Canada, Mexico and the European Union from import duties of 25 percent on steel and 10 percent on aluminum, which came into effect on Friday.
South Korea has received a quota of about 2.68 million tonnes of steel exports, or 70 percent of the annual average Korean steel exports to the United States between 2015-2017, which will be exempt from the new tariffs, the ministry said in a statement.
South Korea is not allowed to export steel products exceeding that quota to the U.S. market, a ministry official said.
“This leaves a bad precedent of exchanging steel tariffs - which is a breach of international trade law - for a legitimate free trade agreement, in negotiations,” said Wonmog Choi, professor of law at Ewha Womans University.
South Korea is the third-largest steel exporter to the United States and the world’s top importer of Chinese steel, leading to concerns it was a conduit for China’s excess capacity.
Trump was elected in 2016 after promising to punish what he saw as unfair trade practices by other countries, particularly China.
While Trump was adamant the KORUS deal needed renegotiating, the trade spat risked undermining relations between Seoul and Washington at a crucial time, as Washington and Seoul work closely to try to contain a nuclear-armed North Korea.
“We are at a time when U.S.-South Korea cooperation is needed more than ever ahead of the inter-Korean summit and the summit between North Korea and the United States,” said a senior official at South Korea’s presidential Blue House, who was not authorized to speak to media.
South Korean officials said that while the deal agreed was the best they could hope for, further pressure on trade was likely under Trump’s presidency.
Shares in South Korean steelmakers rallied on Monday, with Dongbu Steel leading gains as tariff exemptions were confirmed.
U.S. shares also climbed on Monday after steep falls last week as fears of a U.S.-China trade war eased on news that U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer were negotiating to resolve difference with their Chinese counterparts.
As part of the KORUS revision, the countries agreed to extend U.S. tariffs on Korean pickup trucks by 20 years until 2041.
No South Korean automakers currently export pickup trucks to the United States, but Hyundai Motor said last year it planned to launch a model there to catch up with a shift away from sedans.
Hyundai said on Monday it was “too early to elaborate on the details such as the estimated timing of the model release and production location”. Its shares fell 1.3 percent.
Under KORUS revisions, U.S. automakers will be able to bring into South Korea 50,000 vehicles per automaker per year that meet U.S. safety standards, not necessarily Korean standards, up from 25,000 vehicles previously.
Kim said no automakers previously exceeded the 25,000-vehicle threshold. Ford Motor Co and General Motors each shipped fewer than 10,000 vehicles last year.
“I don’t see a high chance of automakers expanding U.S. imports,” he said.
Additional reporting by Christine Kim in Seoul and David Lawder in Washington; Editing by Lincoln Feast and James Dalgleish