Experts: Big Unanswered Questions on Korean Tariff Treatment

Wendy Cutler, the former Office of the U.S. Trade Representative negotiator, said on a Washington International Trade Association podcast that she found it "very difficult to interpret" the paragraph that said:

"The United States will apply the higher of either the U.S.-Korea Free Trade Agreement (“KORUS FTA”) or U.S. Most Favored Nation (“MFN”) tariff rate, as applicable, or a tariff rate of 15 percent on originating goods of the ROK, for purposes of the reciprocal tariff provided under Executive Order 14257 of April 2, 2025, as amended."

She said it does suggest that 15% might be the ceiling, with MFN rates and another rate adding up to 15%.

However, for products such as tights, which are subject to an MFN rate of 16%, it's unclear whether the 16% would apply, or the 15% reciprocal, if the tights meet the apparel rules of origin under KORUS.

Chris Padilla, senior adviser at the Brunswick Group, also expressed confusion. "I haven't cracked that mystery," he said.

He also noted the fact that the joint statement doesn't say that Korean chips will face a 15% tariff, rather that they will get the same treatment as Taiwan. However, the president has suggested that foreign firms that are expanding chip production in the U.S. could be spared Section 232 tariffs on their goods, and Samsung is one of those companies.

He wondered, will Samsung chips fabricated in Korea face no tariff?

"There's still some big outstanding questions out there," he said.

Moderator Joe Damond and Atlantic Council Senior Fellow Mark Linscott, a former assistant USTR for South and Central Asia, pointed out that Japan, Europe and South Korea all received breaks on Section 232 tariffs and proposed tariffs, while Malaysia and Cambodia did not.

Damond said for other Southeast Asian countries that have not agreed to terms, they're being told they will get similar deals to the Malaysian agreement, with U.S. negotiators saying: "On 232s and on other trade issues, you're not going to get a better deal."

Linscott said, "Given that electronics is such a huge export [for Malaysia], you would have thought that maybe they'd get something on semiconductors or at least try to."

However, he said that Southeast Asian government officials may be thinking that even if they don't get a Section 232 exception, they still will have lower tariffs than China as a result of these deals, and at least they'll remove "the silly tariffs" on tropical fruits and the like. He added he wondered what Vietnam is holding out for, given that a more complete agreement has not been issued.

Damond responded that Vietnam is in a tricky position, because there is "much deeper Chinese engagement in the Vietnamese economy," and if they are expected to agree to rules of origin that subject some goods now considered Vietnamese to a 60% tariff, then they are no longer in a better position than China.

The group was talking about the exceptions to reciprocal tariffs on goods such as coffee and tropical fruit when those goods had been mentioned in deals with El Salvador, Ecuador, Cambodia, Guatemala and Malaysia, but before the general exception for foodstuffs had been announced for all countries. They wondered why coffee tariffs wouldn't be dropped for Vietnam, Colombia and Brazil.

Padilla, who served in the George W. Bush administration, said it's odd that the administration is rolling out announcements for Guatemala and El Salvador to roll back tariffs that raise prices for U.S. consumers without protecting U.S. producers.

"Rather than just say, 'Well, it was silly to put tariffs on coffee and bananas and cocoa,'" he said, they argue, "'We're going to use it as leverage to negotiate.' Well, what did they get? Remember, we already have a free trade agreement with Central America, uh, DR-CAFTA, which, you know, I worked hard on. It passed the House by one vote."

He said they may have solved some pharmaceutical intellectual property issues, but getting a country like Guatemala to promise not to have a digital services tax ... "I mean, is that really a threat in Guatemala?"

"And in return for that, apparently, we're going to give them relief on coffee, bananas, tropical fruits, and apparently, on apparel, which is a big deal. So the fact that that's included suggests that, you know, someone gave it some thought and realized, well, gee, we have trade surpluses with these countries. We got a couple of small market access issues. Let's clear those up ... and in return, let's, you know, let's stop, you know, jacking up the price of coffee and bananas for our consumers, and let's start bringing back the apparel, which helps our textile producers in places like North Carolina.

"So, you can see ... the end result is a good one, but ... did we really have to go through all this rigamarole to get there?"

The think tank members and consultants agreed that most countries aren't planning to walk away from these trade deals if the president loses the International Emergency Economic Powers Act case at the Supreme Court, because they fear a Section 301 investigation, or vengeance through some other tariff authority.

Cutler said, "If it becomes apparent that you're slow-walking, or you're not as interested in these negotiations, I think there's a real concern that the administration will take it out on these countries one way or another."

Linscott said he believes the president will impose a 15% tariff worldwide under Section 122 while agencies work on Section 301 and Section 232 investigations, which have a several-months process to complete.

Padilla said that makes sense, though he's also wondered if the president would try Section 338, because it has no administrative requirements. "He's gonna want a tool where he can say, 'I don't like what this country did. I'm going to hit him with 50% in the morning.' And the only way to do that without IEEPA [the International Emergency Economic Powers Act] would be 338, which would immediately engender another lawsuit, but I would not be surprised to see it."

Linscott said he thinks the concluded agreements will not last for years.

Damond added that the promises of market access by these countries are going to cause political problems for USTR. "You're going to have industries coming in and saying, 'What about this? What about that?' and saying that the countries are not following through.

"Are you going to just start applying tariffs left and right for all these different issues? Are you going to go through a 301 process to determine it's a violation of a trade agreement? There's some real complexity in enforcing all of these provisions."