[EAI Special Report] Redesigning the System for Implementing Trade Policy in Korea's Next Government: Proposal for the Establishment of a Ministerial-Level Dedicated Department

(Editor's Note)

Following China's trade retaliation due to the decision to deploy THAAD, the United States' trade pressure, framed as 'fair trade,' is also showing signs of intensifying. This is because U.S. Vice President Mike Pence, during his visit to Korea, expressed intentions to pursue revisions to the Korea-U.S. FTA. Furthermore, with the additional negotiations for the Korea-EU FTA and the pursuit of a Korea-UK FTA due to Brexit, along with the upgrade negotiations for the Korea-China FTA, emerging as immediate tasks, Korea will face a situation in the next 2-3 years where it must prepare for FTA renegotiations with the world's three major economic blocs. For Korea, where trade exceeds 90% of its GDP, this is a critical juncture. However, the authors argue that the current system has limitations in effectively responding to such a rapidly changing trade environment. Therefore, they propose the establishment of a ministerial-level dedicated department capable of performing offensive and defensive roles, as well as coordinating offense and defense like a midfielder, for a more proactive response.

I. Introduction(Executive Summary)

Korea's trade policy stands at a crossroads. As a 'trading state' where trade exceeds 90% of its GDP, Korea has strived to secure economic benefits by expanding its free trade zones (or 'economic territories') through a dramatic increase in Free Trade Agreements (FTAs) over the past decade, achieving considerable success. However, in 2017, the external trade environment is poised to engulf South Korea with formidable challenges from multiple directions. Korea must engage in renegotiations or upgrade negotiations for major FTAs it has painstakingly concluded (Korea-U.S., Korea-EU, Korea-China); it must respond promptly and consistently to trade pressure from the Trump administration under the guise of 'fair trade' and China's trade retaliation; and it must actively participate in the race to establish mega-FTAs in the Asia-Pacific region to protect national interests. Sticking to existing trade policies risks shipwreck. Korea needs to establish a trade policy paradigm suitable for the rapidly changing environment and redesign its policy implementation system accordingly.

Looking back at the history of trade policy, the system for implementing trade policy has undergone several changes with each change in government. Notably, in 2013, the Park Geun-hye administration, upon its inauguration, decided to dismantle the Office of the Chief Negotiator for Trade, which had been in place for 15 years since 1998, and transfer its functions to the Ministry of Trade, Industry and Energy. However, evaluating the past four years, the actual reform effects have not been positive. Now, with the inauguration of a new administration, to avoid repeating the mistakes of politically motivated and impulsive decisions, closed-door processes, and fragmented functional adjustments among ministries, it is imperative to accurately read the changes in the external environment, set the direction for trade policy that meets domestic demands, and then carefully design the organizational structure.

1. Changes in the Trade Environment of the 2010s

The formidable challenges facing Korea in 2017 are approaching from five directions:

(1) Increasing Trade Pressure from the U.S.The Trump administration in the U.S. is employing protectionist trade policies as a key means to revive American manufacturing and the middle class. It has publicly declared strong pressure on countries with trade surpluses with the U.S., such as Korea, to adjust trade balances. This includes strengthening trade remedy measures, demanding market opening such as for agricultural products, and announcing the introduction of border adjustment taxes. Therefore, Korea must be fully prepared to defend against this multi-faceted U.S. offensive.

(2) Simultaneous Response to Major Trade NegotiationsThe U.S. has declared its intention to renegotiate the Korea-U.S. FTA. Given the intense domestic political controversy and turmoil surrounding its ratification, the renegotiation is expected to cause significant domestic political and economic repercussions. In particular, issues as politically sensitive as the additional opening of the beef market and the rice market are likely to be raised. Without meticulous negotiation strategies and domestic coordination measures, it could lead to national confusion once again. Meanwhile, additional negotiations for the Korea-EU FTA due to Brexit, the pursuit of a Korea-UK FTA, and the upgrade negotiations to enhance the Korea-China FTA, which has a low level of liberalization, are also immediate tasks. In essence, the next administration must prepare for FTA renegotiations with the world's three major economic blocs within 2-3 years.

