서울국제포럼 The Seoul Forum for International Affairs(SFIA)
Logo and Menu
OPINION (KOR/ENG/JPN)
About UsSubmenu
Events Submenu
Members Submenu
Resources Submenu
Opinion (KOR/ENG/JPN) Submenu
Journal and Books Submenu
Full Menu
영문/ENG
The JoongAng | Dukgeun Ahn Professor, Graduate School of International Studies, Seoul National University
2022.04.26
Pacific Trade War and Korea’s Strategy
The security and diplomatic, economic solidarity of the democracy alliance, triggered by Russia’s invasion on Ukraine, is rapidly changing the trade confrontation between the United States and China into the geoeconomics structure of new Cold War. As the European Union, which desperately needed resources and markets from Russia and China to nurture its own industries, eventually turned away, the Korean government’s trade policy, which advocated the New Northern Policy, and the business strategy of the industry that took advantage of it, also be inevitably revised. In addition, the confrontation between the EU and the Russia intensified the battle for trade in the Pacific Ocean.
The Biden administration set a target for mid-next year and started building a new trade order through the Indo-Pacific Economic Cooperation (IPEF) in earnest. On the other hand, China, which has effectively taken control of the Regional Comprehensive Economic Partnership (RCEP) led by ASEAN, is now trying to strengthen the power in the Pacific Ocean by going beyond the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Based on the CPTPP, Japan seeks to restore its status as an Asian leader against China by establishing an economic alliance that includes Britain, Taiwan, Korea, and ultimately the United States. Korea, which is one of the pillars of Pacific geoeconomics, where tensions between superpowers are rising, must also prepare for a trade war in the Pacific.
Korea Peninsula is in the midst of a trade battle
with trade negotiations encompassing technology and security
We must protect values and principles of the international community and
rebuild the international trade system in crisis
The new government needs mid- to long-term approach
to break free from mercantilism obsessed with trade surplus
It is necessary to develop an open trade strategy that
Cooperates with trading partners by gathering the capabilities of the government and industry
East Asian economic cooperation is chilled due to Sengaku and THAAD
Ahn Deok Geun’s Koren Peninsular Peace Watch
After the Asian financial crisis in the late 1990s, Korea, China, and Japan realized the need for economic cooperation. Starting with financial cooperation in 2000, Korea-China-Japan cooperation secretariat was established in Seoul in September 2011. Since then, these three countries singed an investment agreement in May 2012, and started FTA negotiations in December, bringing expectations for economic cooperation in East Asia. However, as political and diplomatic turmoil erupted one after another, such as Senkaku (in Chinese, Diaoidao) Island dispute, the deployment of THAAD, China’s retaliatory measures against the Korean Peninsula, and Japan’s export control measures to Korea following the Supreme Court’s ruling on compensation for forced labor, the East Asia economic cooperation is frozen in the blink of an eye.
In fact, the East Asian division of labor —in which Japanese materials and parts are processed in Korea into intermediate goods, assembled into finished products in China, and exported — has been a key drive force in the global supply chain since the early 2000s. However, since the mid-2010s, the East Asian supply chain, which served as the backbone of the global economy even during the global financial crisis, fall out due to an internal political crisis. The industrial ecosystem of East Asia, which accounts for a quarter of world trade, is now turning into a battleground where economic and security strategies to weaponize trade relations clash each other.
The current political and diplomatic variables in East Asia are one of the biggest uncertainties in terms of the global economy. The Korean industrial landscape has been reorganized to match Chimerica (China and American cooperation) of the early 2000s, and the Korean economy is suffering from supply chain segregation as it has been pushed to the forefront of the U.S-China trade war. The new government’s trade strategy should minimize the cost of reorganizing the industrial ecosystem in East Asia and focus on stabilizing the Korean industrial supply chain.
Korea-Japan’s pending issues, prerequisites for Korea to join CPTPP
The RCEP negotiation began in 2012 when Australia, New Zealand and India were added to the ASENA+3 (Korea, China, Japan), which now has been continued for years. It was considered a relatively easy negotiation as it was a form of integrating FTAs with six countries that were individually concluded with ASEAN. However, after 31 rounds of official negotiations until July 2020, India was eventually withdrawn, and it took effect in January 2022. The fact that the FTA was concluded by 15 countries, including Korea, China, and Japan, at a time when the U.S-China conflict intensified, drew attention as a fruit of China’s foreign economic and diplomatic achievements. As President Xi Jinping declared shortly after the signing of the RCEP, China officially applied for membership in CPTPP in September 2021.
