[News analysis] US departure from TPP to benefit South Korea in short term

Posted on : 2017-01-25 16:53 KST Modified on : 2019-10-19 20:29 KST
The next question is how protectionist measures by the Trump administration could be a harbinger of trade pressures
US President Donald Trump after signing an executive order for US departure from the Trans Pacific Partnership
US President Donald Trump after signing an executive order for US departure from the Trans Pacific Partnership

The US’s decision to bow out of the Trans-Pacific Partnership (TPP) will be beneficial to South Korean trade in the short term, but demands wariness in the medium to long term as a reaffirmation of the Donald Trump administration’s strong protectionist stance, experts are saying.

Because the US’s departure comes before the TPP has actually taken effect, it is not expected to have an immediate impact on the South Korean economy. Indeed, it will benefit South Korea in the short term.

“What would have been bad for the South Korean economy is if the TPP had gone into effect under the original plan,” said a Korea International Trade Association (KITA) source.

“This will be a blow to countries like Japan and Vietnam that had pinned their expectations to the TPP, but it could be beneficial for us in the short term,” the source predicted.

Another source with the Korea Trade Insurance Corporation (K-SURE) said the US’s departure meant “the return of an opportunity that South Korea very nearly lost.” In other words, the possibility of trade disadvantages for South Korea, which previously opted not to participate in the TPP, have now disappeared.

The TPP originally had 12 countries taking part, including the first- and third-ranked countries for global trade in the US and Japan. Once it went into effect, it was poised to become the world’s biggest free trade zone, accounting for around 40% of total global production. South Korea was initially hesitant to join, concluding that it had little gain from the TPP when it already had free trade agreements with many of the members besides Japan.

The situation changed once the Barack Obama administration signaled it would be using the agreement as a framework for containing China and Japan abruptly announced its participation in the spring of 2013. Under the new situation, a trade competition with Japan once the agreement took effect would possibly mean South Korea losing the benefits of its current FTAs and finding itself in a disadvantageous position.

South Korea belatedly announced its intent to join, but its plans were stymied by a refusal from the US, which hoped to sign the agreement swiftly with its existing members. A debate raged over the practical benefits of what would amount to a South Korea-Japan FTA if Seoul did sign on. Most observers concluded that such an FTA would be disadvantageous to South Korea because of Japan’s strong competitiveness in parts industries.

But many continue to warn that the focus should be less on short-term gains than on the “Trump risk” in the medium to long term. By this reasoning, the US‘s TPP departure could be a harbinger of trade pressures to come, including possible renegotiation of the FTA between South Korea and the US.

While conceding the short-term advantages, a trading business source said, “What we should be paying attention to is the fact that President Trump has begun putting his protectionist pledges into practice.”

A KITA source said the US’s TPP departure “makes it clear that Washington plans to tend to its own interests through bilateral [rather than multilateral] agreements.”

The message is that South Korea should be on guard for the possibility of Trump imposing an “America first” trade policy approach on it in the future. In a report published just after Trump‘s election, the Korea Institute for Industrial Economics & Trade predicted his administration would result in “increased demands [on South Korea] for faster service industry openness that are tied to reexamination of the TPP negotiations.”

By Ko Na-mu, staff reporter

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