(3) Preparation for Strategic Trade Policy CompetitionMajor powers such as the U.S., China, and Japan are elevating trade to the status of a strategic issue directly linked to national security. At the national strategy level, they are engaged in a rapid competition for leadership in the Asia-Pacific trade order, pursuing RCEP, a Korea-China-Japan FTA, and exploring TPP-11 and a U.S.-Japan FTA. To protect its national interests, Korea must closely monitor international trends and adopt a more strategic and agile policy-making posture.

(4) New Trade Norms and Negotiation DevelopmentsThe content of trade negotiations is also undergoing significant changes. Under the new global trade environment of the 21st century, the direction of trade policy is expanding beyond 20th-century measures like tariffs to establishing institutional environments that facilitate the combination of cross-border trade, investment, and services. This includes the protection of property rights, rules of origin, capital movement, labor mobility, competition policy, and infrastructure services, leading to the adoption of new norms such as strengthened regulations on currency issues and fisheries resource protection. These norms are primarily agendas of interest to developed countries and pose considerable burdens to developing countries like Korea.

(5) Expansion of Scope and Subjects in Trade NegotiationsTrade issues are becoming linked with other issue areas, expanding the scope of negotiations for trade agreements. For instance, recent situations show currency, fair trade, and financial crisis issues being linked with trade and applied to trade agreements. Moreover, issues not originally economic, such as the conflict between China and THAAD, are increasingly becoming trade issues. The Trump administration's U.S. is demonstrating a game of linking North Korean nuclear pressure with trade negotiations with China. Therefore, trade negotiations have reached a stage where they require comprehensive consideration and judgment of financial, monetary, labor, environmental, diplomatic, and security interests, in addition to traditional trade interests.

To adequately respond to these challenges, the next government's trade organization must become an all-around player. While the former Ministry of Foreign Affairs and Trade/Office of the Chief Negotiator for Trade system demonstrated an aggressive stance for 'catch-up' in the race for FTA conclusion, the Ministry of Trade, Industry and Energy system, by focusing on the linkage between trade negotiations and industry, can be said to have concentrated on defensive and reactive negotiations. Consequently, while the former faced criticism for prioritizing the number of FTAs concluded and relatively neglecting economic effects, the latter has been criticized for missing opportunities to join negotiations like the TPP and failing to assert its presence in multilateral negotiations like RCEP due to its defensive paradigm.

Currently, Korea is simultaneously exposed to trade pressure from the U.S. and China and faces defensive tasks such as the renegotiation of the Korea-U.S. FTA. On the other hand, it must actively participate in the mega-FTA competition of the post-TPP era and proactively respond to the establishment of new trade norms. In short, there is an urgent need to design a new organization that functions as an all-around player, engaging in both offense and defense while also coordinating offense and defense as a midfielder.

2. Basic Goals for Designing a New Trade Organization

To establish a blueprint for a new organization, several basic goals must first be set.

(1) Establish Trade as a Core National Strategic TaskKorea must move beyond viewing trade simply as an issue of goods exchange, expanding its scope to matters directly related to national security. Under the recognition of trade as a strategic task, institutional designs should be sought to ensure the President and the cabinet pay constant attention to it.

(2) Strengthen the Control Tower Function for TradeGiven that trade issues encompass diverse fields and involve extensive issue linkage, it is urgent to secure coordination functions and mechanisms that can harmonize and finalize various opinions from the perspective of the entire government or nation, rather than being influenced by the interests of specific ministries or industries.

(3) Proactively Respond to the New Trade Environment and Trade IssuesWhile past trade policies focused on achieving FTA conclusions, the future trade paradigm is shifting towards more comprehensive matters, including the establishment of new trade norms and rules through multilateral frameworks, the proliferation of diverse trade issues due to issue linkage, and the increase in trade friction due to protectionism and import restrictions. Therefore, a dedicated organization with expertise is needed to proactively address current trade issues.

