EAI Commentary: Direction of the New Government's Trade Policy Toward China

[Editor's Note]

The 2nd Annual Meeting of the Board of Governors of the Asian Infrastructure Investment Bank (AIIB) is scheduled to be held in Jeju from June 16-18. AIIB is a multilateral development bank established in January 2016 under China's leadership, with the aim of building infrastructure in Asian developing countries. This meeting is the first large-scale international event to be held in Korea since the inauguration of the Moon Jae-in administration, and it is expected to be the first test case for the new government's foreign policy. Professor Choi Won-mok of Ewha Womans University emphasizes that an era of 'Pax Sinica' is dawning in the global trade environment, and that Korea must play a catalytic role in ensuring that China's foreign trade policy direction moves beyond simple regional development and investment promotion to become a paradigm for harmony and cooperation in the Asian region. He specifically adds that, in this process, China should be guided to naturally seek an exit strategy from its THAAD retaliation.

The direction of South Korea's trade policy, emerging into a new world after passing through the long tunnel of presidential impeachment, can be established by thoroughly reflecting on the policies of the previous administration. Although the international situation surrounding the Korean Peninsula is moving in a direction that demands the utmost in pragmatic diplomacy, trade diplomacy has been conducted as an extension of domestic politics, regardless of this trend. In particular, the meaningless sacrifice of trade policy as a means of pressuring North Korea demonstrates the problems of an amateurish trade policy decision-making system. While North Korea's nuclear armament progressed, domestic political considerations led to the 'unification jackpot' theory and a push towards absorptive unification. Under the pretext of eliciting China's cooperation to pressure North Korea, the Korea-China FTA negotiations were hastily concluded in November 2014, coinciding with the President's visit to China. The early conclusion of the Korea-China FTA did not even induce China to cooperate with our strategy of pressuring North Korea. Rather, the economic integration between Korea and China may have stimulated North Korea and accelerated its nuclear armament. The economic effects of the Korea-China FTA itself have not been significant. Regardless of the global economic difficulties, the first-year performance of the Korea-China FTA (a 4% decrease in exports of FTA-benefiting items) is extremely poor. This is because the Korea-China FTA was concluded hastily, like picking 'unripe fruit' to satisfy political hunger, excluding issues such as non-tariff barriers, illegal fishing, and service liberalization, which will shape Korea-China trade relations for decades to come, and excluding key export items like automobiles, steel, and petrochemical products.

Furthermore, the fact that inter-Korean relations have deteriorated to the point where they cannot worsen further, and the North Korean nuclear issue has emerged as one of the world's most pressing issues, means that the cost of resolving this issue will increase. Disappointed by China's uncooperative attitude, the Park Geun-hye administration returned to a pro-US security line and moved towards the deployment of THAAD. Subsequently, during the impeachment period, even if security logic was necessary for the consolidation of the conservative camp, the premature completion of THAAD deployment resulted in the simultaneous loss of leverage in negotiations with China and provoked THAAD trade retaliation from China. The expansion of the Korean Wave into China, painstakingly built by countless Korean entertainers, was blocked overnight, and flights of chartered planes to Korea and travel agency services were suspended. Nevertheless, the government consistently adhered to the simplistic logic that the benefits of trade must be sacrificed for security. China, which is leading in adhering to international norms for the success of the 'One Belt, One Road' initiative, is therefore compelled to limit its THAAD retaliation against Korea within the scope of WTO agreements and FTAs. While China is subtly avoiding violations of international norms in implementing its THAAD retaliation, the government has responded by stating its intention to file a complaint against China under WTO agreements. With the Trump administration in the United States, which has declared trade retaliation even against its allies, there is also the aspect of having squandered the only trade negotiation leverage we possessed with the US by prematurely concluding large military contracts signed with the outgoing administration. Now, US President Trump is demanding $1 billion in costs for THAAD deployment from Korea, linking it to the renegotiation of the Korea-US FTA. The current state of the government's trade policy system is characterized by an inability to accurately analyze the linkage effects between security and trade, and an unwillingness to recognize the independent value of pragmatic trade diplomacy. Consequently, everything has become entangled, leading to deteriorating relations not only with China but also with the United States and Japan, and a backlog of unresolved trade issues.

The prerequisite for professionally and long-term responding to the external trade policy issues arising in an era of global uncertainty is to establish the functional position of the trade policy decision-making system. The planning functions of relevant policies in each government ministry must be strengthened to lay the foundation for the establishment of professional, bottom-up policies. An organizational foundation must be established within the Government Organization Act or the Trade Procedures Act itself to effectively and strongly coordinate trade affairs across ministries and protect its functions from external influence. Specific policies should be formulated through deliberation by an independent deliberation and advisory body with a long-term perspective. The direction of the new government's trade policy toward China must be newly established within such a professional and long-term decision-making system.

