South Korea Expected to Face Up to 12.5% Tariff After US Global Tariff Expiration

South Korea Expected to Face Up to 12.5% Tariff After US Global Tariff Expiration

'Forced Labor Tariff' Likely to Replace 'Overproduction Tariff' Amid Investigation Delays

Government to Adhere to '15% Cap' Even if Overproduction Tariff is Introduced Later

If the US Donald Trump administration's 'global 10% tariff' expires as scheduled in about two weeks, Korean products are expected to face a new tariff of up to 12.5%.

The overproduction tariff, which was initially expected to be introduced alongside the forced labor tariff, has not yet even seen its investigation report released. Therefore, the forced labor tariff, which is nearing its final stages, is likely to fill the gap first.

According to trade authorities on the 8th, the Office of the United States Trade Representative (USTR) received comments from trading partners by the 6th regarding tariffs related to forced labor under Section 301 of the Trade Act.

The procedure for imposing tariffs of 10-12.5% on 60 economic blocs, including South Korea, is nearing completion. The USTR plans to determine the final tariff rate after a public hearing on the 9th.

The government and the Korea International Trade Association (KITA) argued in their comments that "the additional 12.5% tariff on South Korean products lacks sufficient grounds and should be reconsidered." They have requested that if the tariff imposition is inevitable, it should be lowered to 10%.

Cho Sung-dae, head of KITA's Trade Research Department, stated, "We included such content in the comments with the expectation that a slightly lower tariff would be applied," adding, "However, realistically, the possibility of the US accepting this and lowering it does not seem very high."

Since the Federal Supreme Court's ruling on the illegality of reciprocal tariffs in February, the Trump administration has been imposing a 10% so-called global tariff on trading partners worldwide, based on Section 122 of the Trade Act.

However, since the period for imposing the global tariff is 150 days, until the 24th, the Trump administration is rushing to introduce a substitute tariff under Section 301 of the Trade Act before then.

However, the investigation related to overproduction, which the USTR began in March under Section 301 of the Trade Act alongside forced labor, remains in the dark.

Initially, the USTR had presented a timetable to complete both investigations within the global tariff expiration deadline.

However, even at that time, the prevailing view was that it would be physically difficult to complete all investigations within five months. Looking at past cases, it typically took more than one year to investigate a specific issue in a single country under Section 301 of the Trade Act.

For example, when the USTR conducted a Section 301 investigation targeting only China in August 2017, during Trump's first term, due to intellectual property infringement, the actual tariffs were imposed only in July 2018, 11 months later.

Unlike the forced labor sector, which was easier to judge based on legal and institutional deficiencies of trading partners, the overproduction sector inevitably takes a long time as it requires meticulously examining and verifying country-specific and industry-specific data.

The USTR has launched a Section 301 investigation into overproduction issues targeting 16 economic blocs, including South Korea.

Even if the investigation results related to overproduction were to be released immediately, it would still require essential procedures such as collecting comments and holding public hearings, making its introduction before the global tariff expiration date virtually impossible, according to the dominant analysis.

Therefore, it is highly likely that the forced labor tariff will continue to replace the global tariff for the time being.

However, concerns are also being raised that if the forced labor tariff rate is set high at 12.5%, and if additional tariff measures based on the USTR's future overproduction investigation results are added, the US tariff burden on Korean products could exceed 15%.

Accordingly, the government plans to do its best to ensure that tariffs imposed on South Korea do not exceed the 15% agreed upon last year, even if additional tariff pressure from the US, such as future overproduction-related measures, continues.

An official from the Ministry of Trade, Industry and Energy emphasized, "Our government's consistent position is that even if the US takes action under Section 301 of the Trade Act, it should be within the range of the tariff level previously agreed upon by both sides," adding, "As we keep our commitments, they (the US) should also keep theirs."

Last year, South Korea pledged a total of $350 billion in investment in the US through tariff negotiations, thereby lowering the 25% reciprocal tariff announced by the US to 15%.