[Indo-Pacific Strategy Special Report] ② Promoting Inclusive and Resilient Re-globalization

I. Re-globalization and the Indo-Pacific as a Space for State-World Linkages

The crisis in the 21st-century world order has stemmed from the weakening of state-world linkages. This is because the tension between the logic of markets, which seek to expand global economic integration, and the logic of international politics, which still adheres to the nation-state system, has not been resolved. Unlike the WTO multilateral trade negotiations, which focused on lowering trade barriers between countries, hyper-globalization, driven by the proliferation of FTAs, digital technological innovation, and the expansion of global value chains (GVCs), significantly contributed to enhancing economic efficiency by promoting deep integration.

Meanwhile, hyper-globalization has become a source of various domestic problems, including economic inequality, social conflict, and political polarization. This is the background for the emergence of de-globalization. The de-globalization movement, which emerged at the domestic level, has led to protectionism and national-first policies at the external level, threatening the foundation of the liberal international order. The limitations of unmanaged globalization have become evident. However, replacing hyper-globalization with de-globalization is unlikely to be a realistic alternative, as it merely shifts from one problem to another. Re-globalization is necessary, pursuing economic integration and free trade while appropriately managing domestic economic inequality and social instability. The re-globalization process requires the reorganization of the ideological and institutional foundations for state-world linkages.

It is relatively clear that the pursuit of complete decoupling in economic relations between the United States and China is neither feasible nor desirable. On the other hand, it is also clear that, unlike in the past when they formed a symbiotic relationship through a high degree of division of labor, the US and China will prioritize strategies to reduce their vulnerabilities to each other, particularly in critical technologies and sensitive industries. Strategic recoupling is likely to be a realistic alternative. In this case, the US's ambitious promotion of reshoring to reduce its supply chain dependence on China is a means of strategic recoupling. Furthermore, the US and China will gradually expand 'critical high-tech decoupling' to reduce their dependence on each other in critical advanced technology sectors, which are the source of future competitiveness.

The restructuring of economic relations between the US and China has a significant impact on the changes in the global economic order. This is because regional or values-based economic integration is gradually expanding, rather than the global economic integration that has been progressing until recently. The Indo-Pacific region is directly influenced by the strategic recoupling pursued by the US and China, which have entered into strategic competition. The Indo-Pacific region occupies a central position in the process of restructuring the global economic order, as it is a key region for supply chain reorganization occurring amidst the US-China strategic competition. Changes in the Indo-Pacific regional order can serve as a benchmark for establishing rules and norms at the global level in the future. The fact that extra-regional countries such as Germany, France, and the UK are successively announcing their Indo-Pacific guidelines or strategies is a recognition of the strategic value of the Indo-Pacific region as a touchstone for future global order restructuring.

It is necessary to construct the Indo-Pacific region as a space for state-global linkages. The Indo-Pacific region is a representative area where global value chains are concentrated. It has the potential to play a crucial role in state-global linkages by resolving the problems associated with deep integration and establishing new rules and norms at the regional level. The formation of extensive regional value chains (RVCs) in the Indo-Pacific region is evidence of the high degree of complementarity among countries in the region. If countries in the region dynamically develop their complementarity, the Indo-Pacific region can become a space for cooperation with a healthy regional economic ecosystem.

II. Building a Symbiotic Regional Economic Ecosystem Beyond Geopolitical Conflicts

The Indo-Pacific region is also a stage for geopolitical conflicts such as US-China strategic competition. To redesign the regional order, a systematic analysis of the achievements and limitations of the US and China in pursuing their regional strategies is necessary. The Indo-Pacific Strategy and the Belt and Road Initiative (BRI) are representative regional strategies of the US and China, respectively, and have yielded achievements in enhancing connectivity among countries in the region and promoting economic integration through infrastructure expansion. On the other hand, the Indo-Pacific Strategy and the BRI face challenges of multilateralization and institutionalization. In their initial stages, the Indo-Pacific Strategy and the BRI had a network-like character of bilateral cooperation centered around the US and China. However, due to the cautious and reserved responses of regional countries to multilateralizing their regional strategies, the US and China have only managed to form some mini-lateral cooperation bodies. The US and China are facing difficulties in upgrading their bilateral or mini-lateral regional strategies into multilateral cooperation-centered regional strategies.

