A U.S. logistics vessel that underwent maintenance by South Korean shipbuilder Hanwha Ocean is seen in this composite photo provided by the company.
SEOUL, April 1 (Korea Bizwire) — The United States appears to have unexpectedly included South Korea’s defense offset program in an annual trade barrier report in a bid to possibly use it as a bargaining chip for future defense trade deals with Seoul, observers said Tuesday.
On Monday, the Office of the U.S. Trade Representative (USTR) released the 2025 National Trade Estimate Report, which mentioned South Korea’s defense offset program for the first time among other issues it regards as trade barriers.
The unexpected listing came as the allies have been in talks since 2022 to sign a bilateral reciprocal defense procurement agreement aimed at lifting defense trade barriers, fueling speculation it might be designed as a negotiating card in future talks.
Some experts said the U.S. may target Seoul’s offset program to lead reciprocal defense procurement talks to its advantage as the Trump administration wants South Korea’s cooperation in the shipbuilding industry, especially in the maintenance, repair and overhaul of U.S. naval ships.
It marked the latest addition to South Korea’s trade challenges as the Trump administration is set to impose “reciprocal” tariffs Wednesday that seek to match what other countries impose on U.S. exports.
Offset programs are widely used by many countries as a policy tool to set certain conditions for foreign defense contractors to meet when they engage in key government procurement projects.
First introduced in 1982, Seoul’s offset program sets conditions, such as technology transfers and the purchase of Korean-made components, before selecting foreign contractors for defense procurement deals worth over US$10 million.
The program has helped lay the foundations for South Korea’s weapons system development efforts, including the T-50 trainer jet and conventional submarines.
Its inclusion in the U.S. report has raised questions about the U.S.’ motivation behind the listing, especially as the program has fallen out of favor in South Korea in recent years.
“Most countries utilize offset programs along with a domestic priority supply policy,” Jo Yong-jin, spokesperson of the Defense Acquisition Program Administration, said when asked about the USTR report in a regular briefing Tuesday.
“In order to ease institutional barriers in the defense acquisition sector, the South Korean and U.S. governments are in close cooperation, such as coordinating to sign a reciprocal defense procurement agreement.”
Cho said further assessment was needed on the U.S. position on the issue, noting that he was unaware of Washington taking major issue with the program in the past.
“The issue will likely be discussed during the process of signing the reciprocal defense procurement agreement,” he said.
From 2016 to 2020, the value of South Korea’s offset programs stood at $800 million, compared with $7.99 billion from 2011 to 2015, according to a 2023 report by the Korea Institute for Industrial Economics & Trade.
The offset program also requires an offset value of 50 percent of competitive bidding contracts, relatively lower than some European countries that require the offset value to be nearly equal to the contract value.
(Yonhap)
