[Smart Q&A: Vinod Aggarwal] East Asian FTA Network and Korea's Strategy

YouTube Link: video.eai.or.kr/130711_Inv.flv

Professor Vinod Aggarwal is currently a professor in the Department of Political Science at the University of California at Berkeley, an adjunct professor at the Berkeley Haas School of Business, and the Director of the Berkeley Asia Pacific Economic Cooperation Study Center (BASC). Professor Aggarwal received his Ph.D. in International Political Economy from Stanford University.

In late May, Shen Danyang, spokesperson for China's Ministry of Commerce, mentioned the possibility of China joining the Trans-Pacific Partnership (TPP). In June, during the US-China summit, President Xi Jinping requested President Barack Obama to share information on the progress of TPP negotiations. These events have heightened interest in the future direction of regional Free Trade Agreement (FTA) networks. Previously, China was understood to perceive the TPP as a core component of the US's "return to Asia" strategy, specifically as an economic alliance aimed at containing China, and had been promoting the Regional Comprehensive Economic Partnership (RCEP), centered around the Association of Southeast Asian Nations (ASEAN), as a response. Some analyses suggest that China's expression of a forward-looking stance on the TPP signals the advent of a new pattern of relationship between the great powers (US-China new model great power relations). In response, the East Asia Institute invited Professor Vinod Aggarwal from the University of California, Berkeley, to conduct an interview on the future direction of the East Asian FTA network. The main points are as follows:

US-China Relations and the Future of the East Asian FTA Network

"The assertion that the TPP is a containment policy against China stems from ignorance: the TPP is not a multilateral FTA initiated under US leadership, and FTAs cannot be a tool for containment policies."

"It will be difficult for China to join the TPP in the short to medium term: RCEP will become the center of the East Asian FTA network, and the TPP will remain a higher-level FTA model."

"The excessive number of FTA regimes in the East Asian region will ultimately reduce efficiency."

The argument that the TPP is a tool for China containment (balancing) policy can be said to stem from ignorance. Firstly, the TPP originated from a multilateral FTA among the so-called Pacific Four (P4) countries: Singapore, New Zealand, Chile, and Brunei; it is not a system launched under US leadership. The TPP sets norms for high-level trade liberalization, including issues of sanitary and phytosanitary measures, government procurement, and intellectual property rights protection, and it is not easy for the US itself to meet these standards. Secondly, FTA networks are economic regimes entirely different in nature from alliances and are unrelated to security concepts such as containment, encirclement, or balancing. While it is sometimes necessary to understand the economy-security nexus, viewing FTAs as a means of encircling or containing China is an overstatement. As seen in the US's reserved stance on the TPP participation of traditional allies like Canada, Mexico, and Japan, to protect its own industries such as automobiles, different logic operates in economic networks and security alliances.

It is nearly impossible for China to join the TPP in the short to medium term. This is not because the US is obstructing China's accession, but because China itself lacks the will to comply with TPP standards. For instance, regarding government procurement, China has not even fulfilled the commitments it made upon joining the World Trade Organization (WTO). It is highly difficult for China to meet the high-level trade liberalization requirements demanded by the TPP in a short period. Therefore, the FTA network in the East Asian region is likely to develop around RCEP, and the TPP will remain as a higher-level trade network in the region. In other words, East Asian trade networks will evolve in a direction where RCEP and TPP coexist, presenting separate trade standards.

The increasing number of various types of regimes within the East Asian region will ultimately function as a mechanism that reduces efficiency. Some argue, based on evolutionary assumptions like natural selection, that even with diverse regimes, only the most efficient ones will survive. However, this analysis stems from a misunderstanding of the nature of regimes. Due to organizational inertia, once a regime is established, it rarely disappears. For example, the Bank for International Settlements (BIS), familiar through terms like "BIS ratio," was established after World War I to handle Germany's war reparations. Even decades after the reparations issue was resolved, the BIS continues to redefine its role and remains in existence. The fact that RCEP, despite adopting lower liberalization norms than the TPP, is unlikely to be absorbed by the TPP is also a clear example of this institutional inertia. Therefore, the various FTA networks currently under discussion in the region are likely to persist over time, leading to a complex 'bureaucracy' where multiple rules coexist, increasing transaction costs among actors and ultimately resulting in systemic inefficiency.

