KDI "Concerns Over Prolonged US-China Trade Conflict... Active Promotion of CPTPP Accession Needed"

"Exposure to Structural Vulnerabilities with High Proportion of Exports to the Public"
"Need to Reduce Dependence and Actively Respond to Changes in the Global Trade Order"

[Asia Economy Reporter Kim Hyunjung] Amid concerns that Korea's structural vulnerability, due to its high export dependence on China, will expand because of the US-China trade conflict, there are calls for the government to take more proactive policy measures such as joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and supporting small and medium-sized enterprises (SMEs) related to materials and components. Given the high likelihood that the US-China trade conflict will continue in various forms, it is explained that Korea should use this opportunity to reduce its dependence on China, diversify its export countries and products, and actively respond to changes in the global trade order.

Song Young-kwan, a research fellow at the Korea Development Institute (KDI), stated in the report titled "The Expanding Uncertainty of the Global Trade Order and Korea's Policy Response" on the 30th, "The US-China trade conflict has brought the global trade order to face uncertainty that the World Trade Organization (WTO) system and global value chains may weaken," adding, "In response, the Korean government should actively consider joining the CPTPP and improve the policy efficiency of supporting the materials and components industry and exports."

Prior to this, Research Fellow Song pointed out that Korea is relatively more vulnerable to uncertainties caused by the US-China trade conflict due to ▲ its high export-to-GDP ratio, ▲ its high export dependence on China, and ▲ the concentration of export countries and products. He emphasized, "Due to these structural characteristics, Korea will be more negatively affected by the US-China trade conflict compared to Japan and Germany, which also have high manufacturing export dependence," and warned, "There are concerns about export declines and the resulting GDP decrease."

Regarding the proposed countermeasure of joining the CPTPP, he advised "active promotion." Research Fellow Song said, "It is the most effective policy to mitigate the problem of dependence on exports to China," emphasizing, "Due to the cumulative rules of origin system, there is a high possibility of creating new global value chains centered on Southeast Asian countries such as Japan and Vietnam." According to the CPTPP's cumulative rules of origin, any intermediate goods produced within CPTPP member countries are recognized as domestic products. If Korea does not participate in the CPTPP, Korean intermediate goods exports will not be recognized as domestic products by CPTPP member countries, placing Korea at a disadvantage in exports to CPTPP member countries. For example, when Vietnam exports textiles to Japan, it prefers to import yarn from CPTPP member countries like Malaysia or Japan, rather than from Korea, a non-member country, because it is difficult to meet the cumulative rules of origin.

Research Fellow Song explained, "To reduce Korea's export dependence on China and to prevent Korean manufacturing from being at a disadvantage compared to Japanese manufacturing in terms of global value chains, Korea must actively pursue CPTPP membership," adding, "It can also serve as a constructive solution to the Korea-Japan trade conflict caused by Japan's export restrictions and a way for mutual coexistence between the two countries."

He also argued that policies supporting the materials and components industry need to be reviewed. He cautioned against merely expanding the scale of government support without rigorous evaluation of its problems. He proposed, "Measures should be prepared to improve the productivity of SMEs in the materials and components sector and enhance the effectiveness of government-supported research and development (R&D)," suggesting, "A reexamination is needed regarding research topic selection, types of R&D execution, researcher selection, evaluation and reward of research outcomes, and dissemination of R&D results." He added, "An ecosystem that strengthens cooperative coexistence with large corporations will be more important than direct support."

This content was produced with the assistance of AI translation services.