US-Japan Steel Agreement Turns Out to Be a Bit Jogeun Gaesalgu...Will the Government Completely Revise the Korea-US Steel Negotiation Strategy? (Comprehensive)

If Following the US-Japan Approach Instead of US-EU Negotiation Standards, South Korea's Export Quota May Decrease
Steel Industry: "Should Demand Flexibility of Existing Quota System Instead of Full Renegotiation Including Quota Expansion"
Government Likely to Shift Negotiation Strategy to 'Quota System Flexibility' Instead of Quota Expansion... "First Half of the Year Is the Golden Time"

[Asia Economy Sejong=Reporter Kwon Haeyoung] An analysis suggests that if the Korean government undertakes a full renegotiation with the U.S. on the 'Steel Section 232,' the volume of duty-free steel exports to the U.S. could actually decrease by about 250,000 tons annually. This estimate is based on the U.S.-Japan steel agreement reached earlier this year. Consequently, there is growing concern that if Korea rushes into steel negotiations with the U.S., export conditions could deteriorate similarly to Japan’s experience. The government is actively considering shifting its strategy from demanding an expansion of export quotas to a 'Plan B' that calls for 'flexibility in the quota system.'

The U.S.-Japan Steel Agreement: A 'Bitter Pill'... If Korea’s Steel Section 232 Negotiations Go Awry, Annual U.S. Exports Could Drop by 250,000 Tons

According to government and steel industry sources on the 16th, if the Korea-U.S. governments begin renegotiations on steel, the volume of steel exports from domestic companies to the U.S. will vary significantly depending on whether the negotiation approach follows that of the EU or Japan, with whom the U.S. has already concluded agreements.

Korean steel companies currently can export 2.63 million tons duty-free to the U.S., which is 70% of the average annual export volume from 2015 to 2017. Applying the U.S.-EU export negotiation terms (75% of the average annual export volume from 2015 to 2017) would increase this by 180,000 tons to 2.81 million tons. However, following the U.S.-Japan negotiation terms (100% of the average annual export volume from 2018 to 2019) would reduce exports by 250,000 tons to 2.38 million tons compared to the current level. The export quota volume to the U.S. thus depends on whether the baseline is set before or after 2018, when former President Donald Trump applied Steel Section 232.

Accordingly, the steel industry's stance, which has long demanded a full renegotiation of Steel Section 232, has shifted. A steel industry official said, "The U.S. surprised us by concluding negotiations with Japan under conditions quite unfavorable to Japan, contrary to initial expectations that it would offer terms similar to those with the EU. If the U.S. applies the conditions it set for Japan to us instead of those for the EU, our export quota will decrease, potentially causing more harm than good."

The government is also actively considering shifting its strategy to 'Plan B,' which demands 'flexibility in the quota system,' moving away from the previous position of expanding export quotas, in response to industry demands.

An official from the Ministry of Trade, Industry and Energy said, "The domestic steel industry has long advocated for a full renegotiation of Steel Section 232, but the U.S.-Japan steel agreement has introduced many variables to consider. The government will fully take these into account when participating in negotiations with the U.S."

Government Likely to Shift U.S. Negotiation Strategy from Expanding Steel Quotas to 'Quota System Flexibility'... "First Half of the Year Is the Golden Time for Negotiations"

The reason the government and steel industry are considering improving the existing quota system as a 'Plan B' instead of expanding the duty-free export quota to the U.S. is that Korea-U.S. steel negotiations have seen little progress for over a year. Moreover, if the U.S.-Japan steel agreement approach is followed, not only would the annual export quota decrease, but Korea would also have to accept stringent U.S. export conditions such as the exclusion of Chinese steel, raising concerns about a 'worse outcome while trying to fix a problem.' The looming U.S. midterm elections in November add urgency, as the negotiation golden time is running out, increasing the likelihood of the government shifting its Korea-U.S. steel negotiation strategy.

◆Pursuing Actual Export Volume Expansion through 'Quota System Flexibility'＝ The quota system flexibility advocated by the steel industry includes ▲ excluding certain product volumes from the annual quota ▲ allowing rollover of unused quarterly quotas ▲ establishing an obligation for consultation upon Korea’s request.

These are the provisions the European Union (EU) secured in its steel agreement with the U.S. If the Korean government agrees with the U.S. to improve the quota system operation in this manner, it can expect a significant practical increase in the steel export quota to the U.S.

For example, the EU has an annual export quota of 3.3 million tons to the U.S., plus an additional 1.1 million tons of 'excluded products' that can be exported separately. 'Excluded products' refer to steel items that the U.S. cannot meet demand for solely through domestic supply and thus allows imports from overseas. In contrast, Korea currently can only export excluded products within the annual quota. As a result, while the EU exports more than 33% (1.1 million tons) of its annual quota as excluded products, Korea exports only 1.5% (40,000 tons) of excluded products to the U.S. Ultimately, simply improving the operation method to exclude excluded products from the quota, as the EU does, would effectively expand Korea’s quota.

Additionally, the industry argues that even if the quarterly quota is not fully used, it should be possible to carry over up to 4% of the volume to the next quarter, and a regulation should be introduced obligating the U.S. to consult with Korea upon request.

◆Government Likely to Revise U.S. Steel Negotiation Strategy... First Half of the Year Is 'Golden Time'＝ The government is also likely to revise its U.S. steel negotiation strategy to prioritize quota system flexibility over expanding the steel export quota to the U.S., in line with industry demands. Yeo Han-gu, Director-General for Trade Negotiations at the Ministry of Trade, Industry and Energy, currently visiting the U.S., is expected to convey the changed positions of the government and industry to the U.S. side during preliminary discussions on Steel Section 232 negotiations.

From the government’s perspective, pursuing improvements to the existing system rather than demanding a full renegotiation of Steel Section 232 is less burdensome. Since it is not pushing for quota expansion, opposition from U.S. steel companies is expected to be milder, increasing the likelihood of reaching an agreement. Furthermore, if the government pushes for quota expansion, the U.S. might impose restrictions on the origin based on crude steel production within Korea and demand participation in the anti-China global steel alliance. Having previously been cautious about China amid U.S.-China tensions, the Korean government would be able to avoid such uncomfortable situations.

Experts view the first half of this year as the 'golden time' for Korea-U.S. steel negotiations. As the November U.S. midterm elections approach, it will become increasingly difficult for the U.S. government to ease import restrictions on overseas steel despite opposition from domestic steel companies and workers. Achieving improvements in the quota system, though less than quota expansion, remains a challenging task.

A trade expert emphasized, "The U.S. steel industry, having just emerged from a long downturn into a boom, is very negative about easing import restrictions on Korean steel companies that compete on price. It is important for the government to strengthen communication with the local steel industry while negotiating with the U.S. government to foster favorable local public opinion for the negotiations."

This content was produced with the assistance of AI translation services.