The Asian Paradox and the Implications of the European Model

"The proposition that increased economic interdependence leads to peace is a myth: the Asian Paradox is a concept that is difficult to establish."

"The European model was possible due to the existence of an overwhelming security threat from the Soviet Union; it is difficult to apply to East Asia today."

"If Korea, China, and Japan fail to de-link political-security issues from economic issues, they will fall behind in the competition to set global FTA norms."

The intensification of trade among nations and the increase in economic interdependence do not eliminate conflict and disputes between them. While the relationship between the United States and China has achieved explosive development in the economic sphere, various political, security, and cultural conflicts and disputes coexist between the two countries. In other words, it is natural that despite the rapid development of relations among Asian countries at the economic level, conflicts and clashes continuously occur in the political-security issue area, and it is not appropriate to call this a paradox.

The success of the European model was due to the overwhelming security threat posed by the Soviet Union. European integration proceeded on the 인식적 (cognitive) foundation of the need to protect Europe from the threat of Soviet and communist expansion, and can be seen as a case where the economy-security linkage functioned properly. The European Coal and Steel Community (ECSC) was pursued despite objections that it constituted a trade liberalization measure in a specific area prohibited by Article 24 of the General Agreement on Tariffs and Trade (GATT). This was because the United States, which needed European integration for security considerations, allowed exceptional measures and provided full support based on strategic judgment. Therefore, in contemporary East Asia, where there is no overwhelming shared security threat among regional countries like the Soviet Union during the Cold War, it is difficult to expect the economy-security linkage, similar to the European model, to function.

If South Korea, China, and Japan excessively link trade issues with political-security issues, hindering the development of trade cooperation through the logic of political security, the disadvantages these countries will face are self-evident. While the development of the East Asian regional trade network stagnates, discussions on FTAs, particularly between the United States and the European Union (EU), will continue to progress, meaning that East Asian countries will be marginalized in the process of resetting new norms and standards for the FTA network. If the separation of political-security and economic issues is not achieved, East Asian countries will find it difficult to escape the position of rule followers, rather than rule setters, in the development of the global trade order.

South Korea's Strategy

"There are many cases where middle powers have led significant changes at the economic network level."

"For middle powers to exert influence, idea generation is crucial, but rather than fixating on receiving credit, they should pursue national interests through a pragmatic approach focused on results."

As seen in the significant contributions of the Benelux countries—Belgium, Luxembourg, and the Netherlands—to European integration, or the TPP led by Singapore, New Zealand, Chile, and Brunei, which is setting new trade network standards in the Asia-Pacific region, there are many instances where middle powers, not great powers, have driven core changes at the economic network level. Theoretically, moving beyond the limitations of realism, which understands international political order solely through the lens of great powers, studies in neoliberalism and constructivism provide a foundation for new discussions on the various roles middle powers can play.

For middle powers, which cannot coerce through physical force, generating alternative ideas based on intellectual force is necessary to exert influence in the international community. However, it must be remembered that great powers are likely to be the driving force behind realizing the ideas proposed by middle powers. Therefore, it is wise for middle powers to focus not on being recognized as originators of new ideas, but on the long-term national interests they will ultimately gain from the systemic changes created by those ideas.■

The East Asia Institute (EAI) is financially supported by the MacArthur Foundation of the United States. EAI has been conducting video interview-based Smart Q&A with domestic and international experts, aiming to provide timely and in-depth analysis of current issues through question-and-answer sessions with experts in relevant fields. This manuscript was compiled by Kim Yang-gyu, a researcher at EAI's Center for Asian Security Studies, based on interview content, and reflects the individual opinions of the expert, not the position of the East Asia Institute. Please be sure to cite the source when quoting from the Smart Q&A.