South Korea has successfully established a bridgehead for its strategy of moving out of China to Southeast Asia through the 2019 Association of Southeast Asian Nations (ASEAN) and Republic of Korea Commemorative Summit. Under escalating uncertainties fueled by the U.S.-China trade war and South Korea-Japan trade disputes, such a new strategy targeting Southeast Asia can serve as a new trade channel for the Korean economy.
The South Korean government concluded the final negotiations on the Comprehensive Economic Partnership Agreement (CEPA) with Indonesia on Nov. 25 during the summit. The trade ministers of the two countries declared last month that their CEPA negotiations have been completed. Following that, South Korean President Moon Jae-in and Indonesian President Joko Widodo concluded the negotiations at the 2019 commemorative summit. The bilateral negotiations came to an end 7 years after they began in March 2012.
In addition, South Korea signed an “early achievement package” based on the progress of the trade negotiations with the Philippines, under which some commodities open at an early date. According to the agreement, the latter will open its markets for some auto parts such as brakes and clutches, and petrochemicals including pharmaceuticals and synthetic rubber, while the former will open markets for bananas, garments, and auto parts like airbags. Korea and the Philippine also agreed to conclude the two countries’ free trade agreement (FTA) by the first half of 2020.
These achievements in the trade sector are forecast to speed up South Korea’s New Southern Policy, which started in November 2017. In accordance with the policy, Korea plans to reduce its trade dependence on China, which accounts for about 30 percent of its total trade, and to expand into the huge ASEAN market with a population of 650 million and a combined gross domestic product (GDP) of US$2.9 trillion
South Korea’s trade volume with ASEAN countries increased to US$159.7 billion last year, which stood merely at US$97 billion in 2010. Its exports to ASEAN countries also rose by almost two times from US$52.3 billion to US$100.1 billion during the same period. As for ASEAN countries, South Korea is the fifth largest trading partner following China, the EU, the United States, and Japan. As the trade volume with the Southeast Asian region grows more and more, it has emerged as a market that South Korea cannot overlook. Particularly, as the country has suffered a 12 month-long drop in exports since last December, it needs to turn the tide by pushing ahead with the New Southern Policy.
The South Korean government expects the Regional Comprehensive Economic Partnership (RECP) to be the finishing stroke of the new Southern Policy. A total of 16 countries, including South Korea, China, Japan, Australia, New Zealand, India, and the 10 ASEAN 10 member states, participate in the partnership agreement. The combined GDP of those counties adds up to US$ 27.4 trillion, accounting for 32 percent of the world’s GDP, and the trade volume within the region amounts to as much as US$10.2 trillion, making a new huge combined economy of ASEAN.
Experts say that South Korea needs to practically contribute to industrial advancement of ASEAN and lower its technological barrier in order to lengthen its partnerships with ASEAN. Heo Yoon, a professor at the Graduate School of Sogang University, said, “South Korea needs to utilize the New Southern Policy as an opportunity not only for its domestic companies to expand their business into the ASEAN market based on low-cost labor, but also for contributing to improve local industry and economy through increased investment in local infrastructure and assistance, which enables it to continue to maintain cooperative partnerships.”