Progressive president Moon Jae-in’s administration (2017–present)

President Moon Jae-in came to the power through a snap election in May 2017 at the wake of President Park’s impeachment. Under the new President, the performance of MOTIE was reviewed. After the rather dismal performance by MOTIE during President Park’s administration, a significant number of experts demanded that a more consolidated domestic trade governance should be established. One suggested option was to restore MOFAT (Kim 2017a). As a matter of fact, President Moon himself recognized that “Transferring trade negotiating authority to the MOTIE was mistake. It did make Korea’s trade diplomacy worse. I think it is reasonable to restore the MOFAT” during his campaign trail (author translation, ibid.). The presidential transition committee reviewed the case and almost came close to restoring MOFAT. But in the end, the committee decided to leave MOTIE as it was, most likely due to strong lobby from incumbents. President Moon had missed the chance to strengthen Korea’s domestic trade governance. While President Moon did not dissolve MOTIE, important decisions on trade policy would be directly run from the Presidential Residence, the Blue House.

To a much larger degree than the previous administration, President Moon saw trade policy as a direct extension of foreign relations and policies. In particular, he prioritized favorable relations with China over any foreign policy matter, including trade issues. President Moon clearly communicated his pro-China position during his visit to Beijing for a summit meeting with President Xi Jinping. In a speech at Peking University on December 2017, President Moon remarked:

I hope China’s dream is not just China’s but a dream shared by all of Asia, and even the entire humanity... Albeit a small country, Korea, as a responsible middle power state, shall join the China dream.

(author translation, Kim S. 2017b)

Ironically, President Moon’s pro-China position did not protect him from China’s trade retaliation, which had begun during the previous administration in response to Korea’s deployment of Terminal High Altitude Area Defense (TH A AD). The previous President Park’s administration had approved the deployment ofTHAAD, a U.S.-developed anti-ballistic missile system, as a defensive measure against the ever-escalating nuclear threat from North Korea. The Chinese government, however, viewed THAAD as a threat, arguing that it could be used to spy on China’s missile program. China saw THAAD as a way for the U.S. to strengthen its military position in East Asia at the cost of China. As a result, Korea’s largest trading partner turned to trade retaliation to put pressure on Korea.

The Chinese government embarked on shadow trade sanctions and boycotts. The number of Korean food export shipments rejected by Chinese customs in March and April of 2017 increased by 280 percent compared to the same months in the previous year (The Korea Herald 2017). Sales of Hyundai Motors fell by more than half (Jin 2017). Small- and medium-sized Korean businesses faced greater frequencies of delays in customs clearance, delays (or cancellations) in contracts, and delays in payments (Cho 2017). In addition, a number of Korean products and services, better known as K-cosmetics, K-pop, and K-drama, were the target of boycotts in China (Yoon 2017). Lotte, a Korean company that offered a location for the installation ofTHAAD, became the target of severe public boycott in China (Huang 2017). Deteriorating business environment forced the company to exit its supermarket chain Lotte Mart in 2018 after 11 years of business. By 2019, Lotte shut down all operations from China (Straits Times 2019). Korea’s tourism sector also suffered a huge blow. In protest against Korea’s decision to deploy THAAD, Chinese travel agencies prohibited selling package tours to Korea, resulting in a sudden and complete halt of all Chinese group tours to Korea.

President Moon did not confront China on the trade retaliation issues. Instead, he turned to low-key diplomacy. Under his direction, the Blue House, not top trade officials, announced that Korea would not bring the case to the WTO dispute settlement process (Kim and Suh 2017).The President Moon’s decision not to pursue the WTO case against China took everyone by surprise. Just a day prior to his decision, the MOTIE publicly declared its intention of using the WTO to press China. This episode showed who was in charge of Korea’s trade policy. Without doubt, there was no effective communication and coordination between the Blue House and the MOTIE. The Blue House overruled MOTIE’s decision just within a day. The Blue House’s rationale can be seen from its statement: “It is critically important to maintain cooperation with China in the light of North Korean nuclear and missile provocation” (author translation, Kim and Suh 2017).

President Moon also had to confront U.S. President Donald Trump’s threat of terminating the KORUS FTA. Pointing to increasing U.S. trade deficit (especially trade deficit in automobile trade) against South Korea, President Trump demanded a renegotiation, otherwise threatening to terminate the agreement (Campbell 2018; Paletta 2018). During the KORUS FTA ratification, President Moon had been at the forefront of opposing the ratification as the leader of the opposition party.

During his presidential campaign, President Moon criticized the investor-state dispute system (ISDS) in the KORUS FTA and demanded renegotiation (Ryu 2012).⁸ Now, as the President, he was given a chance to revisit ISDS. In the actual renegotiation, the auto provision was changed to meet the U.S. demands while the ISDS was kept intact. Under the renegotiated agreement, the U.S. import tariff of 25 percent on pickup trucks would remain for another 20 years until 2041, well beyond the original phase out date of 2021 (The White House 2018). By agreeing to this revision, President Moon’s administration deprived the Korean auto companies of their access to the most lucrative segment of the U.S. auto market. At 25 percent, the U.S. import tariff is virtually prohibitive, giving the Big Three U.S. automakers virtual dominance of this highly profitable market. Under the original KORUS FTA, South Korean auto companies could have exported pickup trucks to the U.S. without any tariffs within a few years. Now, the only commercially viable option for South Korean auto companies would be to produce vehicles in the U.S.

The renegotiation for amending the KORUS FTA came to an earlier conclusion than expected. In late March 2018, Korea and the U.S. announced that they had reached a deal. In giving President Trump his first trade deal, which he was selling as fulfilling his promise of “Buy American, Hire American”, President Moon was expecting something in return. What President Moon had in mind was President Trump’s active engagement with North Korea to advance President Moon’s rapprochement with North Korea (Campbell 2018). President Moon wanted to use the amendment of the KORUS FTA as his leverage to persuade the U.S. to declare peace with North Korea. The timing of signing ceremony of the renegotiated KORUS FTA was arranged only after President Trump agreed to meet again with the North Korean leader Kim (ibid.).

Discussion

The global race for bilateral and regional FTAs since the late 1990s implied a high-rising wall from trade diversion if Korea did not join the race. Nonetheless, Korean political leaders were wary of joining the race mainly due to vehement opposition from import competing sectors, which served as an important voting bloc. Strong political leadership would play a large role in overcoming the political deadlock that ensued from domestic opposition to FTAs. President Roh was up to this challenge. His relentless pursuit of the KORUS FTA led to a watershed in Korea’s FTA policymaking. He transcended from a politician from the left-wing party with strong anti-American bias to become a trade entrepreneur. His successor, President Lee, championed FTA as a top priority of his right-wing government.The KORUS FTA naturally led to the Korea-EU FTA. Both FTAs were examples of high-level FTAs, something unthinkable for Korea at the turn of the new millennium. The high tide of high-level FTA making has receded since the presidency of Park. Instead of pursuing the economically logical course of joining the TPP, she instead opted for the Korea-China FTA. Despite the political hype, the Korea-China FTA was not up to the standard of a high-level FTA. With intensifying trade confrontation between the U.S. and China, the two major markets and sources for technology, the Korean leadership stumbled. Leadership lapse continued in the presidency of Moon. Strong political leadership enabled Korea to forge ahead in the FTA race until 2012, whereas weak political leadership left Korea stuck in the middle of geostrategic competition between the U.S. and China.