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Trump and Moon to walk tightrope on trade and North Korea

US president may use summit to demand changes to bilateral FTA, or to scrap it

SEOUL -- U.S. President Donald Trump visits South Korea on Tuesday for talks with his South Korean counterpart Moon Jae-in. The talks are expected to focus on the North Korean nuclear and missile issues and the course of the U.S.-South Korea Free Trade Agreement (FTA). Trump wants to issue a strong warning to North Korea, but Moon seeks a diplomatic approach through dialogue. On the economic front, Trump is expected to seek changes to the trade agreement in an attempt to rectify a trade imbalance between the U.S. and South Korea. The Nikkei Asian Review interviewed two South Korean experts about the focal points of the summit talks.

Ahn Dukgeun, professor at Seoul National University

Ahn Dukgeun, professor at Seoul National University

Q:What do you think are the focal points of the U.S.-South Korea summit talks on economic issues?

A: The U.S. demands relate to the FTA, which the two countries have agreed to renegotiate. The media report that the U.S. will call on South Korea to instantly remove tariffs on farm products, whose stepwise abolition has already been decided, as well as cars, for which the U.S. suffers a considerable trade deficit. But the U.S. has not yet presented concrete requests. It seems that the U.S. will unveil its requests once the renegotiations start in earnest.

Q:Without presenting concrete requests, President Trump is suggesting the possible repeal of the FTA?

A: For the U.S., the U.S.-South Korea FTA forms a pair with the North American Free Trade Agreement, with priority on the renegotiation of NAFTA. If NAFTA's degree of importance is 90, that of the U.S.-South Korea FTA is a mere 10.

The Office of the U.S. Trade Representative (USTR) does not have the manpower to proceed with renegotiating the two FTAs simultaneously. Rather than spending time on renegotiating the bilateral FTA, the U.S. will likely choose to scrap the pact and thereby show its seriousness in order to use that as a bargaining chip in persuading Canada and Mexico, which are resisting the renegotiation of NAFTA, into reviewing the agreement -- the optimal strategy for the U.S. As the North Korean nuclear and missile provocation has made U.S.-South Korean cooperation vital, the U.S. has become less vocal about a review of the bilateral FTA. However, if renegotiations on NAFTA bog down, the U.S. could again threaten the repeal of the FTA with South Korea.

Q: If the FTA is scrapped, wouldn't it cause a rift in the U.S.-South Korea alliance?

A: USTR Robert Lighthizer brought main senior officials of his law firm to the USTR office with him. They are, as it were, a group of "mercenaries." Well-versed in U.S. laws, they are tough negotiators. In negotiating with foreign countries, they only look at Trump.

At the time when the U.S. and South Korea negotiated the FTA, the [U.S.] State Department was behind the USTR. On the part of South Korea, the trade negotiation headquarters in charge of the FTA negotiations was in the then Ministry of Foreign Affairs and Trade. Therefore, the two countries' foreign affairs authorities were able to decide on the FTA in light of mutual and overall interests. This time, however, the State Department is unable to take control of the USTR, probably due in part to the lack of trust [in the] relationship between Trump and Secretary of State Rex Tillerson. In South Korea, too, the trade negotiation headquarters is now under the umbrella of the Ministry of Trade, Industry and Energy, with the Ministry of Foreign Affairs no longer able to affect the headquarters.

Q: If the FTA with the U.S. is abolished, what impact would it have on the South Korean economy?

A: The automobile sector is not very sensitive to tariff rates, as shown in the fact that in the year when the U.S. tariff on cars was cut to zero from 2.5%, car exports to the U.S. fell, rather than increased. But the petrochemical and other industries where price competitiveness matters would be impacted.

Q: The U.S. International Trade Commission has ruled that washing machines from Samsung Electronics and LG Electronics are doing serious damage to U.S. companies. Are South Korean companies becoming the target of the U.S. protectionism?

A: I'm more worried about next year than this year. The U.S. Commerce Department will start next year checking trade imbalances without requests from companies. A budget has been compiled and an office will be set up for the program. The system has been in place, but it has not been used for the past 30 years. Protectionist policies will last throughout Trump's term in office.

Choi Kang, vice president for research at the Asan Institute for Policy Studies

Choi Kang, vice president for research at the Asan Institute for Policy Studies

Q: North Korea's nuclear and missile development will probably be the main focus of the Tuesday's summit?

A: It's a meeting South Korea will feel burdened by. The South Korean government will seek diplomacy through dialogue, and try to make it less likely that the U.S. will take unilateral military action. On the other side, Trump will probably send a warning that the U.S. will not tolerate the challenge North Korea poses to its national security. South Korea wants Trump to send a peaceful message -- it won't be easy to find a compromise.

It seems like American and South Korean officials have done well in laying the groundwork, but you can't rule out the possibility of Trump himself making an unexpected comment. That could happen at the news conference after the summit. At their first summit [in Washington, on June 30], Trump mentioned the U.S.-Korea Free Trade Agreement and how to split the cost of stationing American troops in South Korea.

Q: What does Moon want out of this meeting?

A: Trump has good chemistry with Japanese Prime Minister Shinzo Abe, but not so much with Moon. Their ability to build a rapport might be limited. It's important [to Moon] to reaffirm the agreement from the first summit about working on pressure and dialogue in parallel, so if there's mention of finding a diplomatic resolution rather than a military one, that would be one success. A second would be confirming that neither side will take actions that go against the wishes of their allies.

Q: What other issues does Seoul have with Washington?

A: On the matter of dividing American troop costs, how to evaluate South Korea's contribution to the region and the international community is an important point. Trump ties almost everything to money. It'll likely be a major political issue in both countries.

There's also the issue of security cooperation among South Korea, the U.S. and Japan. South Korea sees working with Japan on security as a burden. The U.S. may argue that with the North Korean threat growing, it's necessary for the three countries to deepen their cooperation.

Interviews by Nikkei staff writers Hiroshi Minegishi and Sotaro Suzuki

Do you live in Asia? How do you feel about Trump visiting the region?

* Do you believe Trump can make Asia more secure?
* Who will be the strongest political force in East Asia in 2030? The U.S.? China? Another power?
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