(4) Establish a Ministerial-Level Dedicated DepartmentTo attend international trade ministerial meetings, engage in discussions and negotiations with ministerial-level counterparts from trading nations, coordinate with other ministries as a control tower, and effectively provide the President, the ultimate decision-maker, with comprehensive information and grounds for judgment on current issues, a ministerial-level head must be appointed.

(5) Strengthen Relations with the National AssemblyTo ensure accountability in external negotiations and provide democratic legitimacy, the role of the legislature in domestic negotiations should be enhanced to facilitate consultations at various stages of promoting external economic policy.

3. Problems with the Existing System

From the above perspective, the existing trade policy implementation system has several problems.

(1) Inadequacy of the Control Tower RoleWhen trade functions are placed under a specific operational ministry, they are inevitably influenced by the interests of that ministry's stakeholders or clients. The current model, being linked to industrial interests, has limitations in policy coordination. On the other hand, the past model under the Ministry of Foreign Affairs is not free from similar criticisms of prioritizing the diplomatic achievement of increasing the number of FTAs over economic benefits.

(2) Fragmentation of Trade OperationsThe existing system has focused on concluding bilateral trade agreements, thus showing limitations in comprehensively identifying and handling the surge in trade issues arising from the emergence of new trade norms, the expansion of trade issue scope, and the increase in trade friction. The consolidation and dispersal of trade operations in 2013 have led to fragmentation of trade tasks among ministries, frequently causing duplication of work, confusion, and delays.

(3) Diminished Status of Trade OperationsIn the current system, the Minister of Trade, Industry and Energy is responsible for numerous major national tasks, presenting physical limitations in grasping the constantly evolving trade issues in the international community and frequently participating in international trade ministerial meetings. Furthermore, designating trade officials at the level of Vice Minister or below, rather than a ministerial level, has inherent limitations in conducting direct discussions and negotiations with foreign trade ministers. Delays in decision-making in situations requiring immediate action have been consistently observed.

(4) Weakened Support Function for Top Decision-MakersWith the downward adjustment of trade officials within government ministries to the level of Vice Minister-equivalent, the President, as the government's top decision-maker, has shown reduced interest in trade issues, or decision-making related to trade issues has been delayed. The mechanism for providing accurate information and advice on the status and impact of trade issues to the presidential staff has also been weakened.

(5) Fluctuation of the Trade Expertise Pool: Following the organizational restructuring in 2013, trade functions were transferred to the Ministry of Trade, Industry and Energy. As a result, a significant portion of the trade expertise accumulated over 15 years under the Ministry of Foreign Affairs and Trade returned to the Ministry of Foreign Affairs. Meanwhile, personnel at the Ministry of Trade, Industry and Energy are concentrating on industrial and resource-related affairs and tend to avoid relatively unfamiliar trade-related tasks. While organizational fluctuations due to task transfers are common, the current organizational structure poses a high risk of a future reduction in trade expertise.

4. Alternative: Establishment of a Ministerial-Level Dedicated Department

The trade policy execution system proposed in this report aims for a streamlined organization that integrates three stages: the first stage involves strategic planning and ex ante policy coordination and convergence among ministries; the second stage involves leading negotiations through a control tower for the negotiation delegation (interim); and the third stage involves the consistent and efficient implementation of agreements (ex post).

To achieve this system, an analysis of the strengths and weaknesses of the current Ministry of Trade, Industry and Energy model (Trade Negotiation Office under the Ministry of Trade, Industry and Energy) and the Ministry of Foreign Affairs model (Trade Negotiation Headquarters under the Ministry of Foreign Affairs and Trade) was conducted. Both models have their respective advantages and disadvantages. However, to adequately address the increasing diversification, linkage, and complexity of trade issues, as well as the trend of trade issues becoming national security concerns, establishing a ministerial-level dedicated organization is deemed appropriate.

