[Trilateral Summit Briefing] ② Economy: Bilateral Cooperation Amidst Trilateral Cooperation?

I. The Meaning of 'Revitalizing' Trilateral Cooperation

The Trilateral Summit, held on May 26th and 27th, has concluded. Since the last meeting in 2019, the world has faced unprecedented events, including global challenges like the pandemic and climate change, as well as increased geopolitical uncertainty due to US-China strategic competition and the Russia-Ukraine war. The increase in uncertainty was not confined to the global level. At the East Asian regional level, concerns grew about the potential solidification of a North Korea-China-Russia cooperation bloc versus a South Korea-US-Japan cooperation bloc. In this context, the current meeting, the ninth since 2008, is significant in itself as it could serve as a turning point for the 'revitalization' of South Korea-China-Japan relations. The joint declaration of the summit, comprising 38 articles, simultaneously demonstrated the common interests of the three countries and the multitude of challenges that need to be addressed.

This summit served as a litmus test for gauging the direction of restructuring trilateral economic relations, particularly as it was held at a time when the momentum for economic cooperation among the three nations had significantly weakened. Trilateral trade among South Korea, China, and Japan saw a substantial decline in 2023. South Korea's exports to and imports from China decreased by 19.9% and 7.6%, respectively, compared to 2022. The situation for Japan-China trade was not much different, with Japan's exports to and imports from China also decreasing by 12.8% and 7.8%, respectively. This summit provided an opportunity to constructively restructure the economic relations among the three countries.

Secondly, while the resumption of trilateral cooperation is important in itself, it also holds significance in marking a new turning point for cooperation in the Indo-Pacific region. With the resumption of cooperation among South Korea, Japan, and China, which has been central to Indo-Pacific cooperation, there is a hopeful prospect that the regional order, marked by conflict and competition, may at least cease to deteriorate further. Amidst intensifying US-China strategic competition, ASEAN has played a central role in regional cooperation. However, the past five years have clearly demonstrated the structural limitations of ASEAN in exercising independent leadership due to the diminished capacity for cooperation among South Korea, China, and Japan.

Thirdly, concerns about the potential solidification of a confrontational dynamic between South Korea-US-Japan cooperation and North Korea-China-Russia cooperation in East Asia following the Russia-Ukraine war have been growing. The resumption of the Trilateral Summit has had a certain effect in temporarily alleviating these concerns. In particular, South Korea and Japan, which have successfully expanded and deepened their cooperation with the US, have positioned themselves to somewhat moderate the overheating of competition between the US and China by resuming trilateral cooperation.

II. Achievements of the Trilateral Summit: Between the Network of Bilateral Relations and Trilateral Cooperation

The most significant achievement of this summit is the identification of six key cooperation areas based on actual cooperation needs: (1) people-to-people exchanges, (2) promoting sustainable development through cooperation on climate change response, (3) economic and trade cooperation, (4) cooperation on health and response to aging populations, (5) cooperation on science, technology, and digital transformation, and (6) cooperation on disaster and safety. These six key areas represent common challenges faced by the three countries, as well as regional and even global challenges. It is self-evident that regional and global challenges cannot be resolved by the efforts of any single country alone. The selection of these six key cooperation areas carries a declarative meaning that the three countries aim to pursue cooperative solutions beyond exclusively pursuing their own national interests. However, given the reality of weakened momentum for sustainable cooperation among the three nations, a highly strategic approach is required to establish an implementation mechanism for these six key areas.

The Trilateral Summit has a multi-layered structure of trilateral cooperation and a network of bilateral cooperation. Firstly, trilateral cooperation is a mechanism that seeks solutions to challenges commonly faced by the three countries, Northeast Asia, and the broader Indo-Pacific region. Secondly, trilateral cooperation is composed of three bilateral relationship networks: South Korea-Japan, South Korea-China, and Japan-China. It is a structure where the improvement or deterioration of bilateral relations can affect trilateral cooperation. One of the reasons China has been lukewarm towards trilateral cooperation until recently is its judgment that, considering the improved South Korea-Japan relations, the trilateral cooperation framework is not necessarily advantageous to China. However, the trilateral cooperation framework also has positive aspects in that it provides room for one country to act as a buffer within the network of three bilateral relationships.

The influence of this dual structure of trilateral cooperation was fully evident in this meeting as well. Firstly, regarding common issues facing the three countries, agreements were reached on strengthening supply chain cooperation in the economic and trade sector, advancing negotiations for a South Korea-China-Japan Free Trade Agreement (FTA), and promoting regional financial cooperation based on the Chiang Mai Initiative Multilateralization (CMIM). All three countries experienced supply chain disruptions during the COVID-19 pandemic. South Korea, China, and Japan agreed on the need for close communication regarding export controls, as well as preventing the recurrence of supply chain disruptions. Given that strengthening supply chain resilience is a matter of utmost concern, this summit has laid the groundwork for developing cooperation platforms, including the Pan-Yellow Sea Economic and Technological Exchange Conference.

