Korea 2013–2020: reversal to weak political leadership in FTAs
Conservative president Park Geun-hye’s administration (2013–2016)
On January 2015, President-elect Park Geun-hye decided to dissolve MOFAT, which had functioned as Korea’s main trade policymaking body since its creation by President Kim Dae-jung in 1998. Without much discussion, MOFAT’s trade negotiating functions were transferred to the newly created MOTIE.The MOFAT, now known as the Ministry of Foreign Affairs, witnessed its function shrinking after 15 years of existence. This sudden change was not even anticipated or hinted during her campaign. No one in her administration offered a full account behind the major shuffling of trade negotiating authority. Rumor has it that MOFAT was blamed for causing the U.S. beef fiasco. President Park’s new government did not intend to tolerate the political embarrassment of another beef fiasco.’ Creating MOTIE turned to be a problem, not a solution. As discussed in Chapter 3, MOTIE opened up the trade policymaking process to sectoral interests, thereby making it difficult for the government to pursue trade policies with the national interest in mind. President Park had essentially undermined her ability to pursue more ambitious trade agenda against the wishes of protectionist sectoral interests.
President Park’s trade decisions were largely colored by geopolitical considerations. Specifically, Korea’s trade agenda was sacrificed for the sake of maintaining good relations with China. Her desire to curry Chinas favor is most apparent during Korea’s FTA negotiations with China. During President Xi Jinping’s visit to Seoul during the summit of 2014, he did not hide his wish to conclude the Korea-China FTA negotiations by the end of the year. President Xi was hosting the Asia-Pacific Economic Cooperation (APEC) Leaders Summit in Beijing later that November and he wanted to announce the Korea-China FTA at the APEC Summit.6 In reality, the Korea-China FTA negotiations were far from complete. There were many unresolved issues on service and investment over which the Korean and Chinese trade negotiators were not willing to make concessions. Without much consultation with her trade negotiating team, President Park gave the mandate to her trade negotiators to conclude the Korea-China FTA during the Beijing APEC Summit.'
This mandate essentially meant the total loss of negotiating leverage for Korean trade negotiators who were forced to make concessions in order to meet the mandate from their top leader. In contrast, Chinese trade negotiators had no reason to make concessions. For example, a key trade issue for the Korean negotiators was securing a non-discrimination treatment in investment given China’s blatant discriminatory policy favoring its domestic firms (Choi B. 2016a). Yet, due to the premature deadline imposed from the President, the Korean negotiators could not effectively address this prime concern. The most the Korean negotiators obtained from their Chinese counterpart was an agreement to negotiate the issue later. Korea and China would enter negotiations on investments and services 2 years after the Korea-China FTA enters into effect (Choi 2015).
Also, protectionist sectoral interests had gained stronger influence over the trade policymaking process due to the creation of MOTIE. As discussed in Chapter 3, Korea managed to carve out most of the agricultural sector from tariff concessions during the Korea-China FTA negotiation due to opposition from farmers. The cost of defending the agricultural sector was quite high. In return, China agreed to limited trade concessions on industrial products. Tariff eliminations would apply to 71.7 percent of industrial products measured by product lines and 66.4 percent of products measured by the import volume within the 10 years of the Korea-China FTA implementation. The corresponding number is 98.3 percent and 92.5 percent in the case of the KORUS FTA (MOTIE 2015). Substantial part of the Chinese market such as auto and auto parts, steel, petrochemical, and service sectors will remain out of touch for the Korean businesses and investors (see Chapter 3). And unfair trade practices such as subsidies and discriminatory standards remained. Given these limitations and constraints, Korea failed to preempt trade creation in China through its FTA. In sum, Korean achievement at an FTA with China was very much limited.
While the Korea-China FTA negotiations were going on, the U.S. was spearheading the TPP negotiations with like-minded countries in the Pacific Region. In response to the TPP, President Park’s administration framed the decision to join the TPP negotiations as a binary choice: Choose China or the U.S. China had accused the TPP as a U.S. conspiracy to block China (Choi B. 2016a). In fact, President Obama envisioned the TPP as a measure to isolate and contain China’s economic and political rise in Asia (The White House 2016). Consistent with her position during the Korea-China FTA, President Park decided not to provoke China by staying out of the TPP negotiations.
President Park’s decision went unchecked due to the weakness of the newly established MOTIE on trade policymaking. As the ministry responsible for industrial and energy policies, MOTIE could not solely focus its attention on trade issues. Moreover, the top officials of the MOTIE were not experienced on trade issues and had limited perspective on the unfolding FTA race and strategic competition between the U.S. and China. For instance, the two people in charge of Korea’s trade policymaking were Minister Yoon Sang-jik of the newly created MOTIE and chief trade negotiator Woo Tae-hee. Both had built their professional careers in the field of industry and energy public policies. Their approach to trade policy was cautious and prudent. Mindful of the U.S. beef fiasco during the previous administration, they tried to stay away from politically sensitive decisions. Hence, trade policy became less proactive and less entrepreneurial compared to that of the previous administration.
Had President Park or any key member of her administration been more strategic on trade issues, they would have opted to join theTPP negotiations while pursuing the Korea-China FTA negotiations at the same time. Pursuing both simultaneously would have enhanced Korea’s leverage in the Korea-China FTA negotiations while also increasing the attractiveness of Korea to the TPP participants. Unfortunately, because President Park had decided to remain out of the TPP negotiations, Korea was absent when theTPP was concluded on October 2015. Under strong criticism, President Park signaled Korea’s intention to accede to the TPP, by stating “Having already signed trade agreements with 10 of the 12 TPP member countries, I believe Korea is a natural partner for the TPP as well” (Kang 2015). However, President Park got impeached in 2016 and was forced to leave from office before turning her pledge into reality.