The era of Pax Sinica is now unfolding in global trade policy. In contrast to the US Trump administration, which openly espouses defensive and self-serving stances of new protectionism and neo-isolationism, China, led by Xi Jinping, is advocating for the importance of external openness and international norms. At the 'Belt and Road International Cooperation Forum' held on May 14-15, China announced plans to invest up to $150 billion (approximately 170 trillion KRW) over the next five years in Belt and Road-related countries. China is now linking external openness and trade policy with large-scale investments, drawing countries worldwide under its banner. This is a stark contrast to China's foreign policy stance just a decade ago, which was dominated by anti-colonial historiography based on criticism of imperialist powers. Currently, China's foreign trade policy is guided by the principle of national rejuvenation (大國屈起), embracing all nations and international forces, and fully recognizing the values of external openness, rule of law, and competition, which are the sources of competitiveness for capitalist countries.

The Chinese leadership faces the challenge of leading an atmosphere where these values and principles are internationally respected for the successful promotion of the Belt and Road Project. Furthermore, with the US Trump administration's trade retaliation primarily targeting the Chinese economy, China must maintain a stance of opposing any trade measures that violate international norms. The Asian Infrastructure Investment Bank (AIIB), established under China's leadership to counter the US-centric global financial system, will provide the financial foundation for carrying out these tasks. China's position and vision will be reaffirmed at the 2nd AIIB Annual Meeting to be held in Jeju from June 16.

This is the first test for the foreign policy of the Moon Jae-in administration, which has ambitiously launched to build a new Republic of Korea with a status befitting the global era by clearing out deep-rooted evils. Although the ministers of foreign affairs and finance have not yet begun their duties, our government, having completed the formation of the presidential economic team and the prime minister's confirmation, is prepared to establish foreign policy. It must utilize this meeting, held on our territory, to pursue a comprehensive foreign policy. We must begin the work of finding common ground so that the direction of Pax Sinica aligns with the interests of our foreign policy and highlighting this internationally. We must fulfill our role as a catalyst to ensure that the Belt and Road Project evolves beyond mere regional development and investment promotion into a paradigm for harmony and cooperation in the Asian region. We must also internationally highlight the dangers of attempts to resolve security issues through unilateral trade retaliation, such as the THAAD retaliation, and explain the negative impact this has on the Belt and Road paradigm. Developing a paradigm for harmony and cooperation in the Asian region also means enabling the Chinese government to seek a natural exit strategy from its THAAD retaliation.

The Korea-China FTA must be upgraded through negotiations for additional liberalization packages in the service sector. Securing concessions from China in the non-liberalized service sectors (such as individual entertainment services related to the Korean Wave, chartered flight operations, and travel and tourism agency services, which were directly hit by THAAD retaliation) means ending the THAAD retaliation in these sectors and institutionalizing measures to prevent similar retaliation from recurring in the future. The scope of liberalization should also be selectively expanded in the non-liberalized goods sectors. In sectors where competitiveness lags behind China in manufacturing, there is a need for bold industrial restructuring to transition to high-value-added industries. Liberalizing these manufacturing sectors to China will have the effect of reinforcing the direction of industrial structure rationalization policies both domestically and internationally. Issues such as illegal fishing and non-tariff barriers can also be gradually discussed through bilateral channels, and the agreed-upon matters can be attached as addenda to the Korea-China FTA.

In the era of Pax Sinica, the modality of cooperation between Korea and China will inevitably influence the entire world. The ROK and China must present a vision of Pax Sinica in the process of resolving international issues. Just as trade issues should not unnecessarily escalate into diplomatic issues and devolve into a battle of public sentiment, diplomatic issues should not escalate into trade issues. Ultimately, the 'depoliticization of trade policy' is both an internal task that the new government must accomplish and a priority task to be achieved in relations with China. ■

Author

Choi Won-mok_ Professor at the Law School of Ewha Womans University, Dean of Ewha International Summer College (EISC), and Director of the WTO Law Center. He holds a Ph.D. in Law from Georgetown University. He has served as an editorial writer for Maeil Business Newspaper, President of the Korean Association of International Economic Law, President of the Korea ABS Forum, President of the Korean Association for Resource Energy Law Studies, and Chairman of the International Law Roundtable. His major publications include 'Like Products' in International Trade Law: Towards a Consistent GATT/WTO Jurisprudence (2003), International Economic Law: The Asia-Pacific Perspectives (2015), and "The Meaning of the Uruguay Round: From a World of Non-discrimination and Consensus to a World of Minimum Standards and Normative Force" (2016).

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