The Trans-Pacific Partnership Agreement (TPP), which former President Donald Trump withdrew from, was restored to the CPTPP by former Japanese Prime Minister Shinzo Abe, excluding the 20 clauses the United States insisted on. Japan, which has hardly opened its agricultural market since the inception of the World Trade Organization (WTO) system, has accepted the plan of full open in the CPTPP under the banner of Abenomics. Based on this, Japan has concluded trade agreements with the U.S and the EU at a higher level than other countries.
CPTPP proposes more advanced trade norms than the WTO in various fields such as digital commerce, state-owned enterprises, technical standards, sanitation and quarantine, SMEs, and regulatory harmonization, along with a high level of market opening. Therefore, when Korea joins the FTA, Korea-Japan FTA is actually concluded at a higher level than the Korea-U.S FTA. However, in addition to the protests from the agricultural and fishery industry, the diplomatic issues between Korea and Japan related to imports of seafood from Fukushima and compensation for the victims of comfort women and forced labor are realistically expected to become a prerequisite for Korea to join the CPTPP.
On the other hand, following the UK and China, Taiwan also threw its vote in the Pacific trade war with an application to join the CPTPP. Taiwan officially joined to WTO in January 2002 but was pushed out of the FTA competition due to China’s dominance. Now, in the confrontation between the U.S and China, Taiwan has emerged as an essential democratic bridgehead in Asia that replaces Hong Kong, which has been annexed to China. As the importance of the semiconductor supply chain increases, Taiwan assumes the role of a pillar of the U.S-led technology and trade alliance. Taiwan, which allowed imports of Fukushima seafood following the resumption of the U.S pork imports through a referendum, is now mobilizing its national power to join the CPTPP. This issue is highly likely to serve as a trigger for the Pacific trade war amid growing clashes between democratic alliance between the pro-China camps.
The need for actively engage in the U.S-led Indo-Pacific Economic Cooperation
In 2013, a year before China announced the “Made in China 2025” policy aimed at the Trump administration as a retaliation target of trade relation, India declared a “Make in India” policy and started a project to foster 25 strategic industries. India, which speaks English and advocate for a democratic country with economic scale that will replace the role of the consumption market and production base that China has dominated, is recognized as the core of the Pacific strategy against China and Russia. Our industry is already moving its industrial base from China to India. India has recently emerged as a major alternative for overseas investment, including Samsung Electronics’ largest smartphone production facility. As the Biden administration pushed for the IPEF as a full-fledged strategy for China, India’s strategic status, which distanced itself from China, grew even more by not participating in the RCEP. However, considering the nationalist tendencies shown in the Doha Round and the departure from the RCEP negotiations, it is unclear whether the IPEF will reach an agreement with India.
The Trump administration, which rejected the multilateral trade system and withdrew from the TPP and insisted on bilateral trade negotiations, also joined the IPEF, which includes Korea, New Zealand, and Vietnam, in the QUAD (a quadrilateral consultative body of the United States, Japan, Australia, and India) in the last year of his tenure. An economic prosperity network with a very similar composition was promoted. It suggests that the Biden administration’s IPEF will be pursed bipartisan regardless of the future direction of the administration. Currently, the U.S. Trade Representative (USTR) and the Department of Commerce are collecting industry positions by dividing the main negotiating agendas. It is a test bed to demonstrate the will and capacity of the United States to establish a new trade order in all areas including labor, competition policy, environment, supply chain strengthening, digital commerce, and carbon neutrality
In particular, unlike existing FTA negotiations such as TPP, IPEF focuses on establishing new norms rather than dealing with market opening through tariff cuts. Therefore, practical industrial cooperation among the participating countries is expected to be promoted in the form of agreements for each sector that are not mostly ratified by the parliament after the conclusion of the negotiation. The Korean government should also take an active role in establishing a new trade cooperation system as well as an economic security strategy to jointly build a stable supply chain and technological and industrial ecosystem among trusted allies.
Establishment of a trusted advanced trading country
As trade negotiations became an economic and security strategy that encompasses technology and security, the Korean Peninsula was at the center of the Pacific trade battle. The newly launched Korean government should actively pursue the establishment of a new trade order with the goal of establishing a trusted and advanced trade nation. Maintaining the values and principles that the international community aspires to and rebuilding the international trade system in crisis is the best way to protect our industry, which competes in the global market.
Only when we break away from the mercantilism that is obsessed with the volume of exports and trade surpluses can we improve the status of the country and the development of industry from a mid- to long-term perspective. Short-sighted thinking that pursues only trade interests make the mistake of taking all of our trade relations hostage. In order to overcome the trade turbulence in the Pacific that will intensify in the future, it is imperative to establish a new trade order that will support the Korean economy and the international trade system. It is time to revise an open advanced trade strategy that brings together the capabilities of the government and industry and cooperates widely with trading partners who agree on values and principles.