The decision to accelerate negotiations for a South Korea-China-Japan FTA is also a significant achievement. Negotiations for the South Korea-China-Japan FTA, which began in 2012, had been suspended since 2019, and an agreement to resume them was reached at this summit. Although a difficult process is anticipated until the agreement is finalized, the South Korea-China-Japan FTA, if launched, would create the world's third-largest economic bloc after the EU and the United States-Mexico-Canada Agreement (USMCA), carrying substantial economic ripple effects. In particular, the agreement by the leaders of the three countries to accelerate negotiations for a higher-level FTA than the Regional Comprehensive Economic Partnership (RCEP), while maintaining the direction of a free, fair, comprehensive, and mutually beneficial RCEP, is expected to have positive effects on regional economic integration and the stability of the regional economic order.

The Indo-Pacific region is the only region where two mega FTAs, RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have entered into force. While RCEP and CPTPP are clearly effective in liberalizing regional trade, promoting economic integration, and establishing new trade rules and standards individually, the relationship between these two mega FTAs can significantly influence the direction of the regional economic order. Due to considerable differences in the level and scope of liberalization of emerging issues such as digital trade, the possibility of a dual economic order forming in the Indo-Pacific region cannot be ruled out. Ultimately, leading countries are needed to harmonize the differing levels and scopes of rules and norms between RCEP and CPTPP. A high-level South Korea-China-Japan FTA could mitigate the competitive nature between the two mega FTAs and provide a roadmap for regional economic integration. The resumption of negotiations for the South Korea-China-Japan FTA can serve as a benchmark for integrating the rules and norms of RCEP and CPTPP, and it is also expected to effectively establish practical regional economic standards through the outcomes of the negotiations.

Meanwhile, it is noteworthy that agreements with a high degree of specificity have primarily taken the form of bilateral cooperation. This again reveals the structural characteristic of the summit as an agreement within a bilateral network. Considering that the achievements of this summit were made under difficult domestic and international circumstances for the three countries, their significance should not be underestimated. While agreements encompassing all three countries largely remained at a declarative level, agreements with concrete substance were mainly reached through bilateral consultations.

Supply chain cooperation proceeded relatively smoothly as it was a common concern for all three countries. However, the agreement on supply chain cooperation among the three countries remained at a declarative level, while agreements on specific implementation were made bilaterally. A prime example is the agreement between South Korea and China to actively operate a supply chain cooperation coordination mechanism and a supply chain hotline. A similar agreement on supply chain cooperation was also reached in the South Korea-Japan talks. The governments of South Korea and Japan established a new dialogue on resource and hydrogen cooperation, laying an institutional foundation for joint response to disruptions in the supply chain of critical minerals. A similar phenomenon is observed in the South Korea-China-Japan FTA negotiations. The agreement in principle to accelerate negotiations for the South Korea-China-Japan FTA was supplemented by a bilateral agreement to resume the second phase of negotiations for the South Korea-China FTA. South Korea and China agreed to expand the scope of the FTA not only to product market liberalization but also to service sectors, including culture, tourism, and law. If this proceeds, the second phase of negotiations for the South Korea-China FTA will also imply preparatory work for the resumption of negotiations for the South Korea-China-Japan FTA.

III. Future Challenges and Responses

1. Dual Dynamics of South Korea-US-Japan Cooperation and Trilateral Cooperation

From South Korea's perspective, this Trilateral Summit is significant in that it secured space for cooperation with China while maintaining the framework of cooperation with the US. The six key cooperation areas identified at this summit demonstrated that areas for cooperation can be found among the three countries without incurring the risk of excessive securitization. Furthermore, as confirmed by the assessment of Japanese Chief Cabinet Secretary Hayashi Yoshimasa that the meeting "served as an opportunity to revitalize the Trilateral Process," the mere activation of the trilateral cooperation mechanism itself is an achievement.

On the other hand, this summit also showed that the structural context of US-China strategic competition is influencing trilateral cooperation. The fact that the three countries failed to reach concrete agreements in the field of advanced technology, which is central to the US strategy of containing China, is a prime example of the external boundaries of trilateral cooperation. This is a result of the need for policy alignment between South Korea and Japan with the US's de-risking strategy. When South Korea-US-Japan cooperation and trilateral cooperation proceed in a complementary manner in terms of level and scope, they can act as a plurilateral network that lays the foundation for prosperity and peace in the Indo-Pacific region. However, as US-China strategic competition intensifies, the structural limitations in elevating trilateral cooperation to the level of South Korea-US-Japan cooperation will become increasingly apparent. This is because the centripetal force of South Korea-US-Japan cooperation will operate strongly. Conversely, China has revealed a strategic motive to use the Trilateral Summit as a centrifugal force to ease South Korea-US-Japan cooperation. This is the reality of the structural challenge faced by South Korea, which seeks to advance the Trilateral Summit.

