A New Strategy for Korea's FTA 2.0

2013 EAI Special Report_FTA 2.0: A New Trade Strategy for South Korea

Author

Yeol SONProfessor and Dean, Graduate School of International Studies, Yonsei University. He received his Ph.D. in Political Science from the University of Chicago and has served as a professor at Chung-Ang University and a visiting professor at the University of Tokyo, Waseda University, and the University of North Carolina. His research areas include international political economy, Japanese politics and economy, East Asian regionalism, and global governance. He has served as President of the Association for Japanese Studies and Co-Chair of the Korea-Japan New Era Joint Research Committee. He is currently a member of the Ministry of Foreign Affairs Policy Advisory Committee, the Korea National Diplomatic Academy Advisory Committee, and the Northeast Asian History Foundation Advisory Committee. His recent publications include “Attracting the Neighbors: Soft Power Competition in East Asia,” “Securitizing Trade: The Case of US-Korea FTA,” and “Japan’s New Regionalism: China threat, Universal Values, and the East Asian Community.”

Young-Kwan SONGResearch Fellow, Korea Development Institute (KDI). He received his Ph.D. in Economics from the University of Wisconsin-Madison and has served as Head of the WTO Team at the Korea Institute for International Economic Policy (KIEP), Senior Specialist at the Presidential Committee for the FTA Promotion, Advisor at the Presidential Committee for the G20 Summit, and Visiting Scholar at the Johns Hopkins School of Advanced International Studies (SAIS). His research interests include international trade and services, and political economy. His recent publications include "State-Owned Enterprises in China and the Korea-China FTA" (KDI, unpublished), "Audiovisual Services in Korea: Market Development and Policies" (ADBI, 2012), "KORUS FTA vs. Korea-EU FTA: Why the Differences?" (Korea Economic Institute, 2011), "Formation and Prospects of the G20: Focusing on the Discussion of the International Financial System" (Trends and Prospects, 2010), and "A Study on GATS Domestic Regulation and Transparency Rules" (Journal of International Trade and Industry Studies, 2009).

Seungjoo LEEProfessor, Department of Political Science and International Relations, Chung-Ang University. He graduated from Yonsei University with a degree in Political Science and International Relations and received his Ph.D. in Political Science from the University of California at Berkeley. He has served as a researcher at the Korea Institute for National Unification, a postdoctoral researcher at UC Berkeley's APEC Study Center, an Assistant Professor in the Department of Political Science at the National University of Singapore, and an Assistant Professor in the Department of International Relations at Yonsei University. His recent co-authored works include Northeast Asia: Ripe for Integration? (Springer, 2008) and Trade Policy in the Asia-Pacific: The Role of Ideas, Interests, and Domestic Institutions (2010). He has published numerous articles in journals such as the Korean Political Science Review, Comparative Political Studies, The Pacific Review, and Asian Survey. His current research areas include East Asian regionalism, global FTA networks, middle power diplomacy, and development cooperation diplomacy.

Yongwook LEEAssociate Professor, Department of Political Science and International Relations, Korea University. He holds a B.A. in East Asian Studies from the University of Kansas and a Ph.D. in International Politics from the University of Southern California. He has been a visiting researcher at the University of Tokyo's Institute of Social Science, a lecturer in the Department of International Relations at the University of Southern California, a Freeman Fellow at Brown University's Watson Institute for International Studies and Department of East Asian Studies, a research fellow at the University of Oklahoma's Center for the Study of Middle America, and an Assistant Professor in the Department of Political Science and the Division of International and Area Studies at the same university. His book is The Japanese Challenge to the American Neoliberal World Order: Identity, Meaning, and Foreign Policy (Stanford University Press, 2008). He co-edited "The Political Economy of East Asian Financial Regionalism" (2012, Ah Yeon Publishing) and is currently writing a book on East Asian financial regionalism.

Jaesung JEONProfessor, Department of Diplomacy, Seoul National University. He received his B.A. and M.A. in Diplomacy from Seoul National University and his Ph.D. in International Politics with a specialization in international political theory from Northwestern University in the United States. He has served as a visiting professor at Keio University in Japan. His areas of expertise include international political theory, history of international relations, East Asian security studies, and Korean foreign policy. His major books include "East Asian International Politics: From History to Theory" (East Asia Institute, 2011) and "Is Politics Moral? Reinhold Niebuhr's Transcendent Realism" (Hangil Humanities Library, 2012). His major articles include "A Theoretical Study on the Emergence of International Politics in Europe" (Korean Journal of International Studies, 2009), "A Critical Review of Postmodernism and Realism on Constructivist International Political Theory" (Korean Journal of International Studies, 2010), and "A Study on the Rise of Great Powers and the Strategies of Responding Nations" (Journal of Defense Analysis, 2009).

