What consequences will joining Biden’s IPEF have for S. Korea?

Posted on : 2022-05-19 16:33 KST Modified on : 2022-05-19 16:33 KST
The US-led economic framework is designed to reorganize supply chains around the US — possibly sowing the seeds of conflict with China
South Korean Foreign Minister Park Jin (top and bottom right) speaks to Wang Yi, the Chinese minister of foreign affairs, via videoconference on May 16. (provided by MOFA)
South Korean Foreign Minister Park Jin (top and bottom right) speaks to Wang Yi, the Chinese minister of foreign affairs, via videoconference on May 16. (provided by MOFA)

Leading up to the South Korea-US summit, Seoul has announced that it will join the Indo-Pacific Economic Framework (IPEF), becoming one of the founding members of this new US-led cooperative body. Alongside hopes that this will be an opportunity for Korea to gain a competitive advantage and stabilize supply chains in key industries of the future, there are also concerns that participating in a framework designed to exclude China will spark conflict in the areas of diplomacy and trade.

In contrast with existing free trade agreements, which lower tariffs and other trade barriers, the IPEF is focused on establishing new norms and a new order for trade that are oriented around the US. The IPEF’s agenda for cooperation covers four areas: fair and flexible trade; supply chain resiliency; basic infrastructure, clean energy, and decarbonization; and taxation and anti-corruption.

The IPEF’s main goal is to exclude China from supply chains in cutting-edge and future-oriented industries and to reorganize those supply chains around the US. The US has made clear that it intends to counter China’s unfair trade practices and market distortions.

In the case of semiconductors, which the US has designated as a strategic product, the US could design a system of supply chain cooperation that links the US (front end), South Korea and Taiwan (design and production), Japan (equipment) and Malaysia (back end).

Related industries and experts in Korea have generally said that Korea needs to take part in the IPEF. Reinforcing Korean companies’ advantageous position in the US-led trade order could bring economic benefits, they say. Associations representing the semiconductor and automotive industries advised the government that it “needs to devise a negotiating strategy that will help stabilize supply chains in key industries, including semiconductors, key minerals, electric vehicles and batteries.”

The semiconductor and battery industries, which are either trying to maintain their lead over up-and-coming Chinese firms or are already in fierce competition with them, seem to be quietly hopeful that they stand to gain from Korea joining the IPEF.

Yoon’s office adopted an enthusiastic tone about joining the IPEF on Wednesday. “We intend for Korea to set the standards for [new] norms and to invite other countries as we realize our national interest,” a presidential spokesperson said.

But there could be a downside to Korea’s preemptive and energetic declaration of its intentions, when other countries being courted by the US are hesitating because of the IPEF’s exclusion of China.

Thus far, there are eight countries — including South Korea — that have confirmed their intention to join the IPEF. While the US has been urging India and major countries in the Association of Southeast Asian Nations (ASEAN) to join, they are weighing their options given their dependence on China and conditions at home.

As a central node in the semiconductor supply chain, Taiwan hopes to join, but even the US has been cautious about that given the potential for triggering conflict with China.

India hasn’t been cooperating on the US foreign policy line in recent months, such as in its refusal to join the push for sanctions against Russia.

“Since the IPEF is a modular agreement that involves separate discussion in each of its four areas, it’s possible for a country to participate selectively in the areas it needs. Since that structure allows participating countries to limit their liability, Korea should also think carefully about how to deal with the main areas of cooperation,” said an analyst at the Korea Institute for International Economic Policy.

There are also concerns that Korean companies will once again be penalized by China as they were after Korea allowed the US to deploy a battery of its THAAD missile defense system in the country.

“Considering how major countries are all tangled up in the global supply chain, it’s doubtful whether removing China will be as easy as deboning a fish. I think this may cause more headaches for doing business with China without providing many meaningful economic benefits,” said the CEO of an electric vehicle part supplier that imports materials from China.

“The US has continued to maintain and strengthen its commitment to containing China in its Asia-Pacific strategy under both Republican and Democratic administrations. It’s easy for the government to move ahead with the IPEF, which is an administrative agreement that doesn’t require ratification by Congress. On the other hand, the momentum behind the initiative is liable to be undermined by the political situation, including the midterm elections,” said Park Seon-min, a researcher with the Institute for International Trade.

By Kim Hoe-seung, staff reporter

Please direct questions or comments to [english@hani.co.kr]

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