2013

Korea and TPP – Will it? Should it?

First of all, sorry that I missed blogging past two months. My excuse is work – it’s not a good one, I admit. On that note, I will finish my analysis of the Lone Star case, but it will wait.

In any case, the big news over the past 2 months related to Korea is that there has been reports and indications that Korea may decide to join Trans-Pacific Partnership, or TPP. An ironic history behind it is that Korea has been reluctant, and thus has not joined TPP negotiations for many years, despite invitations/encouragements from the US. Many speculated that Korea’s reluctance was due to its desire to get close with China, especially given that China has the most weight when it comes to the North Korea issue, more so than the US. In this background, Korea has been involved in 3 trade treaties with China: (1) Korea-China FTA; (2) Trilateral FTA among Korea, China, and Japan; and (3) RCEP among ASEAN countries + 6, including Korea China. And precisely these negotiations with China were thought to be the reason why Korea was reluctant to join TPP.

All this geo-political calculation changed earlier in the summer of this year when Japan decided to join TPP. Japan’s accession was seen in Korea in two perspectives – (1) urgency, as one of the world’s largest regional trade pact is taking-off without Korea, but with its regional competitor (in terms of economics, but also international politics) in one of its driver’s seats; and (2) desire, in that Korea could get a “free-ride” into the Japanese market on the back of the US and gain a level of access that it could not hope to gain in bilateral or trilateral negotiations.

With the new calculation, the Korean government in early September announced that it was studying the feasibility of Korea joining TPP. To add to the excitement, yesterday’s media report cited to a government source which effectively stated that Korea has decided to join, only to decide when is the right time to announce it (although the government rebutted and repeated its previous position that it is “considering” joining TPP).

Will Korea join TPP?

Politically, I am personally not sure if joining TPP is a well-though-out plan. Decisions appear to have been made in a hurry; or at least it is a decision imposed upon the Korean public in a hurry (that is, even if the government internally debated this issue for a long time, the public was kept away from it). In saying that, I don’t mean to criticize how the decision was made, as foreign affairs is an executive (as opposed to legislative) operation after all. All I mean to say is that there will be public oppositions and I can’t say that the government planned it out to minimize the conflict. In particular, having seen the candlelight protest which paralyzed the previous administration for a good part, did the current administration consider the potential of Candlelight No. 2? Think radioactive, Japanese fish scare in Korea. Could this be mad-cow beef No. 2?

And what about the substance of TPP? Admittedly, Korea will be okay with most of it, given that it signed a fairly high-standard FTA with US already. Nevertheless, discipline of state-owned-enterprises could be a difficult one, especially in utility sector. Also, if discipline of currency manipulation is added to the negotiation, as the US Congress and Senate increasingly want to force the Obama administration, Korea should have a real concern, given that US Treasury study earlier this year named Korea as a potential currency manipulator.

Market access is a concern too. Yes, Korea opened itself up to the US for much to gain, in the expense of its agricultural market. But with TPP, Korea’s agricultural sector will have to be open for Australia, Canada, and New Zealand as well.

Lastly, what about the relationship with China?

Other side of the coin is whether the existing TPP parties will indeed welcome Korea.

Japan, for one, has an incentive to make Korea’s life difficult – Korea recently banned imports of Japanese fish, worried that radioactive materials will harm the consumers, to which Japan responded with ministerial visit to Seoul and threats of WTO case. That said, the US wants Korea in. How will this power balance play out, assuming that Japan wants to block Korea’s entry, or at least make it hard?

The US has its own problems too. It wants Korea in, but does it have resources to push it forward, given the current shutdown? It is reported that the USTR (executive office in charge of trade negotiations) is operating at 25% of its capacity with 60+ staff altogether. And at 25%, USTR needs to work on not only TPP, but also TTIP (US-EU FTA) and Doha (Bali ministerial meeting scheduled in December 2013).

Interestingly, the Obama administration does not even have the Trade Promotion Authority (“TPA”). At the same time, many Democrats and even Republicans have expressed their opposition to TPP and demanded TPA to be attached to transparency in negotiations and adding currency manipulation clause into TPP negotiations. Is there any chance that TPP simply crashes and fall flat on the ground? Never say never, because the US government wasn’t supposed to be shutdown too.

More pressing question though is whether Korea should join TPP. For one, it will have almost no meaningful participation, especially if TPP is to be closed soon (which in itself is more unlikely than not given all the problems discussed above).

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