TPP's Impact on South Korea's Trade Strategy
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Trans Pacific Partnership in the perspective of South Korea. Pros and Cons for joining TPP and suggestions for future prospects for South Korea
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TPP's Impact on South Korea's Trade Strategy
- 1. TPP in the perspective of South Korea Choi, Yesle Kim, Kwangryu
- 2. Table of contents 1. Introduction 2. Current situation 2-1. Current Situation of South Korea 2-2. South Korea’s Strategy to TPP 3. TPP in perspective of Korea 3-1. Necessities to participate 4. Pros & cons for participating in TPP 5. Conclusion 5.1 . Policy Recommendation 5-2. What Should Korea Do?
- 3. Introduction 1-1. What is TPP? 1-2. Negotiating Issues of TPP
- 4. 1-1. What is TPP? Trans-Pacific Partnership • The most comprehensive FTA under negotiation • 12 nations • Responsible for 40% of global GDP • Aim: establish an high-quality agreement encompassing issues that are not part of a FTA • IPRs, environmental protection regulations..
- 5. 1-2. Negotiating issues Core Negotiating Issues • Trade Liberalization in goods & services • IPRs • Labour • Environmental protection • Technical barriers to trade • Financial services New Cross-Cutting Issues • State-Owned Enterprises • E-Commerce • Small and Medium Sized Companies
- 6. Current situation of South Korea 2-1. Current Situation of South Korea 2-2. South Korea’s strategy to TPP
- 7. 2-1. Current Situation of South Korea • Korean Economy • Heavily depends on Trade • Government is pushed to open up to foreign markets through FTAs • helped the resource-scarce country rise to rank as the world’s 9th largest trading nation • New Trade Road map: • From a Policy Direction Perspective • Pursue mutually beneficial FTA externally while also pursuing communication-based FTA internally. • From the other Perspective • Change of policy objective from becoming an FTA hub country to becoming a linchpin in regional economic integration.
- 8. 2-1. Current Situation of South Korea In the beginning of year 2014, President Park announced that • South Korea seeks to join the TPP • & wants progressive commercial deal with China Obama’s official visit to South Korea in late May 2014 • Pending a decision to participate in TPP
- 9. 2-1. Current Situation of South Korea Korea has bilateral FTA with; Australia, Brunei, Canada, Chile, Malaysia, Singapore, U.S., Vietnam - Japan, Mexico, New Zealand
- 10. 2-2. South Korea’s TPP Strategy • 2 Implications Attached utmost priority to negotiations with China Expressed its intention to cautiously study the implications of TPP membership • Trade between South Korea – China grew 7.4% from a year earlier to US $250bil, and is expected to exceed US$300bil in 2015 making South Korea the mainland’s 2nd biggest trading partner. • Korean Won has appreciated against the Japanese Yen to a nearly 5 year high, hurting exports severely. Political point Economic point KORUS FTA Transformed from “made in China” model to “made for China”
- 11. TPP in the Perspective of Korea 3.1. Necessity of Korea to join TPP
- 12. 3-1. Necessities to participate TPP • Synergy effects of acting as a “bridge” in mega trade negotiation can be substantial • Chance to improve the market access • Participation in the TPP will: • Strengthen the bargaining leverage 1. Synergy Effect
- 13. 3-1. Necessities to participate TPP • Participation in TPP would help achieve both these offensive and defensive goals in Korean Trade Policy. 2. Impact from Japan’s participation in TPP Japan: • Accepted to partake agricultural liberalization & NTB elimination • Japan’s participation in TPP prompted growing interest in Korea in the TPP - Possibility of trade & investment diversion - The strong rivalry among Japanese and Korean enterprises in sectors such as automobiles and electronics
- 14. Pros & Cons 4.1 Pros for participating TPP 4.2 Cons for participating TPP
- 15. 4-1. Pros • “Korea’s joining TPP means 3 FTAs with new trading partners in a single undertaking. It saves a lot of resources related with negotiations including political ones”. • Greater market access (2.5% to 2.6% of GDP) but also through harmonized trading rules such as ROO.
