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U.S.-Korea trade talks pit pickup trucks against nuclear threat

[January 16, 2018] By Lesley Wroughton and Hyunjoo Jin

WASHINGTON/SEOUL (Reuters) - The United States and South Korea on Friday completed the first round of review talks on a bilateral trade deal with Washington saying there was "much work to do" to reach a new pact.

Since taking office in 2017, President Donald Trump has pulled the United States out of talks on a 14-nation Asia-Pacific trade pact, started negotiations on a new deal for the North American Free Trade Agreement between the U.S., Mexico and Canada and initiated a review of the 2012 Korea deal.

Washington has taken a hard line in the NAFTA talks, which appear stalled with just two rounds of negotiations left, saying that concessions are the only way for Canada and Mexico to keep the deal.

The Korea trade talks will have to strike a balance between Trump's domestic agenda and the need to contain a nuclear-armed North Korea. A swift agreement would have aided that, officials from both sides told Reuters ahead of the talks on Friday.

The U.S. goods trade deficit with South Korea has doubled since the 2012 signing of the U.S.-Korea Free Trade Agreement (KORUS). Almost 90 percent of the 2016 shortfall of $27.6 billion came from the auto sector, an issue the United States is expected to press hard in the Washington talks.

A quick Korea deal could give Trump his first trade victory at a time when NAFTA negotiations are dragging on and pressure on China to change trade practices has yielded little progress.

The talks, led by Assistant U.S. Trade Representative Michael Beeman and Yoo Myung-hee, director general for FTA negotiations at South Korea's trade ministry, begin at a time of heightened tension with Pyongyang.

The United States had primarily raised the issue of the automobile sector, Yoo told reporters in Washington after the first round of talks, Yonhap News Agency said, but gave no details.

A top priority for the Americans is maintaining a tariff of 25 percent on imports of Korean pickup trucks, which the existing deal envisaged to be phased out from 2019, according to a U.S. official and a South Korean car industry source.

South Korea has two major automakers, Hyundai Motor and Kia Motors, that rely heavily on exports because of the small size of the domestic market. Critics say South Korea discriminates against imports with a range of non-tariff barriers.

South Korean auto companies believe Washington will also seek to increase the 25,000-vehicle per U.S. automaker threshold for U.S. car shipments to South Korea that can enter the country without meeting Seoul's domestic industry regulations.

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President Donald Trump and South Korea's President Moon Jae-in hold a joint press conference at the presidential Blue House in Seoul, South Korea, November 7, 2017. REUTERS/Jung Yeon-Je/Pool

The official at a South Korea auto company, who was not authorized to speak to the media, also said the United States was interested in easing Seoul's vehicle emissions targets. These are viewed as discriminating against U.S. autos.

NUCLEAR THREAT

Since Kim Jong Un took power in North Korea in 2011, Pyongyang has run a series of increasingly powerful nuclear tests and ballistic missile launches, drawing ever tighter sanctions and a freeze on contacts between the two Koreas.

This week, however, Seoul agreed to high-level talks with the North in response to a New Year's speech in which the North Korean leader offered an opening to diplomacy.

Pyongyang has a long history of seeking to play off Seoul and Washington as well as Beijing and Moscow in its diplomacy. Washington is wary of separate approaches and there are concerns that disagreements over KORUS could fuel a rift between South Korea and the United States.

The election of a left of center government in South Korea has raised concerns in Washington that Seoul may now be more willing to engage in talks. Under two previous right of center South Korean administrations, economic and other links between the countries were severed.

"I have a feeling that we will not take any precipitous action on KORUS for the time being," a senior U.S. official said while acknowledging that Trump and trade hawks within his administration had concerns over the deal.

(Additional reporting by Matt Spetalnick and Eric Beech in Washington, and Jane Chung in Seoul; Editing by David Chance, Andrew Hay and Lisa Shumaker)

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