[Interview] Kim Jong-hoon, Former Chief Trade Negotiator, "US Carbon Border Tax Requires Proactive Response from Korean Companies"

"US to Introduce Carbon Border Tax as Key Climate Change Policy Tool"
"Currently a US-China New Cold War... Difficult to Force Taking Sides"

[Interview = Choi Il-gwon, Head of Asia Economy Economic Department, Summary = Kwon Haeyoung, Asia Economy Reporter] "The U.S. carbon border tax proposal is expected to be concretized as early as next year. This means that to sell products in the U.S. market, carbon emissions must be reduced. Companies need to prepare proactively for the increased market entry costs."

Kim Jong-hoon, former head of the Trade Negotiation Department at the Ministry of Foreign Affairs and Trade, recently emphasized this in an interview with Asia Economy, citing 'environment' as the biggest burden for companies since the inauguration of the Joe Biden administration.

Kim said, "Among the executive orders signed by U.S. President Joe Biden after taking office, the two directly related to trade are 'Buy American' and 'Rejoining the Paris Climate Agreement.' The Biden administration is currently in the stage of creating rules to incorporate environmental issues into trade by rejoining the Paris Agreement," he emphasized.

Reducing Carbon Emissions: Not a Choice but a Necessity... Fulfilling Obligations under the Paris Climate Agreement is the Starting Point for Response

The carbon border tax is a new form of tariff promoted by the European Union (EU) to reduce carbon emissions within its territory. The EU is considering a plan to compensate domestic exporting companies for costs incurred in reducing carbon emissions with subsidies, while imposing additional charges on foreign importing companies. Although no specific trade strategy has been announced yet, President Biden is also likely to impose additional tariffs on products from countries or companies with high carbon emissions.

Although the Biden administration has moved away from the 'unilateralism' of the Trump administration and advocates 'multilateralism,' protectionist policies continue, and climate change is expected to emerge as a major agenda in this process. The carbon border tax is expected to be a means to achieve this agenda.

He stated, "Unless companies give up on the U.S. market and sell products only in other regions, they must ultimately reduce carbon emissions," adding, "Faithful implementation of the agreements under the Paris Climate Agreement is the starting point for our response to the U.S. carbon border tax." This is because if the U.S. demands more than the Paris Agreement, we have grounds to reject it and can avoid unilateral tariff impositions.

Regarding the possibility that the carbon border tax might induce domestic companies to invest locally in the U.S., Kim said, "If tariffs and other issues arise when producing products outside the U.S. and importing them in, companies will produce products on U.S. soil." He added, "Even if the U.S. recognizes the environmental compliance costs of overseas production companies, companies' decisions may vary considering logistics costs related to U.S. exports."

Regarding the Buy American policy, which prioritizes purchasing American products in government procurement, he expects that the U.S. will not deviate from the existing framework of agreements. It is anticipated that the U.S. will strengthen purchases of American products while adhering to commitments made under the World Trade Organization (WTO) and the Korea-U.S. Free Trade Agreement (FTA).

Policy Toward China: Biden Likely No Different from Trump... Need to Strengthen Korea-U.S. Alliance to Counter China

In particular, as the Biden administration applies comprehensive pressure on China, the U.S.-China conflict is expected to remain a key variable in the global trade order. He described the Biden administration's stance as "'All but Trump' is not the policy, but 'All but Trump but China,'" emphasizing that there is little difference from the Trump administration regarding China.

Kim predicted, "While maintaining the tariff measures used by Trump, the administration will broaden the agenda spectrum by emphasizing alliance strengthening, human rights, labor, and environmental values." It is expected that not only the U.S. Trade Representative (USTR) but also the State Department and intelligence agencies will be fully mobilized. Furthermore, during the process of reforming the WTO, whose legislative, executive, and judicial functions have all become hollow, the U.S. is expected to challenge China's special treatment as a developing country, state-owned enterprises, and subsidies.

When asked if South Korea will eventually have to choose a side amid escalating U.S.-China tensions, Kim responded, "During the Cold War, it was possible to take sides, but now it is a new Cold War," adding, "In this era, 'economy' is a gray zone where flexibility can be exercised." This means that applying bloc conflicts to the economy has become impossible.

He advised that South Korea's geopolitical position can be cited as a reason why choosing a side is difficult. Since the U.S. is across the Pacific and China is right next door, it is unrealistic to unconditionally side with the U.S., its ally. Kim said, "The European Union (EU) has also signed an investment agreement with China," and "The U.S. cannot force a choice on economic issues either."

However, recalling China's retaliation over THAAD (Terminal High Altitude Area Defense) a few years ago, Kim emphasized that the Korea-U.S. alliance is essential to minimize pressure from China.

He said, "If the Korea-U.S. alliance, which must be held tightly as a value alliance, is shaken, we cannot play the game with China." Regarding President Biden's reference to South Korea as the "Northeast Asian linchpin" instead of "Indo-Pacific" during his first call with President Moon Jae-in after inauguration, Kim pointed out, "It means we are on the outer ring of the concentric circles," adding, "If we were sensitive about our positioning, we should have acted differently."

He also advised that South Korea should express continuous interest and prepare proactively in anticipation of the U.S. rejoining the Trans-Pacific Partnership (TPP). He said, "The U.S. will return by changing the name and members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), incorporating major agendas such as climate change, and creating a new form of system," adding, "We must carefully examine the balance sheet with Japan, including Japan's non-tariff barriers on automobiles."

Interview = Choi Il-gwon, Head of Economic Department

Summary = Kwon Haeyoung, Reporter

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