- 16. 4-1. Pros • The earlier, the better. • Later it joins, the higher shares of free market access • Minimal entrance fee for South Korea • the negotiated outcome of TPP will be “KORUS FTA+” at most. • South Korea can free ride it, saving much negotiation resources
- 17. 4-2. Cons • Potential benefits but the damages will be real and immediate • No Major Benefits • Korea already has FTAs with 9participants of TPP and has been negotiating FTAs with the rest of 3. • No major benefits in terms of market access could be expected • Weakening international competitiveness • Automobiles & Machinery industries • Agricultural industry
- 18. 4-2. Cons • The Japan Factor • TPP could be bilateral FTA with Japan • Worsen the bilateral imbalance and turn them into structural imbalance • Damages to Korea’s industrial bases, most noticeably to Korea’s SMEs • The China Factor with RCEP • a neighbor country with influence on North Korea’s decision-making • the TPP may have a negative impact on future FTA and RCEP negotiations with China.
- 19. Conclusion 5-1. Policy Suggestion 5-2. What Should Korea Do?
- 20. Policy Recommendations for the South Korea • Early conclusion of Korea- China FTA • Strengthen South Korea`s bargaining leverage when South Korea starts to consult with other TPP partner. • Start of bilateral consultation with TPP members • the faster Korea joins the TPP the smaller the entrance fees Korea should pay.
- 21. Policy Recommendations for the South Korea • Acceleration of the CJK FTA • CJK FTA could be a stepping stone to reach a successful conclusion of the RCEP negotiations • Creating a Reduced Form of the RCEP • RCEP, less ambitious than TPP, prospect of development assistance for adjustment for developing countries with soft commitment • Large countries may be reluctant to respect the central role of ASEAN in the RCEP • Korea could play a balanced role among China, Japan, and ASEAN nations
- 22. What should Korea Do? Both need to proceed through due processes, Thus compelling Korea to immediately and simultaneously embarking on both tracks. On the domestic front , It should not hesitate to find domestic consensus for joining TPP negotiation. On the international front, Korea should begin consultations with TPP 12 partners for ‘Pre-Nuptial Agreement while pursuing competitive FTA negotiations with Non-TPP partners (CK FTA, CJK FTA or RCEP) with the same intensify and sincerity to its participation in TPP.
Notes de l'éditeur
- South Korea can concurrently seek participation in both Asia-Only trade initiatives and TPP The synergy Effect of acting as a “bridge” in mega trade negotiation can be substantial. From that, South Korea will be able to improve its market access even in countries with which it already has FTAs in place, given that many of these older trade agreements are considered to be of inferior quality. Even though South Korea is in the midst of negotiating separate trade agreements with several TPP nations (Japan, Australia, NZ, Vietnam, and Cadnada), Its participation in the TPP will strengthen its bargaining leverage in these other trade negotiation fronts. Expanding the scope of bilateral FTA beyond the focus on tariff elimination for commodity trade that China envisions towards a broader agreement that tackles NTB that would benefit South korea In other Words, with TPP, South Korea can expect better outcomes in opening foreign markets with higher quality trade agreement.
- trilateral CJK and RECP will likely to have more leniency towards sensitive sectors and fewer WTO-plus commitments japan has accepted to partake in an unprecedented level of agricultural liberalization and NTB elimination. But the benefits of Japanese market opening will only be available to TPP partners. The Japanese TPP entry has in fact prompted growing intrest in Korea in the TPP, for the potential of negotiating more substantive market access with japan as well as for the possibility of trade and investment diversion if Japan is a TPP member but South Korea is not. Given The strong rivalry among Japanese and Korean enterprises in sectors such as automobiles and electronics Participation in TPP would help achieve both these offensive and defensive goals in Korean Trade Policy.
- Major Benefits “Korea’s joining TPP means 3 FTAs with new trading partners in a single undertaking. It saves a lot of resources related with negotiations including political ones.” “It would benefit not only in terms of greater market access (2.5%~2.6% of GDP) but also through harmonized trading rules such as rules of origin whose benefits might be greater than those of market access.” “Thanks to greater market access and harmonized rules, joining TPP will deepen and widen Korea’s participation in the global value chain.” “The earlier it joins the better. This is so because the later it joins, the higher its entrance fee (higher shares of free market access).” “The ‘entrance fee’ for Korea will be minimal because the negotiated outcome of TPP will be ‘KORUS FTA+’ at most.” “Other TPP negotiating participants will do their best to open the Japanese markets. Korea can free ride it, saving much of negotiation resources.”