Policy Proposal (Executive Summary)

I. Why FTA 2.0?

South Korea's Free Trade Agreement (FTA) strategy has achieved remarkable results under the

The 2010s have presented trade policy with three challenges. First, there is a shift from bilateral FTAs to multilateral FTAs. Regional multilateral integration movements centered on Northeast Asia, East Asia, and the Asia-Pacific, such as the Korea-China-Japan FTA, the Regional Comprehensive Economic Partnership (RCEP), and the Trans-Pacific Partnership (TPP), are progressing independently, necessitating a multilateral agreement strategy different from the existing bilateral agreement strategy. Second, behind the trend of FTA regional multilateralism lies the strategic competition between the United States and China over the East Asian FTA network. China aims to build an Asian FTA network centered on itself, starting with FTAs with ASEAN and proceeding with agreements with Hong Kong, Macau, and Taiwan, followed by the Korea-China FTA, Korea-China-Japan FTA, and RCEP. In contrast, the United States is actively utilizing the TPP to build an FTA network centered on the Asia-Pacific region, and Japan's declaration of participation in TPP negotiations has caused the global FTA landscape in East Asia and beyond to fluctuate. Korea's strategy of pursuing a "global FTA hub" by preemptively securing bilateral FTAs with major large markets has also become unsustainable. Third, the domestic political environment demands a new form of capitalism. There is growing fatigue with FTAs, as they are perceived to benefit only a narrow segment of large exporting corporations and importers, rather than having a trickle-down effect across the economy and society. This is linked to the trend of seeking a new form of capitalism that expands social safety nets and promotes economic democratization, as the limitations of neoliberal growth have become apparent since the 2008 global financial crisis. Consequently, future FTA strategies are likely to adopt a more inward-looking orientation. Future FTA strategies will face the challenge of adjusting the existing goals of market preemption, securing export markets, and pursuing neoliberal reforms.

In response to the challenges posed by changes in Korea's FTA status, the external trade environment, and the domestic political environment, Trade Policy 2.0 should aim for prosperity and coexistence, guided by the principles of openness, participation, sharing, and diffusion. This contrasts with FTA 1.0, which pursued the single goal of economic growth through export market expansion. Over the next decade, global capitalism will continuously seek a sustainable capitalism that pursues coexistence with humans and nature, moving beyond neoliberal growth, as a reflection on the 2008 global financial crisis. Therefore, FTA 2.0 will align with this major trend while also implementing the goal of building a network order that allows for shared prosperity by flexibly absorbing the US-China confrontation surrounding the East Asian architecture.

As the name "Network 2.0" suggests, FTA 2.0 signifies an FTA where more actors participate and share more within an open platform. FTA 2.0 aims to be (1) an inclusive and open FTA, not an exclusive one. It will be open to actors who meet certain entry criteria, rather than being an exclusive preferential agreement among members within a specific region. (2) It pursues an FTA that opens its doors to and embraces developing and emerging economies. (3) It seeks an FTA of sharing, where the fruits of openness are enjoyed equally by all members of society. (4) It aims to diffuse FTAs by connecting them, enhancing their coherence and compatibility.

Rule-making in Trade: Under these goals and principles, Korea's negotiations should move beyond tariff concession talks and focus on creating a new institutional environment that facilitates the integration of trade, investment, and services within regions where transnational production occurs. Preparations should be made to establish multilateral trade rules and norms at the regional level, covering intellectual property protection, rules of origin, capital movement, labor mobility, competition policy, and infrastructure services.

Coexistent FTAs: The primary FTA negotiation partners for Korea in the future will be developing Asian countries, which are generally smaller in economic scale and less developed than Korea. While Korea has pursued high-level liberalization through the Korea-US FTA and the Korea-EU FTA, it is necessary to adopt an FTA strategy that acknowledges the reality that developing Asian countries may find it difficult to accept such high-level liberalization and can embrace them. Furthermore, domestically, while pursuing openness, Korea must promote FTAs that uphold the social values shared by its members. The system should be designed to ensure that the benefits of openness are shared, by distributing the gains of the winners and compensating the losses of the losers.

Middle Power Bridge Diplomacy: As they economically integrate and rise, the US and China are employing various military and economic means to compete for leadership in the emerging East Asian regional order, vying for control over the design of the region's economic architecture. The problem lies in the inconsistency and conflict between the architectural visions of these two countries, underpinned by the power struggle between the US and China and the resulting strategic distrust. Therefore, Korea's strategic vision should be to establish institutional designs that ensure systemic flexibility to peacefully manage the distrust and conflict arising from the power struggle between the two nations. Korea, acting as a bridge, should pursue a network strategy that enhances the coherence and compatibility of US and Chinese FTA networks coexisting in East Asia, while simultaneously building a complex network in conjunction with the military security domain to avoid repeating the "Tragedy of Great Power Politics"...(continued)