[Asia Exclusive] Survive on Your Own in the 4th FTA Era... Must Break Through with Regional Value Chains

Tensions Persist Even with US and Japan Regime Changes

The Era of International Trade Driven by Political Agendas Is Ending

Strategies Must Match the Trading Partners

Germany Needs Dual-Structure Solidarity in Security and Economy

Sharing the Value of Common Prosperity through Southeast Asia ODA

Implementation of K-FTA Needed for Global Value Chain Restructuring

Joining CPTPP Could Be a Momentum for the Korean Economy

Yoo Myung-hee’s WTO Director-General Candidacy Benefits the Nation

Kim Heung-jong, President of the Korea Institute for International Economic Policy, explaining South Korea's international trade strategy in an interview with Asia Economy. (Photo by Moon Chae-seok)

[Discussion = Kim Hyun-jung, Deputy Chief of Economic Department; Summary = Moon Chae-seok, Reporter] "Even if the US regime changes, protectionism will continue for the time being, and even if the Japanese regime changes, tensions between Korea and Japan will persist. We share security and economic dilemmas with Germany, and with Southeast Asia’s Singapore and Indonesia, as well as Oceania’s Australia, we need to jointly address issues such as polarization and climate change."

Kim Heung-jong, President of the Korea Institute for International Economic Policy (KIEP), said in an interview with Asia Economy on the 12th that given the potential prolongation of US-China and Korea-Japan conflicts, Korea must pursue a diversified trade strategy targeting other advanced countries. He advised pursuing multi-layered FTAs by combining free trade agreements (FTAs) with developing countries alongside official development assistance (ODA). He emphasized the active implementation of the 'Post-COVID New Trade Strategy (K-Trade Strategy)' jointly prepared by the public and private sectors last month.

◆ "Liberalism and Human Rights Values Alone Are Insufficient" = President Kim diagnosed that the era of resolving international trade through universal political agendas such as liberalism and human rights is coming to an end. This is due to the 'Scientific Outlook on Development' and 'Socialism with Chinese Characteristics' established by Wang Huning (王??, known as China’s Zhuge Liang), Secretary of the Central Secretariat of the Chinese Communist Party, which has become a burden. The US is Korea’s key military ally, and China is Korea’s largest export market. It is forbidden to pursue trade strategies that might be misunderstood as choosing sides between these two superpowers, so actions that could provoke China should be avoided.

President Kim urged that trade strategies must be thoroughly tailored to the demands of trading partners. This is because cooperating with countries that share similar views on the expansion of international protectionism and US-China conflicts, sharing common values, and confirming each other’s positions is advantageous for establishing legitimacy.

He identified Germany, France, and the UK (all in Europe), Australia, Canada, Indonesia, and Singapore as optimal trading partners, as their economic scale, industrial structure, and stage of economic development are similar to Korea’s, rather than middle-income countries like the Baltic states. Especially, since these countries share political and diplomatic concerns similar to Korea’s, solidarity is essential to accumulate legitimacy. President Kim explained, "We need to start by confirming common interests and concerns with these countries about the pressures they face from US-China trade conflicts. For example, Germany, which hosted US troops, experiences security and economic dilemmas similar to ours, so there is much to discuss. In the process of debating whether to rely on US military bases for national security or to resolve issues with neighboring countries, we can raise the dual-structure agenda of security and economy and build solidarity."

He cited inclusiveness and sustainability as shared values with Southeast Asia’s Singapore and Indonesia, and Oceania’s Australia. Inclusiveness refers to resolving socio-economic polarization in each country, and sustainability refers to environmental issues including climate change. President Kim stated, "We need to devise a strategy to ally with middle powers that can share the value of achieving common prosperity through international ODA. It is important to envision a new middle-power trade network with countries facing similar challenges as ours."

◆ "Korea-Japan Conflict to Continue Even if Abe Regime Changes" = Although the Abe Shinzo administration’s approval rating has dropped to the 30% range and there are rumors about Abe’s health issues, raising the possibility of a regime change in Japan, President Kim believes Korea should not be complacent. The underlying cause of the conflict between the two countries is a change in the economic landscape, increasing Japan’s rationale to check Korea, and this trend is unlikely to change in the short term. Therefore, the government’s efforts to achieve independence from Japan through the Materials, Parts, and Equipment 2.0 strategy and attempts to restructure the global value chain (GVC) were inevitable.

