[EAI Special Report] A Proposal for South Korea's FTA 2.0 New Strategy

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

Author

Yeol SohnProfessor 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 political economy, East Asian regionalism, and global governance. He has served as President of the Association for Japanese Studies and as a member of the Joint Research Committee for a New Korea-Japan Era, and is currently serving as a member of the Ministry of Foreign Affairs Policy Advisory Committee, the National Diplomatic Academy Advisory Committee, and the Northeast Asian History Foundation Advisory Committee. His recent research achievements 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 Support of the Korea-US FTA, Advisor to 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 His recent publications include "China's State-Owned Enterprises and the Korea-China FTA" (KDI, unpublished), "Audiovisual Services in Korea: Market Development and Policies" (ADBI, 2012), "KORUS FTA vs. Korea-EU FTA: Why the Differences?"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 Outlook 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 Norms" (Journal of International Trade and Industry Studies, 2009).

Seungjoo LeeProfessor, Department of Political Science and International Relations, Chung-Ang University. He graduated from the Department of Political Science and International Relations at Yonsei University 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 the UC Berkeley 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 also published numerous articles in journals such as the Korean Political Science Review, Comparative Political Studies, The Pacific Review, and Asian Survey. His current main 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 received his B.A. in East Asian Studies from the University of Kansas and his Ph.D. in International Politics from the University of Southern California. He has served as a visiting researcher at the Institute of Social Science, University of Tokyo, an instructor in the Department of International Relations at the University of Southern California, a Freeman Fellow at the Watson Institute for International Studies and the Department of East Asian Studies at Brown University, a research fellow at the Center for Middle Eastern Studies, and an Assistant Professor in the Department of Political Science and International Area Studies at the University of Oklahoma. 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, Arirang Publishing) and is currently writing a book on East Asian financial regionalism.

Jae-sung JeonProfessor, Department of Political Science and International Relations, Seoul National University. He received his B.A. and M.A. in Political Science and International Relations from Seoul National University and his Ph.D. in International Politics with a focus on international political theory from Northwestern University. He has served as a visiting professor at Keio University, Japan. His areas of expertise include international political theory, history of international relations, East Asian security, 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 Political Modernity in Europe" (Journal of International Politics, 2009), "A Critical Review of Postmodernism and Realism on Constructivist International Political Theory" (Journal of International Politics, 2010), and "A Study on the Strategies of Responding Nations to the Rise of Great Powers" (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 three challenges to trade policy. 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 multilateralization 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 by concluding agreements with Hong Kong, Macao, and Taiwan, following its FTA with ASEAN, and by promoting 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 landscape of FTAs in East Asia and the world to fluctuate. South Korea's strategy of pursuing a "global FTA hub" by preemptively securing major markets through bilateral FTAs also requires revision. The third challenge is the change in the domestic political environment, which demands a new capitalism. With the perception that large FTAs, hard-won, primarily benefit a narrow range of large exporting companies and importers rather than having a trickle-down effect on the economy and society as a whole, FTA fatigue is emerging. This is linked to the trend of seeking a new 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, influencing future FTA strategies to take on a more inward-looking orientation. Future FTA strategies face the task of adjusting the existing goals of market preemption, securing export markets, and neoliberal reform.

In response to the challenges posed by changes in South Korea's status regarding FTAs, the evolving external trade environment, and the domestic political landscape, Trade Policy 2.0 must aim for prosperity and coexistence, pursuing the principles of openness, participation, sharing, and dissemination. This marks a departure from FTA 1.0, which pursued the singular goal of economic growth through export market expansion. Over the next decade, global capitalism, reflecting on the 2008 global financial crisis, will continuously seek a sustainable capitalism that pursues coexistence with humans and nature, moving beyond neoliberal growth. Therefore, FTA 2.0 will align with these major trends and, on the other hand, implement the goal of building a network order that can achieve shared prosperity by flexibly absorbing the confrontation between the U.S. and China 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 on an open platform. FTA 2.0 aims to be (1) an inclusive and open FTA, not an exclusive one. Instead of forming exclusive preferential agreements among members within a specific region, it will be open to actors that meet certain entry criteria. (2) It seeks to be an inclusive FTA that opens its doors to developing and emerging countries. (3) It aims to be a shared FTA where the benefits of openness are enjoyed equally by all members of society. (4) It seeks to be an FTA that enhances consistency and compatibility by connecting various FTAs, thereby promoting their dissemination.

Rule-making for Trade: Under these goals and principles, South 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 rights protection, rules of origin, capital movement, labor mobility, competition policy, and infrastructure services.

Coexistent FTA: The FTA negotiation partners South Korea will face in the future, primarily centered around RCEP, will largely be Asian developing countries with smaller economies and lower levels of development than South Korea. While South 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 Asian developing countries may find it difficult to accept such high-level liberalization and can embrace them. Furthermore, domestically, while pursuing liberalization, an FTA should be promoted that upholds the social values shared by members of society. The system should be designed to ensure that the benefits of openness are shared by compensating for the losses of those negatively affected, thereby distributing the gains of liberalization.

Middle Power Bridge Diplomacy: As they economically integrate and rise, the United States and China are employing various military and economic means to compete for leadership in shaping the East Asian regional order. The problem lies in the inconsistency and competition between the architectural visions of these two countries, underpinned by power struggles and strategic distrust between the U.S. and China. Therefore, South Korea's strategic vision should involve designing institutions that can secure systemic flexibility to peacefully manage the distrust and conflict arising from the power dynamics between the two nations. South Korea, acting as a bridge, should pursue a network strategy that enhances the consistency and compatibility of U.S. and Chinese FTA networks coexisting in East Asia, while simultaneously building a complex network linked to the military security domain to avoid repeating the "Tragedy of Great Power Politics"...(continued)