Meanwhile, the pursuit of competitive regional strategies by the US and China is accelerating the bloc formation of the regional order. In fact, the US and China are forming competitive structures at the regional level in key areas such as (digital) infrastructure, 5G, supply chains, health, AI, cloud computing, and space. As the Indo-Pacific Strategy and the BRI, as representative regional strategies of the US and China, form competitive structures in various sectors, the pressure on regional countries to choose sides is increasing. While most regional countries are seeking a pragmatic approach by participating in both US and Chinese initiatives, the cost and burden of this pragmatic approach are increasing as issue-based competitive structures become clearer.

A strategy is needed to define the Indo-Pacific region as a flexible and open region. Specifically, the Indo-Pacific region should be designed as a space where cooperation and competition can harmonize. A balanced approach between cooperation and competition is necessary. Excessive competition among countries in the region can amplify conflicts, but if openness is maintained and expanded, continuous improvement in complementarity is possible. This approach can create synergistic effects from competition by continuously improving the health of the regional economic ecosystem. The synergy of competition can act as a driving force to promote cooperation among countries in the region, which is necessary for restructuring the regional order. Through this, the Indo-Pacific region can be redefined as a space encompassing both competition and cooperation.

To this end, first, creative work is required to transform the diversity among Indo-Pacific countries into a point of cooperation. The economic, political, and cultural diversity among Indo-Pacific countries has been known to hinder cooperation. As evidenced by the entry into force of two mega-FTAs, CPTPP and RCEP, in the Indo-Pacific region, the economic gap among countries in the region has not only acted as a negative factor in promoting economic integration but has also made economic integration more difficult as major powers project political or diplomatic security considerations into the economic integration process. However, as shown by the extensive formation of supply chains in key advanced industries such as semiconductors, batteries, automobiles, and biotechnology, the Indo-Pacific region has excellent complementarity among its member countries. It is necessary to build the Indo-Pacific region into the world's factory by fully utilizing this complementarity. This approach also serves to block the possibility of bloc formation in the regional economy due to US-China strategic competition.

This approach aligns with South Korea's regional strategy. Amidst the rising tide of technological competition, South Korea needs to leverage the healthy competition with regional countries as an opportunity to strengthen its technological innovation capabilities, while simultaneously working to establish the Indo-Pacific region as a space for inclusive cooperation. Securing economic sovereignty and maintaining and expanding openness are fundamental conditions for South Korea, which has high external dependence, to respond to an era of hyper-uncertainty.

III. Inclusive and Innovative Institutional Design

South Korea needs to establish inclusivity as a principle in designing regional institutions. The emphasis on inclusivity by countries that have announced their Indo-Pacific strategies or visions stems from concerns that regional strategies led by the US and China may develop into exclusive and closed systems. The US and China, in their process of competition at the regional level, adopt a dual approach, imposing binding rules or granting flexibility to regional countries depending on the issue. The dual approach of the US and China sometimes leads to increased uncertainty in the process of restructuring the regional order. South Korea needs to explore its potential as a rule-maker by exercising intellectual leadership to resolve the trade-off between flexibility and bindingness. This will provide a foundation for the stable restructuring of the regional order.

The establishment of a new regional order should not simply end with the restoration of existing rules. Innovative rules are required to overcome the gap between '20th-century rules and 21st-century realities.' US-China strategic competition is simultaneously a competition over the maintenance and change of the existing rules-based order and a competition to establish rules that help preemptively secure future competitiveness. Therefore, South Korea needs to pursue its role as a rule-maker, in solidarity with like-minded countries, to introduce innovative rules in areas where rules have not yet been established.

IV. Mitigating Institutional Parallelism and Overlap

In the Indo-Pacific region, institutions of various levels and scopes overlap or are in competition. As seen in the cases of the Indo-Pacific Strategy versus the BRI, CPTPP versus RCEP, and GPS versus the Beidou navigation system, overlapping institutions have been formed as a result of most regional countries passively responding to the regional initiatives of the US and China. In particular, institutions that are in the same field but have different levels and scopes of rules exhibit parallelism or overlap. Despite the commonality of being mega-FTAs, the CPTPP and RCEP have significant differences in their levels of liberalization, scope of issues, and strategic considerations. Different institutions can move beyond institutional overlap to institutional competition in some cases. To prevent this possibility, South Korea needs to take a leading role in enhancing institutional coherence between the two mega-FTAs. South Korea's early accession to the CPTPP is a prerequisite for playing a mediating role.

