Korea-US trade negotiations go adrift

Industry Minister Kim Jung-kwan, center, answers questions from reporters at Incheon International Airport, Sunday. He returned to Seoul after ending his visit to the U.S. where he met with U.S. Commerce Secretary Howard Lutnick for advanced trade talks. Yonhap

Korea’s trade negotiations with the United States are stuck in limbo amid unresolved friction over the operation of a $350 billion U.S. investment fund.

On Sunday, Korea’s Industry Minister Kim Jung-kwan returned to Seoul from his visit to New York, where he sought to fine-tune details of the agreement with U.S. Commerce Secretary Howard Lutnick.

The latest ministerial talks, however, made little progress, apparently due to stark differences in the approach to the fund’s operation. Upon his arrival at Incheon International Airport, Kim declined to specify, only saying that “negotiations are underway between both sides.”

While the two nations reached a broad deal in late July regarding the megasized investment fund for the U.S. as part of a tariff agreement, the launch of the fund is being delayed, as Washington is demanding 90 percent of the profits from the investment. Korea has refused, saying such an “unreasonable” deal will harm its national interest.

Both countries have also failed to narrow their differences over the financing of the fund. Korea hopes to finance most of the capital for the fund by utilizing loans and guarantees, while the U.S. urges Korea to increase the portion of direct investment.

There is ample likelihood for the ongoing stalemate to be protracted even longer, as President Lee Jae Myung also reiterated Korea’s basic stance that the country will never reach any agreement unless it is reasonable and fair.

“We have to hold more negotiations, as Korea will not sign any deals unless they are reasonable and just enough,” Lee said during a recent press conference. “The surface of the negotiations looks wild, rough, unreasonable and irrational, but the conclusion will be reasonable.”

The U.S., for its part, also maintains a hardline stance. In a recent overseas media interview, Lutnick said the U.S. will show “no flexibility” in the ongoing trade talks with Korea.

In July, Korea and the U.S. reached a long-awaited tariff agreement under which Washington decided to set a 15 percent blanket tariff on Korean products, down from 25 percent. Korea agreed to establish the investment fund in exchange for the reduced tariff.

The U.S. also decided to cut its item-specific tariff on imports of Korean vehicles to 15 percent from 25 percent. Unlike the reciprocal tariffs, however, Korean carmakers still face the 25 percent tariff when exporting their vehicles to the U.S., as U.S. President Donald Trump has not signed an immediate administrative order to implement the new rate.

This leaves major export-reliant Korean carmakers such as Hyundai Motor and Kia exposed to the huge tariff shock until both countries can come to terms on details in the ongoing trade negotiations.