South Korea's Free Trade Strategy

Speakers: Simone Chun, Suffolk University; Jaemin Lee, Hanyang University (Seoul); Troy Stangarone, Korea Economic Institute

Once a developmental state where government maintained a tight grip on trade policy, South Korea has recently negotiated, or is in the process of negotiating, a number of free-trade agreements (FTAs) with nations as diverse as Australia, Chile, India, New Zealand, Peru, and the United States, as well as with regional trading blocs such as ASEAN and the European Union. On Monday, June 8, an event hosted by the Asia Program examined the development of South Korea's multi- and bi-lateral trade strategies before looking at domestic obstacles to free trade and the relationship between the nation's trade and security policies.

Troy Stangarone of the Korea Economic Institute noted that in the wake of the recent global financial crisis, when leaner times have prompted some to voice concerns about trade liberalization, the South Korean government has maintained its enthusiasm for free trade. Seoul was a leading voice in pushing for the G-20 statement against protectionist measures last year at the height of the crisis and has continued to pursue new FTAs. This is not the first time that South Korea has responded to an economic crisis by opening its economy; it negotiated its first bilateral free-trade deal with Chile after the Asian financial crisis of the late 1990s. By increasing its trade linkages with other economies complementary to its own, Korea has sought to strengthen sectors of the economy outside of manufacturing that the traditional post-war policies of import substitution have left underdeveloped. Meanwhile, South Korea's highly developed industrial base means that the nation prefers bilateral trade deals to World Trade Organization (WTO) negotiations, since the latter focus more on agricultural development at the expense of manufacturing. Large multilateral trade talks also tend to be cumbersome, as noted by the inability of the participants to agree to a successful conclusion of the WTO Doha round of negotiations.

Jaemin Lee, associate professor at Hanyang University, noted that in its trade policy, South Korea has run into particular difficulty with "perspective-oriented issues or disputes"—those issues where the outcome depends on perspective, context and intention—rather than with issues related to clearly delineated rules arrived at through negotiation with other parties. Non-tariff barriers—such as increased compliance costs placed on traders as a result of tighter border security and hygiene regimes—and disguised regulation in the financial services sector cause particular problems for South Korean trade negotiators. South Koreans prefer that agreements provide clear-cut guidelines, norms and dispute settlements. However, perspective-oriented issues do not lend themselves to such a black-and-white approach. Thus, Lee predicts that while negotiations will continue to be relatively uncomplicated, South Korea will face real difficulty in the implementation of its increasing number of free-trade agreements.

According to Simone Chun, assistant professor at Suffolk University, recent approaches that separate economics and trade from South Korea's security have been misguided. Chun focused much of her presentation on South Korean and American failure to deal with North Korea's nuclear development program. She examined polling conducted by her own university that showed that even though the vast majority (80 percent) of Americans polled are concerned about North Korea's moves, a plurality (46 percent) believe that the way forward is greater engagement with nations in the region. Chun believes that economic integration in Northeast Asia, and China's emergence as a quasi-capitalistic state, have worked to intensify a sense of isolation in P'yongyang. Therefore, an approach that fosters North Korean economic interdependence with the rest of Northeast Asia may be an answer to diffusing the nuclear crisis. South Korea could play an important role in this process. Fostering such interdependence would also have the added benefit of unlocking the vast economic potential of North Korea, in terms of both its workforce and its natural resource wealth.

Drafted by Bryce Wakefield, Asia Program Associate.
Robert M. Hathaway, Asia Program Director. Ph: (202) 691-4020