Is the US only blindsiding Japan?… If EU reciprocal tariff exceptions increase, Korea-US FTA effectiveness drops further

Japan demands US 'at least 15% like the EU'

If Japan also gets a 'flat 15%', it puts Korea at a disadvantage

Unlike the Korea-US FTA, the US respects the USMCA

With the US formalizing its reciprocal tariffs, debates are intensifying over the Korea-US Free Trade Agreement (FTA). Unlike the European Union (EU), to which the US announced an all-inclusive 15% reciprocal tariff, Japan has found itself in a precarious situation as it was confirmed that the reciprocal tariff for Japan would be the existing tariff plus 15 percentage points. For Korea, due to the existing FTA, a new reciprocal tariff of 15% will be imposed instead of zero tariffs, making it more favorable compared to Japan, but there is dissatisfaction that even the EU, which does not have an FTA with the US, now faces a minimum tariff of 15%. If Japan manages to secure a 'flat 15%' like the EU, the relative tariff advantage Korea has enjoyed through the FTA would virtually disappear, similar to the 2.5 percentage point auto tariff.

According to the Ministry of Trade, Industry and Energy on the 7th, the main category where the 'Korea-US FTA effect' continues to be observed after the tariff negotiation is other noodle products. According to the U.S. Department of Commerce, last year Korea exported $270 million worth of other noodles, such as ramen, to the US. The US imposes tariffs of 0~6.4% on other noodles—the rate is 0% for noodles only and up to 6.4% for noodles with sauce. Kim Jeong-gwan, Minister of the Ministry of Trade, Industry and Energy, has stated, "Japan faces a 21.4% tariff when exporting ramen to the US, while Korea faces 15% due to the FTA benefit."

Though Korea no longer benefits from zero tariffs when exporting to the US, unlike other countries that have to pay both the base tariff and an added reciprocal tariff, Korea pays only the 15% reciprocal tariff. An official from the ministry explained, "Thanks to the FTA, Korean products trading with the US enjoyed tariff differences equivalent to the most-favored-nation (MFN) rate applied by the US to the World Trade Organization (WTO), and this benefit will continue to some extent."

The US tariff rate on petroleum products is 5.25–5.84 cents per barrel, and a tariff of 52.5 cents per barrel is imposed on imported jet fuel. However, under the FTA, Korea has been able to export without tariffs. According to the Department of Commerce, the US imported $4.48 billion worth of Korean petroleum products last year, and the basic tariff benefit remains in effect even after the reciprocal tariff introduction.

For 'other machinery', of which the US purchased $1.95 billion from Korea last year, the MFN rate is 0~2.8%, and for transformers, with imports reaching $1.8 billion, the MFN rate is 0~6.6%. The US also imposes tariffs on chemical products such as binders (to increase viscosity, MFN rate 0~6.5%), ovens and other heating equipment (0~4.2%), and polyester (0~6.5%). Again, Korea enjoys a significant advantage compared to other countries, equivalent to the base tariff.

However, the advantage Korea enjoyed over the EU in terms of reciprocal tariffs has diminished. According to the US government's Federal Register on the 6th (local time), for the EU, if the existing tariff on an item is less than 15%, the sum after the new reciprocal tariff is imposed is capped at 15%, representing a special benefit. The tariff that used to be 6.4% on European ramen is now raised to 15%, matching Korea's level. The US has set 15% as the maximum rate for EU products regardless of MFN tariffs. A trade expert explained, "Although the EU is also subjected to a 15% reciprocal tariff, it now receives the same benefit as Korea, a country that already had a FTA with the US." The EU began Transatlantic Trade and Investment Partnership (TTIP) negotiations with the US in 2013, but the talks were suspended without result.

For Japan, the US clarified that it is not 'up to 15%' as with the EU but 'existing tariff plus 15%', and Japan has urgently dispatched Economic Revitalization Minister Akazawa Ryosei to Washington DC.

However, for Korea, if Japan succeeds in the additional negotiations to secure an 'up to 15%' cap like the EU, the benefit from the FTA would be further diminished. Korea had to endure intense social struggles to ratify the Korea-US FTA.

An issue raised is that Korea failed to properly request favorable consideration for countries with existing FTAs during the latest negotiations with the US. A trade expert explained, "For Mexico, tariffs have been deferred, and for Canada, the rate is set at 35%, but the US continues to exempt products that meet the USMCA (United States-Mexico-Canada Agreement) requirements from tariffs and shows that it still respects the USMCA." Choi Byung-il, head of the Pacific Trade Strategy Innovation Hub, commented, "It is disappointing that we failed to respond adequately, such as by sending a letter in response to President Trump's tariff letter last month, even though imposing reciprocal tariffs by the US violates the basic principle of FTAs."

Reporters: Kim Dae-hoon, Kim Ri-an, Ha Ji-eun