The TPP dilemma

Trade representatives from 12 countries along the Pacific Rim have finally struck a deal after five-day marathon negotiations for the Trans-Pacific Partnership (TPP), a trade agreement among those Pacific countries. The run-up to the deal was an uphill battle calling for three additional days to finish it. After the United States and Australia gave way on matters of fixing patent protection periods for next-generation biopharmaceuticals, member countries have jumped their last hurdle. The trade pact for the Asia-Pacific region is the world’s largest multilateral trade deal with members accounting for a whopping 40 percent of the world’s gross domestic product (GDP).

The annual trade volume of TPP member nations will reach as large as $10.18 trillion. When you take into account the merits and demerits of membership, Korea could gain a competitive edge as our exports are mostly driven by intermediary goods. But that does not directly translate into an across-the-board advantage, as the agreement includes such thorny clauses as a ban on giving preferential treatment to state-run banks and a prohibition on tax-free petroleum for fishing ships. If we give preferential treatment to state-run enterprises, it could invite retaliations in trade. In other words, our government will have trouble offering financial aid to companies via the Korea Development Bank, a government-owned bank.

Above all, our competition with Japan is expected to get fiercer than ever before because Japan is now able to catch up with our hard-earned competitive edge thanks to the TPP. Korean companies have to face a tough fight with their Japanese counterparts not only in the U.S. market but also in Southeast Asia. Yet, it is difficult for us to walk away from the TPP. The Korea Institute for International Economic Policy forecast that if Korea does not join the pact, its GDP will decrease by 0.12 percent, while its trade balance will deteriorate by more than $100 million annually. Moreover, the TPP could evolve into a broader pact covering diplomatic, security and defense fronts as well.

The government does not have to hurry to decide on the TPP as it will take a while for the deal to go into effect. The pact calls for concrete follow-up measures and parliamentary ratifications in each member nation. As we have already struck FTA deals with most of the 12 TPP member nations, substantial benefits from joining the pact are not guaranteed. The government needs to devise a careful strategy to maximize our national interests after looking into every aspect of the deal.

JoongAng Ilbo, Oct. 6, Page 30