Korea’s possible entry into the TPP

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Korea’s possible entry into the TPP

The United States, Japan and 10 other Pacific Rim countries appear to be on the cusp of concluding the Trans-Pacific Partnership (TPP), creating an integrated market for $25 trillion of economic output and setting new benchmarks for the global trading system. Korea, having sat on the sidelines of the TPP negotiations to date, has now expressed its interest in acceding to the deal. To join, however, Korea will have to reach bilateral accords with the existing TPP members, including the United States.

While doing so could be difficult, the effort is well worth the economic opportunities and strategic benefits that Korea will ultimately gain by joining.

According to the Korea Institute for International Economic Policy, Korea’s GDP could grow by more than $45 billion by 2025 if it enters the TPP, while it may decrease by $3 billion without entry into the TPP. Entry into the TPP would also buttress Korea’s aspiration of becoming a regional trade hub and would anchor its strategic relationships with the United States and its Asian trading partners. Indeed, if Korea is to realize its objective of functioning as a linchpin for further regional economic integration, it must join the TPP.

For its part, the United States also desires Korea’s entry into the TPP. Adding Korea’s $1 trillion economy would increase the overall economic synergies and heft of the TPP, and would validate a fundamental precept of the TPP - that it is an agreement that can grow to encompass all the major Pacific Rim economies. Korea’s entry into the TPP would also help the bloc function as a counter-weight to China and help Washington exert pressure on Beijing to conform to the trade policies embedded in the TPP. Moreover, Korea’s entry into the TPP would not only further enhance the bilateral relationship between the United States and Korea, but would augment President Obama’s trade policy legacy, which rests in large part on the success of TPP. These are powerful incentives for Washington to allow Korea into TPP.

At the same time, the United States sees Korea’s possible entry into TPP as an opportunity to extract concessions in a number of areas where U.S. industries remain frustrated by the terms of their access to the Korean market. Some of these concerns relate to Korea’s ongoing implementation of the Korea-U.S. Free Trade Agreement (Korus). In particular, the politically powerful U.S. auto industry is complaining of onerous procedures required by the Korean customs service to document country of origin. U.S. exporters of orange juice have expressed similar concerns about Korean customs procedures. As well, U.S. financial services firms claim that Korea places excessive restrictions on the cross-border transfer of financial data. Korea can expect the United States to demand concessions in all of these areas under the guise of full implementation of Korus in exchange for support for Korea’s entry into the TPP.

Korea should also expect the United States to demand concessions in areas not directly related to Korus. The U.S. beef industry, for example, continues to believe that Korea’s restrictions on the importation of beef older than 30 months are inconsistent with sound science and international norms. According to U.S. beef producers, because the United States is a low-risk country under the OIE system, Korea should permit imports of U.S. beef of any age. Given that legislators from U.S. farm states wield disproportionately large power in Washington, the Obama administration is likely to continue to press Korea on access for U.S. beef. Other possible demands relate to continuing allegations by U.S. manufacturing industries of Korean manipulation of the won’s value and the harmonization of standards for trade in organic foods.

Unfortunately, Korea’s power to shape the final TPP deal is quite limited. U.S. trade officials have indicated repeatedly that the United States will focus on finalizing the TPP with the existing group of participants (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) before discussing the addition of new members like Korea.

Thus, Korea will very likely have to take or leave the final deal, which could be concluded in early 2014. And the weight of the negotiating leverage concerning the terms of Korea’s TPP entry will rest with the original twelve members, especially the United States. Korea should therefore accept that, before it can enter the TPP, it may need to meet the United States halfway on some of its looming demands.

However, Korea should also remain cognizant that, even as a late entrant to the TPP, it holds good cards. While the United States is certain to demand significant concessions from Korea, the United States will ultimately strongly prefer a TPP with Korea to a TPP without Korea.

Thus, Korea has some flexibility to balance reasonable concessions with a firm stance in other areas where the domestic political cost for accommodating U.S. demands may be unacceptably high. Refinements to customs procedures may fall into the former category, while market access for beef, driven by strong consumer sentiment and public health concerns, may fall in the latter category.

Above all, Korea should not lose sight of the powerful incentives to join TPP. These include enhancements to Korea’s prestige, its regional and international standing, and its long-term economic prospects. The small price that Korea will have to pay is worth the larger prize.

*The author is a senior partner at the law firm of Akin Gump Strauss Hauer & Feld LLP in Washington, D.C.

by Sukhan Kim
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