South Korean trade negotiators are expected to be on the defensive as they meet with their U.S. counterparts on Friday to renegotiate a bilateral free trade agreement.
President Donald Trump's administration is looking to reduce the U.S. trade deficit with Seoul, which stood at $3.5 billion in the third quarter, according to U.S. data. South Korea, on the other hand, is worried about the political ramifications of folding to Washington's demands.
It's imperative that the outcome of renegotiation works in the national interest of each country, said Wendy Cutler, a former acting deputy United States Trade Representative who was the chief U.S. negotiator for the deal, known as "Korus."
The White House, she told CNBC, "should not only focus on what it wants, but also see what it can do for Korea because for a negotiation to be successful, both countries need to win."
Trump threatened last year to scrap the seven-year-old accord unless it were revised, but South Korean President Moon Jae-In was initially opposed to changes. Analysts say he changed his mind to avoid destabilizing the bilateral relationship as both countries work together on reigning in North Korea. Washington and Seoul, alongside Tokyo, play critical roles in containing Pyongyang's nuclear and missile program so strained ties between any of the three nations could disrupt international efforts in containing the rogue state.
If the Trump administration is perceived as heavy-handed and uncompromising in talks, that could raise anti-U.S. sentiment in Asia's fourth-largest economy, Scott Seaman, Asia director at political consultancy Eurasia Group, said in a Thursday note.
Moreover, "if Trump attempts to gain leverage in talks on trade by accusing Korea of not being a reliable and accommodating ally and partner on security and defense issues (e.g., North Korea), resentment in Korea of Korus renegotiation and U.S. bullying will spike," he continued.
Agriculture and autos are among highly sensitive issues on the agenda as the White House seeks revisions that will win Trump points at home. U.S. representatives are expected to focus on services, investment, products' country of origin and non-tariff measures. Moon's administration, meanwhile, will seek to limit the number of overall concessions and dilute the agreement's investor-state dispute system.
"The Moon administration is certainly thinking about how making concessions to the U.S. regarding agriculture will effect their future political careers," said Riley Walters, research associate at The Heritage Foundation, a Washington-based think tank.
Walters said he believes Korus is fine as it is, and Washington shouldn't be renegotiating terms at all: "When people were talking about the U.S. being a part of the Trans-Pacific Partnership several years ago, they would actually reference Korus as the gold standard for how the U.S. should approach the TPP."
The Trump team's "continued rhetoric on trade deficits is misguided, old thinking," he added.