Korea weighs impact of TPP without it or China

Korea’s exporters may face escalated competition against Japan as negotiations among 12 countries to join the U.S.-led Trans-Pacific Partnership (TPP) reached an agreement Monday local time in Atlanta.

Since Korea is not a member of the mega-free trade agreement (FTA), local manufacturers could lose the competitive edge they gained with bilateral free trade pacts, particularly the one with the United States. Some rival Japanese products could be cheaper in the U.S. market after the TPP goes into effect.

The TPP is intended to eliminate tariff and non-tariff barriers on traded goods and services as well as investments among the 12 member countries: the United States, Canada, Japan, Singapore, Vietnam, Australia, New Zealand, Brunei, Malaysia, Chile, Mexico and Peru. It does not include China and is often called the “anti-China FTA.”

Korea has been ambivalent about the TPP, particularly as it negotiated an FTA with China. It could be able to join in the future.

According to a Korea Trade-Investment Promotion Agency (Kotra) survey released Monday, 20 Korean companies operating in the United States said that some major Korean export products like automobiles, auto parts and textiles are likely to face tougher competition from TPP member countries that have similar product lines and similar technology levels.

The United States has reportedly offered Japan a deal to immediately eliminate tariffs on 80 percent of Japanese auto parts.

But Korean manufacturers with production lines in the U.S. are likely to be shielded from tougher competition, Kotra explained. The report added that the TPP is likely to encourage Korean manufacturers to move production lines to countries like Vietnam, a bilateral FTA partner of Korea and a TPP member.

Korean televisions and refrigerators may lose price competitiveness and Japanese brands may gain it if the TPP goes in effect, Kotra said.

But major Korean export items like smartphones and other premium electronic products like semiconductors are already traded with zero tariffs with 52 World Trade Organization (WTO) members under the WTO’s Information Technology Agreement.

Other industries like steel, oil, chemicals, electronics and construction materials are expected to see limited damage from the TPP because Korea’s rival in these sectors is China, and its technology level is higher. Korea does not compete with Japan on such exports.

The Korean government said on Monday that it welcomes the good news on the TPP negotiations.

“The deal establishes an Asia-Pacific economic bloc that accounts for almost 40 percent of the world’s gross domestic product,” Kim Hak-do, an assistant minister at the Ministry of Trade, Industry and Energy, said at a press conference on Monday. “Korea will consider participating in the TPP in pursuit of the national interest after analyzing the economic impact of the mega-FTA on the local economy.”

The Korean government expressed its willingness to join the TPP in 2013, but it failed to join and focused on working on the Korea-China FTA. But Korea, which is a free trade partner of 10 TPP members, excluding Japan and Mexico, has continued holding preliminary negotiations with the 12 TPP members.

Trade experts and the government expect the TPP to go into effect in 2017 at the earliest, considering many member countries are scheduled to hold major elections between now and then.

However, the Korean government said it cannot estimate when Korea can join the bloc because the TPP still lacks rules for accepting additional members or requirements each potential members should meet. Korea and three other countries have shown interest in joining later.

Trade analysts advise that the Korean government should make decisions carefully, because joining the bloc as a latecomer may have some disadvantages.

“Existing TPP members, including the United States, are likely to welcome Korea joining the mega-FTA, as it is already a bilateral FTA partner of 10 members,” said Je Hyun-jung, a senior researcher at the Institute for International Trade under the Korea International Trade Association. “However, the Korean government should never rush, because the existing members may ask Korea to liberalize rice imports and some agricultural and fishery markets, which are sensitive issues for Korea.”

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]