Korea should join TPP soon

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Korea should join TPP soon

International expectations are rising that Korea will soon join negotiations for the Trans-Pacific Partnership (TPP) trade pact. Although President Park Geun-hye did not make any public statements about TPP at the Asia Pacific Economic Cooperation (APEC) summit in Bali earlier this month as some anticipated, the momentum is clearly building for a decision by Seoul to join the talks. Foreign Minister Yun Byung-se and Deputy Prime Minister Hyun Oh-seok have both indicated publicly that this is likely, with the only question being when Korea will join. The timing will depend on politics, and the politics will not get easier as time passes.

The case for Korea joining TPP is compelling. Korea has always enjoyed a strong competitive advantage over Japan and other neighboring states because more of Korean trade is covered by economic partnership agreements (EPAs) and free trade agreements (FTAs) - about a third of all trade for Korea compared with a sixth for Japan. Seoul’s leadership in trade diplomacy opens more markets and gives Korea greater leverage for future negotiations. That advantage will now close with Japan joining TPP. If Japan enjoys single-rule-of-origin across the 12 TPP economies and Korea only enjoys it in bilateral cases, then Korean exporters will notice the difference.

The current government strategy - to begin a series of bilateral negotiations with Australia and other TPP countries - will not suffice to close that competitive gap. Korea will be having teas while everybody else is getting married. In short, Korea has had a huge advantage by being active in the era of bilateral free trade agreements while Japan was dormant, but will lose that advantage as the region moves toward high quality multilateral agreements. In addition, participation in TPP will strengthen Korea’s hand in China-Korea-Japan trade talks as the trans-Pacific agreement sets a higher set of rules for China to consider as it integrates into the emerging regional trade framework.

But timing matters. Over 80 percent of the negotiations are done, and it seems the politics will be harder for Seoul if the Park government joins the talks after the substantive decisions have been reached. Japan was late (announcing an intention to join earlier this year), but through enormous effort by the Ministry of Foreign Affairs and the Ministry of Economy, Trade and Industry, it has caught up with the leading negotiators already. Remaining issues for Japan are autos, currency and agriculture; but the first two mostly require symbolic mechanisms, and Japan’s ruling LDP is clearly ready to open and reform the agriculture market since Prime Minister Abe sees TPP as a critical stimulus for growth under the “Third Arrow” of “Abenomics.” The agility of the Japanese trade team has impressed the other parties, particularly given the weakness of recent Japanese governments and the historic power of the agriculture lobby.

In Korea’s case the politics of TPP should be easier given the earlier precedent of Korus, but Korus also may have exhausted the major stakeholders in the country’s political economy. Since Korus was passed, the Korean economy has hit some headwinds and the Park administration has responded to frustration over rising unemployment among educated youth and the growing power of the chaebol by championing “economic democratization.” The government’s relative emphasis on justice and distribution over opening and growth moves policy in the wrong direction from what would be necessary to embrace another round of free trade negotiations. Korea would also have to contend with new issues not in Korus, such as a renewed push by Australia and New Zealand for access to agriculture and the U.S. Congress’ push for rules against exchange rate protectionism.

Korea may also pick up the anxiety of some TPP negotiators in Asia about whether the United States can pass Trade Promotion Authority in Congress, which is a necessary precursor before the U.S. Trade Representative can negotiate an agreement that receives an up-and-down vote in Congress rather than being voted on in detail (which lowers the chances of passage as members fight to protect pet projects). On balance, I would guess that the administration passes TPA early next year after the budget act vote in January, but the clumsiness of the White House and the hyper-partisanship in Congress raise some doubts, even though there are enough votes to support free trade in Congress if President Obama really engages directly in the politics.

Domestic U.S. and Korea politics will have to be carefully assessed as Korea decides when to join TPP. My sense is that trade negotiations always involve some political risk, and that in this case the economic risk of waiting is far greater than the political risk of joining the talks now.

One reason frequently cited by commentators in Seoul for not joining TPP should be dismissed outright: and that is the worry that Korean participation would hurt Seoul’s relations with China. This argument reflects the hypersensitivity to China that has become a trademark of the current administration in Seoul, but it is simply wrong. Beijing’s own official opposition to TPP has largely evaporated in the wake of Japan’s decision to join the talks and President Xi Jinping’s appointment of new economic advisers who have a much better understanding of international trade theory.

These advisers have convinced Xi that the TPP talks are now the dominant forum in Asia with Japan’s participation and cannot be ignored; that China might use TPP the way Zhu Rongji used WTO to force economic reform at home in the 1990s; and that opposition to TPP undermines China’s relations with the many nations now joining. At their June Sunnylands Summit, President Xi’s delegation requested a briefing from U.S. Trade Representative Mike Froman on TPP, and China continues to express cautious long-term interest in joining the talks rather than the outright opposition that once characterized the view in Beijing.

While the Obama administration has sent positive signals about welcoming Korea into TPP, Washington recognizes that trade negotiations are politically demanding and that each country will have to make its own decision. That included the United States at one point, which was not one of the original four founding members of TPP. But free trade talks have added so much economic and diplomatic dynamism to Korea, it would be a shame to let this opportunity pass.

*The author is senior vice president for Asia and Japan chair at the Center for Strategic and International Studies and associate professor at Georgetown University in Washington, D.C.

by Michael Green

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