Diplomacy is going to have to use trade

Yoon Young-kwan
The author is an emeritus professor at Seoul National University and a former foreign minister.

The world could be heading into chaos with Russia’s invasion of Ukraine. If the West fails to stop it, it will signal that it’s okay for big countries to trample on small countries’ sovereignty. In ideological terms, an international order based on democracy, liberalism and universal values will be seriously undermined by authoritarian states like China and Russia.

Such destructive features of the existing order manifest themselves on economic and trade fronts as well. Gone are the days of a multilateral economic order based on free trade, as clearly seen in the lethargic state of the Doha Round of multipartite trade negotiations in the World Trade Organization (WTO) since 2001. More evidence is provided by the dysfunction of the WTO’s top court, the Appellate Body. In the meantime, managed trade — another word for protectionism — is prevailing. Such dramatic shifts have started accelerating since the early period of the Trump administration, as America’s control of the global order weakened considerably.

When an international political and economic order changes, countries like Korea — who rely on trade for survival due to its small domestic market — must respond adroitly. If such countries fail to catch up with the external changes, they will face serious problems in the area of trade.

In our government structure, trade and diplomacy are completely separate. Shortly after its launch in February 2013, the Park Geun-hye administration transferred the trade promotion authority of the Ministry of Foreign Affairs and Trade (Mofat) to the Ministry of Trade, Industry and Energy (Motie). It took the action on the ground that trade issues can be better handled by bureaucrats who know industries well. In those days, trade issues were separated from diplomatic and security issues. Government officials were able to deal with trade issues without any knowledge of security and diplomacy thanks to multilateral free-trade agreements like the General Agreement on Tariffs and Trade (GATT) in 1947 and the WTO system that succeeded it. At that time, if political considerations intervened in trade issues, it was condemned as a violation of international norms.

But the world has changed. Traders and investors cannot make decisions using purely economic logic and a cut-and-dried cost-benefit analysis. For instance, the U.S. government steps in to determine whether a Korean chipmaker can supply major semiconductor components to China or not. Today, the U.S. president directly invites CEOs of top chipmakers from Korea, Japan and Taiwan to the White House to make a deal after skipping representatives of foreign governments.

After Beijing pushed its ambitious Made in China 2025 initiative by ignoring international norms, Washington criticized it but ended up taking a similar path. On February 4, the House of Representatives passed the America COMPETES Act of 2022 to provide subsidies to U.S. high-tech industries, including semiconductors. Since trade and diplomacy cannot be separated any longer, the rules of the game have totally changed.

Korea must draw up a strategic trade policy by effectively integrating trade and diplomacy.

The most efficient way to do that is returning the trade function to the Ministry of Foreign Affairs. The reason is simple. Under the current circumstances, where global supply chains are sharply split and separately led by America, China and the European Union, the government must ensure stable management of overseas supply networks so as not to hinder business activities of local companies.

To achieve that goal, the government must make the best of its foreign missions overseas to collect crucial data on political situations, security, environmental regulations and natural resources of host countries, send early warnings and solve problems fast. When dealing with trade disputes with foreign governments, it is much easier for our diplomats in host countries to address them. Korea is wasting such advantages.

Fortunately, the government has recognized the need to connect a number of foreign missions to ministries and agencies handling economic and trade issues after it was hit by an abrupt shortage of urea solution. We welcome its decision to launch a cross-ministerial conference separate from an existing conference among economy-related ministers to discuss effective strategies to tackle economic challenges at home and abroad from the dual perspective of trade and security. If the two functions are combined, the Ministry of Foreign Affairs and a number of its foreign missions can engage in economic diplomacy more effectively than before. As long as trade promotion authority belongs to the Ministry of Trade, Industry and Energy, however, such systemic problems cannot be solved in a fundamental way.

After the Korean government failed to promptly participate in the U.S.-led sanctions on Russia for its invasion of Ukraine, the Ministry of Foreign Affairs and the Ministry of Trade and Industry have reportedly exchanged tit-for-tats over who was responsible. I believe that the Ministry of Trade as a major entity handling exports must have made a discreet decision to help protect interests of Korean companies. However, without taking into account the bigger political and security considerations in drawing up trade policy, the government could end up inflicting secondary damages on our companies in such a precarious situation.

In many cases, it is increasingly difficult to separate trade from diplomacy. China imposed economic sanctions on South Korea for its deployment of the Thaad missile defense system and Japan banned Korea-bound exports of components for semiconductor production due to sharp disputes over historical issues. Is it possible for the government to distinguish trade from diplomacy under such circumstances?

That’s why Canada, Australia, New Zealand, Brazil, Argentina, France, the Netherlands and Italy give their foreign ministry trade promotion authority. Among them, Global Affairs Canada (GAC) — or the Department of Foreign Affairs and International Trade — is commissioned to deal with export controls as well. Australia’s Department of Foreign Affairs and Trade (DFAT) has not only battled China’s trade sanctions successfully but also came up with the idea of establishing Aukus — a trilateral security pact among Australia, the UK and the U.S. — to jointly confront China’s rise in the Indo-Pacific region.

Some experts proposed an independent body dealing with trade issues in Korea like the United States Trade Representative (USTR). But USTR is an organization set up in 1962 to open foreign markets to take advantage of its huge domestic market. Congress also entrusted its trade promotion authority to the USTR under the president. The situation in the U.S. is totally different from ours.

What is desirable for us is allowing the Ministry of Foreign Affairs to deal with trade issues to match the global trend and enable the Ministry of Trade and Industry to focus on its core job of helping strengthen the global competitiveness of our companies. Many countries around the world are providing their enterprises with diverse subsidies to help them acquire core technologies needed to take industrial leverage.

If Korea can have four to five more industries with global leverage like semiconductors and batteries, for instance, big powers surrounding Korea will not dismiss it at their will. That is how the Ministry of Trade can promote our diplomacy in a big way.
Translation by the Korea JoongAng Daily staff.