Seoul: The United States has unexpectedly included South Korea's defense offset program in its annual trade barrier report, signaling a potential strategic move to leverage it in future defense trade negotiations with Seoul. This development was noted by observers following the release of the 2025 National Trade Estimate Report by the Office of the U.S. Trade Representative (USTR) on Monday.
According to Yonhap News Agency, the inclusion of South Korea's defense offset program in the report marks the first time it has been identified as a trade barrier. The allies have been negotiating a bilateral reciprocal defense procurement agreement since 2022, aimed at reducing defense trade barriers. The inclusion is seen by some experts as a potential negotiating tool to shape these talks, particularly as the Trump administration seeks South Korea's cooperation in the shipbuilding sector, especially concerning U.S. naval ship maintenance.
The mention of South Korea's offset program adds to the existing trade challenges faced by the country, as the Trump administration prepares to impose "reciprocal" tariffs, matching those imposed on U.S. exports by other countries. Offset programs are common globally, requiring foreign defense contractors to meet specific conditions, such as technology transfers, for procurement deals. South Korea's program, introduced in 1982, has supported its weapons system development, including projects like the T-50 trainer jet.
The U.S.'s motivation for listing the program has raised questions, as it has been less favored in South Korea recently. Jo Yong-jin, spokesperson of the Defense Acquisition Program Administration, commented on the USTR report, noting that many countries use offset programs alongside domestic supply policies. He emphasized ongoing cooperation between the South Korean and U.S. governments to ease institutional barriers in defense acquisition, including efforts to sign a reciprocal defense procurement agreement.
Cho further noted that while the U.S. has not historically taken significant issue with the program, the matter will likely be addressed during the agreement negotiations. From 2016 to 2020, South Korea's offset programs were valued at $800 million, a decrease from $7.99 billion between 2011 and 2015, according to a 2023 report by the Korea Institute for Industrial Economics and Trade. The program mandates an offset value of 50 percent of competitive bidding contracts, which is lower compared to some European countries where offsets can equal the contract value.