Credit: Original article can be found here
|Korea Development Institute (KDI) researcher Song Yeong-kwan speaks during a press briefing at the Sejong Government Complex, Tuesday. Courtesy of KDI|
By Lee Kyung-min
Korea should join a trade agreement among 11 countries in the trans-Pacific area to better navigate new U.S. trade conditions under Biden, a state-run think tank report said Tuesday.
Joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), will help Korea diversify its trading partners, a move that could limit its vulnerability to uncertainties involving the current China-centered global value chain (GVC), Korea Development Institute (KDI) researcher Song Yeong-kwan said.
The country’s small and medium-sized enterprises (SMEs) in his view will in turn gain a competitive edge with their cheaper, quality products in certain niche markets, due in part to tariffs removed by countries that are signatories to the trade agreement.
The move will also help Korea have a greater say in setting global standards in areas such as intellectual property within key legal frameworks yet to be established between developing economies, leading the international discourse to better reflect the interests of the country.
Partner countries in the CPTPP are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
“The change in GVC in East Asia is both a risk factor and an opportunity factor for the Korean economy, given its heavy reliance on China for trade,” he said.
The decline in China’s presence there will undermine exports and growth prospects of Korea’s major industries, mostly manufacturers of electronics, chemicals and vehicle parts.
Yet this can be an opportunity mostly because of the emergence of new GVCs in ASEAN countries, if Korea increases its presence in the eleven countries in Southeast Asia by expanding exports including intermediate goods and foreign investment.
“Policies should help companies explore new export markets to replace China, attract foreign investment and bolster corporate productivity, in a broader step towards discovering new growth engines,” he added.
Korea should join the multilateral trade pact before China, he stressed, to limit any decrease in exports to the world’s second-largest economy in the event that Korea’s effort to become among the signatories takes more time than expected.
“China has recently expressed interest in joining the CPTPP, but it will take longer given some thorny provisions China considers unacceptable. Korea should promptly join the trade agreement to avoid negative impacts from reduced exports to China.”
Expansion of free trade agreements (FTAs) with other countries is needed to facilitate economic integration, what he views as a measure that will increase Korea’s market size to help maximize the inflow of Foreign Direct Investment (FDI).
Foreign companies operating in China will experience weakened stability, a lingering concern amid the drawn-out U.S.-China feud expected to continue under the Biden administration. This in his view is a reason for a greater prospect for Korea to attract FDIs leaving China.
Major multinational corporations consider China a market that they do not want to miss, but they are pressured to identify other destinations given their investment in China undermined by the U.S.-China feud. Korea therefore needs to speed up follow-up measures following the Korea-China FTA which took effect in 2015, a viable growth momentum backed by the short-term boost in the prospect of exports for foreign firms operating here to the Chinese market.
“The Korea-China FTA has not seen fast enough follow-up measures compared to those Korea signed with the U.S. and the European Union. The timeline of the application of tariff removals should be promptly moved up to draw greater FDI,” he said.
Moon Jong-chol, a research fellow at the Korea Institute for Industrial Economics & Trade (KIET) said policy priorities should be about balancing between the world’s two largest economies, mindful of a resumption of multilateralism.
“The incoming Biden administration will seek cooperation from other countries to advance their interests ― whether they be human rights, trade or national security. The trick lies in how best to navigate the global political sphere without compromising economic ties.”