A dedicated trade organization would enable ① neutral coordination and convergence of opinions beyond the interests of specific ministries and civil society as a control tower; ② integrated operation of fragmented trade-related tasks across various ministries; ③ enhanced linkage with the highest decision-maker as a cabinet member, allowing for a strategic approach that considers the multifaceted nature of national interests; ④ rapid response to new trade environments, such as trade disputes; and ⑤ a system for maximizing the utilization and development of trade expertise.

Regarding the housing of a dedicated trade organization, the U.S. Trade Representative (USTR) model can be considered, but it has several limitations for direct application in Korea. Unlike the U.S., where the USTR was established within the White House to manage congressional constitutional authority over trade policy in an established parliamentary democracy, there is no particular need to place a dedicated trade department within the Presidential Office in the Korean context. Furthermore, this approach would not align with the contemporary call for reducing the powers of the Presidential Office. As an alternative, it could be established as an agency directly under the Prime Minister. However, due to the institutional ambiguity of the Prime Minister's role in a presidential system, an agency under the Prime Minister's Office would also have limitations. Therefore, this report proposesOption 1: Establishment of a new ministry (tentatively named the Ministry of Trade) within the cabinet.

It is true that introducing a new department entails various administrative, practical, and political burdens. These burdens could be amplified for a new government launching on May 10th without the preparatory work of a presidential transition committee. Nevertheless, considering the rapid changes in the international trade environment and the paradigm shift in trade, where trade issues have become a core component of national interest and trade disputes a significant part of national management, establishing an independent new ministry from a long-term perspective is desirable.

If there is insufficient administrative, financial, or time capacity due to the current political schedule and the establishment of a new ministry, the second-best option isOption 2: Introduction as a separate organization attached to an existing ministry (Ministry of Foreign Affairs or Ministry of Trade, Industry and Energy). In this case, consideration should be given to methods that ensure the maximum autonomy of the dedicated trade organization from the existing ministry's structure. Furthermore, the head of the department should hold a ministerial rank, with guaranteed access to the President, the ultimate decision-maker, and a system that allows for prompt consultation. Specifically, regarding trade matters, a genuine status that allows for coordination and adjustment of tasks with other ministries must be guaranteed. In this scenario, an attachment to the Ministry of Foreign Affairs, which could possess relative autonomy from stakeholders, might offer certain advantages. In conclusion, both the new ministry proposal and the attached organization proposal have their own merits and demerits, and it is necessary to examine their compatibility with institutional limitations and political realities. However, once a direction is set and pursued, various detailed challenges can likely be adjusted or overcome... (continued)

Author

Yeol Son_Professor at the Graduate School of International Studies, Yonsei University. He holds a Ph.D. in Political Science from the University of Chicago. He has served as the Director of the EAI Center for Japanese Studies, Chairman of G-Net 21, Director of the Institute for Sustainable Development, and Director of the Institute for International Studies at Yonsei University. His main research areas include international political economy, Japanese politics and economy, and the political economy of trade policy. His recent publications include "The Role of South Korea in the Making of a Regional Trade Architecture," "The Abe Effect on South Korea's Trade Policy," and "Regionalization, Regionalism and the Double-Edged Public Diplomacy in East Asia."

Jaemin Lee_Professor at the School of Law, Seoul National University. He holds a Juris Doctor from Boston College Law School. He worked as an attorney at Willkie Farr & Gallagher LLP in Washington D.C. and previously served as a professor at the School of Law, Hanyang University. His primary research area is international trade law. He has served as a candidate for the national indicative list of panelists for WTO dispute settlement panels and as a candidate for dispute settlement procedure panelists for Korea-Chile, Korea-EU, and Korea-US FTAs.

Min-kyu Koo_Professor and Vice Dean of International Affairs at the Graduate School of Public Administration, Seoul National University. He holds a Ph.D. in Political Science from the University of California, Berkeley. His main research areas are international administration and trade policy. His books include The Korean Government and Public Policies in a Development Nexus and Asia’s New Institutional Architecture: Evolving Structures for Managing Trade, Financial, and Security Relations.