- Major Benefits “Korea’s joining TPP means 3 FTAs with new trading partners in a single undertaking. It saves a lot of resources related with negotiations including political ones.” “It would benefit not only in terms of greater market access (2.5%~2.6% of GDP) but also through harmonized trading rules such as rules of origin whose benefits might be greater than those of market access.” “Thanks to greater market access and harmonized rules, joining TPP will deepen and widen Korea’s participation in the global value chain.” “The earlier it joins the better. This is so because the later it joins, the higher its entrance fee (higher shares of free market access).” “The ‘entrance fee’ for Korea will be minimal because the negotiated outcome of TPP will be ‘KORUS FTA+’ at most.” “Other TPP negotiating participants will do their best to open the Japanese markets. Korea can free ride it, saving much of negotiation resources.”
- “Benefits are potential and in the long, but the damages will be real and immediate.” No Major Benefits “Korea already has FTAs with seven participants of TPP 12 and has been negotiating FTAs with the rest 5. No major benefits in terms of market access could be expected.” High prices to pay “Many of TPP 12, maybe except Japan, are major agricultural exporters. The import surge after Korea’s joining TPP will do damages to Korea’s agricultural sector with its weak international competitiveness.” The Japan Factor “Considering Korea’s international economic exchanges with the current TPP partners, Korea’s joining TPP is Korea’s bilateral FTA with Japan for all practical purposes.” “Even without any FTA with Japan, the imports from Japan, e.g. intermediate goods have been the major sources for Korea’s chronic trade deficit. Joining TPP will worsen the bilateral imbalances and turn them into structural imbalances.” “Japan’s international competitiveness in the major lines of manufacturing such as machinery, is insurmountably strong so that Korea’s joining TPP will do damages to Korea’s industrial bases, most noticeably to Korea’s SMEs.” “TPP negotiations will not be able to crack and open the tightly closed Japanese market because of the complex network of domestic entry barriers.” The China Factor “Korea’s joining TPP will be viewed as Korea’s pivot toward the U.S. sphere of influence, which is against Korea’s recent effort to find a proper balance between the U.S. and China.” “Korea’s joining TPP, a U.S.-led economic bloc to contain the emergence of China, will deepen the sense of exclusion on the part of China, one of Korea’s two most important partners for peace and prosperity.”
- “Benefits are potential and in the long, but the damages will be real and immediate.” No Major Benefits “Korea already has FTAs with seven participants of TPP 12 and has been negotiating FTAs with the rest 5. No major benefits in terms of market access could be expected.” High prices to pay “Many of TPP 12, maybe except Japan, are major agricultural exporters. The import surge after Korea’s joining TPP will do damages to Korea’s agricultural sector with its weak international competitiveness.” The Japan Factor “Considering Korea’s international economic exchanges with the current TPP partners, Korea’s joining TPP is Korea’s bilateral FTA with Japan for all practical purposes.” “Even without any FTA with Japan, the imports from Japan, e.g. intermediate goods have been the major sources for Korea’s chronic trade deficit. Joining TPP will worsen the bilateral imbalances and turn them into structural imbalances.” “Japan’s international competitiveness in the major lines of manufacturing such as machinery, is insurmountably strong so that Korea’s joining TPP will do damages to Korea’s industrial bases, most noticeably to Korea’s SMEs.” “TPP negotiations will not be able to crack and open the tightly closed Japanese market because of the complex network of domestic entry barriers.” The China Factor “Korea’s joining TPP will be viewed as Korea’s pivot toward the U.S. sphere of influence, which is against Korea’s recent effort to find a proper balance between the U.S. and China.” “Korea’s joining TPP, a U.S.-led economic bloc to contain the emergence of China, will deepen the sense of exclusion on the part of China, one of Korea’s two most important partners for peace and prosperity.”