2. Escaping Over-Securitization and Discovering the Economy-Security Nexus

To address the issues raised above, an innovative approach to the linkage between economy and security is required. Economic security is a representative area where the strategic interests of the US and China clash, making it difficult to foster a favorable policy environment for cooperation. This is also why the shadow of US-China strategic competition has fallen upon the Trilateral Summit. To resolve the fundamental tension between economy and security, a balance is needed between two approaches: a functionalist approach and prioritizing the resolution of security distrust and conflict. The functionalist approach is significant in that it prioritizes focusing on public goods areas with relatively weak competitive characteristics, as it is difficult to pursue trilateral cooperation in issue areas where strategic interests directly clash between the US and China. However, relying solely on a functionalist approach without fundamentally resolving security-related distrust and conflicting interests has limitations when considering security externalities.

At the same time, over-securitization, which views all issues through a security lens, must also be guarded against. It is a reality that economy and security are no longer separable and are closely interconnected. The key is for the three countries to form a consensus on the risks of over-securitization based on the recognition that economy and security are linked. Over-securitization, which perceives all issues as threats to national security, inevitably leads to a drastic reduction in the space for cooperation. To this end, the three countries need to discover a nexus that can form a virtuous cycle between economy and security and pursue a strategy of expanding the scope of cooperation based on it.

3. Diversification and Dynamic Restructuring of Trilateral Cooperation

South Korea and Japan have pursued diversification as a means to minimize the impact of China's economic coercion, based on their shared experience. However, it is necessary to clearly signal that diversification does not mean 'de-coupling' from China. Countries managing their dependence on China are not limited to South Korea and Japan. Care must be taken not to send unintended signals that South Korea's diversification is part of cooperation with the US or South Korea-US-Japan cooperation. Rather than excessively emphasizing a security-oriented approach to preemptively block the possibility of economic coercion due to excessive dependence on China, it is necessary to explore ways to stably manage the restructuring of economic, industrial, and trade relations among the three countries based on economic approaches, such as China's domestic economic slowdown, rising labor wages, and mitigation of supply chain vulnerabilities within China, while simultaneously forming new divisions of labor and cooperative relationships.

Secondly, it is necessary to reconstruct the foundation of trilateral cooperation by utilizing the fact that Chinese companies are also diversifying due to changes in the domestic economic environment. Diversification is not limited to foreign companies but is also observed among Chinese entities. This strongly suggests that diversification does not need to be securitized. Furthermore, since Chinese companies are also pursuing diversification, there is a need to actively explore ways to develop and restructure existing cooperative relationships among South Korea, China, and Japan. China has an inherent motivation to strengthen cooperation with South Korea and Japan in terms of upstream and downstream linkages in the value chain, as diversification is inevitable in its process of moving up the value chain. This warrants active consideration as it can lead to the effect of practically upgrading trilateral cooperation without undergoing institutionalization.

4. Managing Unexpected Variables

The Trilateral Summit has only just been restored, and it is not without its vulnerabilities. This fragility means that even a small unexpected variable could shake the entire framework of cooperation. The recent LINE Yahoo incident is a prime example. The LINE Yahoo incident is an explosive issue that could negatively impact not only the improved South Korea-Japan relations of the past two years but also the trilateral cooperation framework that has just been restored. This is because the current momentum of trilateral cooperation is inevitably based on solid cooperation between South Korea and Japan. Moreover, there is no guarantee that such issues will be one-off occurrences. Nevertheless, it is not desirable for a single issue to undermine the fundamental framework of cooperation. At times, it may be necessary to install firewalls between issues to allow for separate resolution. For the LINE Yahoo issue, a dual strategy is needed: responding based on the position of Naver, a domestic company, and managing the crisis so that it does not excessively impact other areas. SK Group's announcement on May 23rd of its plan to strengthen collaboration and expand investment with Japanese manufacturers of semiconductor manufacturing equipment and materials is also in this context.

This approach is equally applicable to China. Although South Korea has bitter experiences with China's economic coercion, placing the response to economic coercion as the top policy priority could lead to unintended consequences. The response to China's economic coercion should be calmly prepared domestically, while recalling that reducing excessive dependence on China is part of the universal diversification pursued by most countries, even China itself. ■

■ Lee Seung-joo_Director of the EAI Center for Trade, Technology, and Transformation; Professor of Political Science and International Relations, Chung-Ang University.

■ Managed and Edited by: Park Han-soo_EAI Researcher

Inquiries: 02-2277-1683 (ext. 204) | hspark@eai.or.kr