Report on the Analysis of Korea-US Tariff Negotiations and Reciprocal Tariff Executive Order
On August 4, Samjong KPMG published a report titled "Analysis of Korea-US Trade Negotiations and Reciprocal Tariff Executive Order," which comprehensively analyzed the impact of South Korea's secured tariff reductions, MFN status for strategic items, and the planned $350 billion investment in the United States on domestic companies.
According to the report, South Korea has pledged a total of $350 billion in investments in the United States, including energy purchases and cooperation in the shipbuilding industry. Of this amount, $200 billion will be allocated to strategic industries such as semiconductors, nuclear power, batteries, biotechnology, and critical minerals, while the remaining $150 billion will be used for establishing shipyards, workforce training, and supply chain restructuring. In addition, South Korea plans to purchase $100 billion worth of U.S. LNG and other energy products over the next four years.
The report interpreted the core of this tariff adjustment as the mutual reduction of tariff rates. The existing 25% tariff on South Korean products will be lowered to 15%. However, despite being a party to the Korea-US Free Trade Agreement (FTA), South Korea agreed to a 15% tariff rate, the same as the EU and Japan, which has reduced the scope of duty-free benefits for certain items.
In the automotive industry, the tariff rate has been reduced from 25% to 15%. However, with the abolition of duty-free benefits under the FTA, there are concerns about a decline in price competitiveness for some items. In contrast, items such as steel, aluminum, and copper were excluded from the negotiations and are expected to remain subject to the existing high tariff rates of around 50%.
Meanwhile, on July 31, the United States announced the Reciprocal Tariff Executive Order, clarifying the effective date and legal basis of the new tariff rates. Accordingly, the new tariffs will be applied from August 7, and the existing 10% reciprocal tariff rate will remain in effect until midnight on August 7.
The executive order also newly includes a "severability" clause. This provision ensures that even if certain parts of the order are found unconstitutional or invalid, the overall order remains effective. This is seen as a response to the May ruling by the Court of International Trade (CIT), which found that the president's tariff order arbitrarily expanded IEEPA authority.
In addition, the final tariff rates for non-FTA countries have been specified. For the EU, if the base tariff rate is 15% or higher, additional reciprocal tariffs are exempted; if it is less than 15%, only the difference will be imposed as a reciprocal tariff. In contrast, for Japan, an additional 15% reciprocal tariff is likely to be uniformly applied, regardless of the base tariff rate.
Kim Taejoo, Executive Director and Leader of Customs and Trade Advisory at Samjong KPMG, stated, "This negotiation should be interpreted as part of the U.S. effort to revitalize its manufacturing sector and establish a U.S.-centric global supply chain." He added, "In particular, for major export sectors such as the automotive industry, it is crucial to closely monitor the actions of competitors from countries like Germany and Japan, and to formulate strategies that enable our companies to secure a relative advantage." He further emphasized, "Although the uncertainty regarding tariffs themselves may have been resolved as a result of negotiations with the United States, it is important to proactively review and prepare countermeasures for transfer pricing tax risks and other issues that may arise from additional tariff burdens."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
