Washington Insider -- Thursday

Tough KORUS Talks Ahead

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

USDA's Perdue Hits Europe on Non-Scientific Trade Barriers

USDA Secretary Sonny Perdue has been in Europe the past several days, and told reporters that he raised issues on non-scientific trade barriers used by the European Union (EU) to keep U.S. ag products out of the market.

"There seems to be a hiding behind sanitary and phytosanitary issues simply for protectionist purposes... we need to be willing to address things based on sound science basis and not hide behind that," he stated.

Perdue told EU Agriculture Commissioner Phil Hogan that the U.S. wants trade deals based on "sound science discovery and not perceived myths."

The ag secretary said the way U.S. poultry is referred to in EU is another example of indirect barriers, Perdue reportedly told Michael Gove, UK Secretary of State for Environment, Food and Rural Affairs (EFRA) and his committee chair Neil Parish. "Interestingly they still refer to it as chicken bathed in chlorine when most of us know that that is not a processing option that is used commonly in the U.S. today," Perdue stated.

"I simply make the point to our EU partners why don't we be transparent in a labelling way and let the consumers make the choice," he noted. "The other thing I communicated to individual countries is the frustration that we in the U.S. have is that we have very cordial bilateral discussions and conversations on a bilateral basis and they then crawl back under the EU flag and plead their inability to carry out those desires because of the EU prohibition."

EU Set to Formally Abandon Ag Export Subsidies Early Next Year

The European Union is on course to formally eliminate agricultural export subsidies within the next three months, following Australia in implementing the decision made at the World Trade Organization's (WTO) 2015 Nairobi Ministerial meeting.

The bloc circulated a revised schedule, a list of countries' commitments in the WTO, incorporating its engagement to scrap export subsidies in all its 28 member states during the two-day Committee on Agriculture of the WTO held on Oct. 17-18.

WTO members committed to "exercise utmost restraint with regard to any recourse to all forms of export subsidies and all export measures with equivalent effect."

The European Commission had first announced the policy change and submitted its revised goods schedule to the WTO via a statement published on Oct. 6. The next ministerial conference which will take place in Buenos Aires from Dec. 10-13.

Washington Insider: Tough KORUS Talks Ahead

The United States has been taking a hard line in the ongoing NAFTA talks and earlier pulled out of the Trans-Pacific Partnership. Now, the topic of trading partners pushing back against the U.S.'s stance is being widely discussed in the media. This week, Bloomberg is reporting that the South Korean government is already "facing flak at home for conceding to discuss amendments to the U.S.-Korea Free Trade Agreement," known as KORUS. Recently, the South Korean trade minister told the press that agriculture is the "red line" that won't be crossed.

"The U.S. may mention agriculture to use as leverage for negotiations, but we have delivered our message that we cannot accept that," Trade Minister Kim Hyun-chong said at a parliamentary audit recently.

Kim said the U.S. proposed small-package deals on parts of the treaty, but he pledged to press on its sensitive industries if South Korean agriculture is raised. He didn't elaborate on what the U.S. proposed or what American industries Seoul might target.

Kim is facing political heat for agreeing to talks to amend the five-year-old trade deal, after South Korea's initial request for a joint study has gone unheeded, Bloomberg said. Lawmakers including People's Party Rep. Kim Dong-cheol and Liberty Party Rep. Chung Woo-taik are reportedly fuming that they were not informed of the strategy.

The U.S. in July requested a special session to discuss "possible amendments and modifications" to KORUS to resolve market access issues for U.S. exporters and to address the $27.6 billion U.S. goods trade deficit.

Seoul in August rejected an American proposal to revamp the deal, but when negotiators met in Washington in early October, South Korea agreed to consider amending the agreement.

Agriculture Minister Kim Young-rok argued that there is little left to give as "damages are accumulating" on South Korea's agriculture deficit. The U.S. exported $6.2 billion in agricultural products, mostly beef, to South Korea in 2016. It imported $519 million worth of Korean products such as processed fruit and vegetables.

"A majority of the industry has seen damages," such as the livestock and fruit sectors, Korea Rural Economic Institute researcher Lee Hyun-keun told Bloomberg. "If we were to agree to the requests of President Trump's government, it would just worsen the damage."

But Lee Jae-min, international law professor at Seoul National University, said opening up South Korea's agriculture market, including rice, is "almost inevitable."

More than 100 products including pepper, garlic, and onion are under long-term tariff protection under KORUS, a list the U.S. reportedly wants to shorten. Rice is excluded in the deal.

"Ten years ago, Korea was largely successful in defending its agriculture market opening," Lee said. "Now Korea cannot simply say, 'This is our red line and we will not accept it.'  The only remaining question is how far Korea can go in terms of protecting each [product]."

Korea's top priorities are limiting U.S. trade remedy measures, investment arbitration, and nontariff barriers, Lee said.

Analysts say Korea may have to open the automobile and agriculture markets to make a counteroffer. The U.S. auto industry wants to lift a 25,000-unit cap per company on imports, although American auto sales are well below that threshold. U.S. companies sold a combined 18,289 vehicles to South Korea in 2016. Bloomberg said, Low demand for U.S. vehicles reflects a local preference for European cars such as Mercedes-Benz and BMW, analysts said.

Korea Automobile Manufacturers Association Senior General Manager Kim Chul-whan told Bloomberg that a reestablishment of U.S. tariffs would put Korean carmakers at an obvious disadvantage, with no likely countermeasures. For South Korea, U.S. anti-dumping and anti-subsidy measures also have grown more problematic for exporters in the steel, home appliance, and electronics industries, Lee said.

Samsung Electronics and LG Electronics, for example, have been accused by U.S. appliance maker Whirlpool Corp. of damaging its sales of large residential washing machines. Now, Seoul will seek clearer protocols so exporters have more opportunities to defend themselves, Lee said. "The U.S. wanted to protect its authority and discretion 10 years ago because it was obvious the U.S. government would try to impose investigations and extra tariffs whenever necessary," he said. "The current FTA is largely silent on those issues, and Korea will probably try to reopen them."

Korea must finish domestic procedures including public hearings for key industries before proposing a package of amendments, which could take months, said Seo Jee-yeon, trade ministry foreign media spokeswoman. The two sides suggested at the previous session that a high-level meeting might occur during the presidential summit Nov. 7 in Seoul, though nothing is confirmed, she told Bloomberg.

South Korea has been a valuable trading partner with the United States for many years, but trade negotiations have become increasingly difficult. These current talks likely will be no exception and should be watched closely as they proceed, Washington Insider reported.

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