SEOUL—A trade deal between the U.S. and South Korea means the two allies have cleared away a stumbling block so they can work together to disarm North Korea.
For the past few weeks, Washington and Seoul had been in the awkward position of scuffling over trade at the same time they were working toward a summit where South Korean President Moon Jae-in is to meet North Korean leader Kim Jong Un, followed by a proposed meeting between Mr. Kim and President Donald Trump.
Now that side scuffle is resolved. The U.S. and South Korea said they would amend their free-trade deal, which took effect in 2012, to address American concerns about the $18 billion trade imbalance between the two countries and permanently exempt South Korean steelmakers from a 25% U.S. tariff.
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The deal included South Korean concessions on car and steel trade, extracted after Washington overcame Seoul’s resistance to reopening the 2012 pact. But it leaves the economic relationship between the two longtime military allies fundamentally intact. That is noteworthy because Mr. Trump had called the 2012 agreement a “horrible deal” and threatened to scrap it if the U.S. didn’t win major changes.
“It may not be the best ever deal, but I may give it an ‘A.’ It’s almost too good to be true,” said Ahn Duk-geun, a Seoul National University professor of international studies and an international trade expert. The concessions, he said, were “modest.”
Prof. Ahn said the need to cooperate on security issues “must have played a critical role” in expediting the allies’ trade talks. The U.S. and South Korea are working to counter the threat from North Korea’s development of nuclear-tipped ballistic missiles capable of hitting the continental U.S.
South Korean officials didn’t discuss the security connection publicly on Monday, but Finance Minister Kim Dong-yeon had earlier raised the issue in the trade talks, saying stiff U.S. tariffs on South Korean steel would send the “wrong signal” ahead of the North Korea summit.
Washington had been set to lift its 25% tariff on pickup trucks in 2021, which could have allowed South Korean car makers such as Hyundai Motor Co. and Kia Motors Corp. to export the profitable vehicles from South Korean factories. Now that tariff will stay in place an extra 20 years, until 2041.
Seoul said it would expand a special exemption that allows a limited number of American vehicles to be shipped to South Korea even if they don’t meet South Korea’s safety standards, so long as they clear American rules. The quota for such cars will rise to 50,000 per car maker annually from 25,000. And South Korea agreed to a limit on the amount of steel it can export each year to the U.S.—2.68 million tons, or 70% of its annual average for the past three years.
Speaking on “Fox News Sunday,” Treasury Secretary Steven Mnuchin pointed to the steel-export quota as a victory for the U.S. “I think this is an absolute win-win,” he said.
South Korean Trade Minister Kim Hyun-chong observed that his country was the first to complete negotiations for a permanent exemption from the steel and aluminum tariffs that took effect last Friday. The U.S. gave temporary exemptions to Canada, Mexico and the European Union, pending broader trade talks, while Japan got hit with the tariffs despite being a military ally.
The Korea Iron & Steel Association said the permanent exemption showed that the U.S. was treating South Korea as a “major ally.” It expressed hope that the quota for steel exports to the U.S. could be raised later. Shares in South Korean steelmakers rose in Monday trading.
Canada and Mexico are in a similar situation to South Korea, having a free-trade deal with the U.S.—the North American Free Trade Agreement—that is being renegotiated alongside the steel issue.
“The U.S. may want to set the South Korean deal as an exemplary case for them to follow,” said Shin Sung-won, a trade expert at the Korea National Diplomatic Academy in Seoul.
Write to Kwanwoo Jun at kwanwoo.jun@wsj.com
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