However, he judged that to strengthen Korea’s economic growth momentum in Asia-Pacific trade, it is essential to restore relations with Japan. Among the major ongoing trade agendas in Northeast Asia?'Korea-China-Japan FTA,' 'India’s return to the Regional Comprehensive Economic Partnership (RCEP),' and 'Korea’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)'?Korea’s CPTPP accession has the highest feasibility.

The Korea-China-Japan FTA faces diplomatic variables involving both Korea-Japan and Korea-China relations. Korea is being asked by the US to join the Economic Prosperity Network (EPN), an anti-China economic alliance, while also having to host Yang Jiechi, a Politburo member responsible for foreign affairs of the Chinese Communist Party. Unless China actively drives Korea-China-Japan FTA negotiations, it is difficult to break the deadlock.

On the other hand, CPTPP is an agenda that could be pursued if the Korean government has the will. President Kim said, "Among regional trade strategies that could provide momentum to the Korean economy, the CPTPP accession scenario has the highest feasibility. The key factor is Korea-Japan relations. It is hard to predict, but if the US regime changes, it is expected that the new administration will consider CPTPP accession more positively than the Donald Trump administration. In that case, Korea should also carefully consider joining. This does not mean rushing to join, but rather that the US’s consideration of CPTPP accession is important."

◆ "Activating Developing Countries’ K-FTA for GVC Restructuring" = President Kim was one of the key figures who created the K-Trade Strategy, participating in the Trade and Industry Forum held on the 21st of last month, chaired by Minister Sung Yun-mo of the Ministry of Trade, Industry and Energy. Among the K-Trade Strategy, he newly proposed the 'K-FTA' strategy, which negotiates FTAs tailored to the demands of developing countries. Korea is in a position to diversify the China-centered GVC and establish multiple regional value chains (RVCs), and K-FTA is a practical strategy to enhance trade negotiation power with developing countries, which will be the main stage for RVCs.

Regarding the strategy to secure RVCs that complement China as a production base, President Kim described it as "gathering small reservoirs." He diagnosed that Korea has entered the 4th generation of FTAs, where the whole world competes to secure RVCs in a 'self-help' manner. The '1st generation FTAs (1998?2002),' which were bilateral trade agreements with small countries to secure export markets; the '2nd generation FTAs (2003?2004),' which were bilateral agreements with advanced countries like the US to increase openness; and the '3rd generation FTAs (2010?2012),' which focused on multilateral trade agreements like RCEP after the 2nd generation FTAs came into effect, are all things of the past.

President Kim said, "The biggest lesson from COVID-19 is that when a large reservoir (China) has problems, we must create small reservoirs (RVCs) to draw water from. For example, building a factory in Vietnam that is one-tenth the size of a wiring harness automotive parts factory built in China, investing technology and capital, and procuring parts locally can create small reservoirs around us."

To push Korea’s position of creating small reservoirs, it is important to effectively explain customized ODA desired by the counterpart during negotiations, President Kim explained. Instead of blindly exporting 'K-quarantine,' it is necessary to analyze regional population distribution and healthcare systems, concentrate exports in densely populated areas, and adjust the portfolio by significantly reducing exports to regions where local lockdowns are acceptable.

◆ "Yoo Myung-hee’s WTO Director-General Candidacy Itself Benefits Korea" = Regarding Yoo Myung-hee, Chief Trade Negotiator’s candidacy for the World Trade Organization Director-General (WTO DG) election, President Kim expressed a positive response. Korea is a country that has a kind of ownership of the multilateral trade system, and regardless of Yoo’s election outcome, her candidacy itself will serve as an opportunity to widely publicize Korea’s position on the international trade stage.

Concerns that Korea might be criticized for differing from the WTO’s multilateral trade philosophy because it focused on bilateral FTAs rather than multilateral trade in the early 2000s are unfounded, he asserted. President Kim said, "Korea had no choice but to pursue bilateral FTAs due to the sense of crisis that rapid European integration in the 1990s and accelerated global economic bloc formation would severely damage its export economy. Since joining the General Agreement on Tariffs and Trade (GATT) system in 1967 and adopting the multilateral trade system, there is no other country in the world that has experienced such rapid economic growth as Korea."

President Kim added, "Although it is Africa’s turn this time, Korea is a country that should always have the legitimacy to produce a WTO Director-General regardless of Yoo’s election outcome."

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