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Complicating Korea’s FTA Equation
Japan’s Entry into TPP Talks
Complicating Korea’s FTA Equation
  • By matthew
  • May 2, 2013, 12:16
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It has been confirmed that Japan will join talks on the Trans-Pacific Strategic Economic Partnership (TPP). With existing member countries agreeing to allow Japan to participate in on-going TPP negotiations, a total of twelve countries are now set to have talks to create the world’s largest economic community. The situation, however, will likely cause deeper thought for the Korean government which is still reviewing the former administration’s trade expansion policy.

Japanese Prime Minister Shinzo Abe has talked publicly about the internal appeasement policy and external open policy. Japan has also proceeded with trilateral free trade talks with Korea and China, as well as ASEAN-centered Regional Comprehensive Economic Partnership (RCEP) talks and TPP talks.

TPP talks began in the mid-2000s and drew attention from around the world when the US participated. At the beginning, there were only four membership countries, including Singapore and Australia, but with the US actively encouraging political and economical allies to join in, membership has swollen. Some have viewed this as a move by the US to curb Chinese economic growth, which was sustained even during the global economic downturn. In other words, China was seen as trying to stand at the center of international economic exchange and its rival was trying to stop this.

Most countries have had little room for trade talk while struggling with the economic slump following the 2008 financial crisis. Some have turned back to protectionism, narrowing the pathways to their domestic markets. Claims that each country should open its door even wider in order to overcome the crisis were not well received. However, the Lee Myung-bak administration’s trade expansion was well recognized by the WTO, seeing the open-door policy as an active and preemptive response to the economic slump. Now, as European and American markets turn the corner, increased trade volume and active trade talks around the globe are expected.

The Lee Myung-bak administration placed priority on its trade policy with China. That’s why it began talks of a free trade agreement (FTA) with China first, before then moving to extend the proposed FTA to a trilateral one that included Japan. However, the TPP wasn’t that important to Korea’s former administration because chances seemed low that negotiations would reach a deal given the membership countries’ individual situations.

Now that Japan has joined TPP talks, the Korean government faces a more complicated political equation regarding trade. The Ministry of Trade, Industry and Energy (MOTIE), which will likely reorganize trade policy as early as this month, have studied the former administration’s trade expansion policy from scratch prior to the fine-tuning of FTAs. President Park Geun-hye has moved the trade department from the Ministry of Foreign Affairs, which was in charge of state affairs, to the current MOTIE, which deals with the real economy.

President Park said in this regard, “Negotiations with foreign nations are important, but those with domestic parties are also important.”It is possible that she thinks the government didn’t take care of domestically-interested parties, instead focusing on foreign negotiation partners. In this context, it is possible that the new administration could put the brakes on the existing trade expansion policy.

Hard to Make a Single Concession Schedule regarding Korea-China-Japan FTA

Meanwhile, chances are now high that there will be separate concession schedules between Korea and China, Korea and Japan, and China and Japan in regards to the products sector of the trilateral free trade agreement. The three negotiating partners shared the belief that it will be difficult to open their local markets to products based on a single concession schedule because they have different sensitive products. For example, Korea feels sensitive about farm products and low-priced industrial products from China, as well as machinery, electronics and components from Japan. However, in the sectors of services and investment, the likelihood of a single concession schedule is high.

The Ministry of Trade, Industry and Energy had a press briefing regarding the results of the first round of three-way FTA talks at a government complex building in Gwacheon on March 28. “We agreed to have bilateral and trilateral negotiations for the trade of products, and trilateral negotiations for services, investment and norms,” Choi Kyong-lim, Deputy Minister for Trade, announced.

Choi added, “If talks continue at trilateral meetings, the possibility of a single concession schedule is high. However, if we have bilateral and trilateral talks simultaneously, we may reach separate conclusions.” In other words, chances are high that there will be separate FTAs between Korea and China, Korea and Japan, and China and Japan.

It is predicted that negotiations will take longer than two to three years. Choi explained, “FTA talks usually take one year at the earliest and two to three years at the latest. However, in this case, we will need more time because the trading partners are very important to each another and it’s a trilateral agreement, not bilateral.” Given the situation where cautious approaches have been suggested since the inauguration of the new administration, Korean negotiators will try hard to have wider communication with the public at home and come up with effective measures to protect people.

Choi said, “The Korean government has been criticized for a lack of communication with the public and constituency in the active negotiation process regarding FTAs. We are now looking at ways to minimize the social costs of the FTA and maximize our economic benefits.”

However, Choi went on to emphasize the importance of the three-way FTA, saying, “The economies, which have functioned under different norms and institutions, will be combined through the FTA. A successful FTA can be a stepping stone to the three nations making stronger political ties.”

The three nations will proceed with simultaneous talks regarding products, services and investment. Whether intellectual property rights and electronic commerce will also be included in the scope of negotiations is still to be decided. Negotiators will have two further meetings this year, with the second round of talks scheduled to be held in China in June or July.