The overlap of institutions leads to reduced efficiency in terms of regional order and has the effect of encouraging regional countries to use regional institutions as a means of competition. To solve the problems of institutional parallelism and overlap, intellectual leadership is needed to enhance the coherence between existing institutions and to establish the relationships between institutions operating at different levels. The Indo-Pacific Economic Framework (IPEF) has presented new possibilities for regional order restructuring by including a large number of 21st-century rules. However, while the US has succeeded in including many new issues, excessive imposition of bindingness is expected to cause significant difficulties in advancing negotiations, while focusing on the momentum of negotiations dilutes its effectiveness, creating a dilemma. The key to future regional order restructuring will be to strike a balance between the expansion of issues and bindingness. Unlike in the past when major powers provided incentives, the situation is changing to one where participating countries must discover solutions themselves. South Korea needs to approach the IPEF from the perspective of establishing new rules, while pursuing a bridging role that harmonizes the interests of participating countries. To this end, it is necessary to accumulate precedents by establishing rules and norms at the bilateral or mini-lateral level with IPEF participating countries in areas where rules have not been established, and to expand and strengthen support for capacity building to help developing countries in the region accept new rules.

In the medium to long term, South Korea needs to explore the possibility of establishing a meta-institution that designs the relationships between regional institutions. This is because the regional order is not simply the sum of individual institutions or organizations, and the need for meta-institutions that design the relationships between regional institutions is increasing. Focusing on the establishment of functional institutions in specific issue areas makes it difficult to overcome the fundamental limitations of institutional parallelism and overlap; therefore, the existence of meta-institutions is necessary to resolve these issues fundamentally.

V. Diversification Based on Universality

It is difficult to ignore the reality that most regional countries have formed asymmetrical interdependent relationships with major powers such as the US and China. The global spread of COVID-19 has become a decisive factor in exposing the vulnerabilities of supply chains focused on excessive dependence on a specific country or efficiency. Diversification is inevitable in terms of mitigating the structural vulnerabilities of supply chains. However, it is necessary to be wary of excessive securitization in the process of supply chain reorganization. The reorganization of supply chains should be pursued based on universality for strengthening supply chain resilience, not on decoupling from China.

Since diversification may be reduced to a matter of relative gains between countries, efforts for harmonization among regional countries are required to overcome these problems. To this end, it is necessary to identify common challenges at the regional level, not the interests of specific countries, and to promote regional cooperation centered around these challenges. Since supply chain disruptions are a problem for all countries in the region, it is necessary to leverage the broad consensus on the importance of preventing recurrence and early warning.

VI. Contribution to Regional and Global Public Goods

The amplification of uncertainty leads regional countries to link economy and security, and sometimes promotes excessive securitization of economy and technology. Excessive securitization causes chain reactions that spread rapidly from one country to another, necessitating a break in the vicious cycle. Advanced technologies serve as a nexus linking economy and security. Advanced technologies are rapidly being securitized as they are recognized by the US, China, and major countries in the region as essential means to preemptively secure an advantage in future competition. The spread of dual-use technologies, the linkage between economy and security, and the expansion of the war domain based on technological innovation act as factors accelerating advanced technology competition. However, reflecting the rapidly increasing demand for the use of advanced technologies and cooperation for it to respond to global challenges, it is necessary to avoid excessive securitization of advanced technologies and explore ways to utilize them to promote regional cooperation.■

■ Author: Lee Seung-jooDirector of the EAI Center for Trade, Technology, and Transformation and Professor of Political Science and International Relations at Chung-Ang University. He holds a Ph.D. in Political Science from the University of California, Berkeley. His main research areas include international political economy, the international politics of trade, and global digital governance. His major works and edited volumes include "The Political Economy of Cyberspace" (edited by Lee Seung-joo), "Institutional Balancing and the Politics of Mega FTAs in East Asia," "Northeast Asia: Ripe for Integration?" (co-edited), and "Trade Policy in the Asia-Pacific: The Role of Ideas, Interests, and Domestic Institutions" (co-edited).

■ Managed and Edited by: Park Han-soo, EAI Research Assistant

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