To choose China or America, that is the question. Needless to say, Korea attaches great importance on trade; Korea has few natural resources. China and America are the top two countries in this matter. There are so many kinds of agreements between each country. However, if Korea had to take sides with either one of the two, what should she do? America has had “Pivot to Asia” policy which stipulates moving the central axis of U.S foreign and military policies from the middle East towards the Asia-Pacific region in order to gradually curb Chinese power. Korea is sandwiched between both countries while they bump into each other. Let’s look into several concepts of the international trade agreements, and then, how Korea has to cope with these international situations.
What is TPP?
The TPP is a cooperation system for the tariff elimination and economic integration of Asia-Pacific region until 2015. The U.S is not one of the first contracting parties although it plays a leading role in this agreement now. The first contracting parties of the TPP include 4 countries: New Zealand, Singapore, Chile, and Brunei, and they made the agreement in 2005. Afterward, as the U.S, Australia, Japan and other countries joined, the pace of discussion increased. Now more than 10 countries are participating in it called the 21st century Free Trade Agreement (FTA) with a level of cooperation as high as that of the American FTA.
What is RCEP?
There are 16 countries in the RCEP: 10 countries of Association of Southeast Asian Nations (ASEAN), along with Korea, China, Japan, Australia, New Zealand and India. This is also as serious as the FTA which is aimed at eliminating tariff walls between nations until 2015. If the RCEP is signed, free trade zone would be established encompassing a huge number of people and leading to a large scale of trade. It is the world’s largest economic block outdoing the economic block of the North American Free Trade Agreement (NAFTA) and the European Union (EU).
Advantages of TPP in Korea
The total GDP of the 12 countries belonging to TPP accounts for 38% of the whole world GDP. It encompasses approximately 26.4 trillion dollars. The TPP aims to eliminate tariff walls in the medical field, intellectual property rights as well as just simple goods. Therefore, the profits will be much bigger. There is high probability of imposing their views on developing and emerging countries because they are within their control. By eliminating the trade walls, the profits of company will go up, and the influences of small and medium businesses will be expanded. In addition, the scale will be larger due to the fact that the countries belonging to APEC can expand their influence.
Advantages of RCEP in Korea
Total GDP of 16 countries belonging to the RCEP is slightly lower than the total GDP of countries belonging to the TPP. However, its growth potential is larger than that of the TPP because the number of whole people is 5 times larger than the number of people belonging to the TPP (3.4 billion people). Due to many countries participating in this economic agreement; the effects should be maximized. In addition, the Korean government is anticipating stable growth of the Korean economy due to the export markets being expanded if the RCEP is established. The Korean Institute for International Economic Policy (KIIEP) calculated that Korean economy benefit by about 19.4 billion dollars (20 trillion won) for 10 years after the establishment of the RCEP.
Movements of several countries
The U.S is actively encouraging several countries to participate in the TPP, so Taiwan also intends to participate, and has a positive outlook on its trade. However, China is trying to rapidly achieve the agreement in RCEP in order to curb the effect of the TPP. On the other hand, Japan is trying to cement its alliance with the U.S while keeping an eye on Chinese economic policies. In addition, several smaller economic countries belonging to the TPP are supporting Japan’s participation.
Professor Yang-hee Kim
Department of Economics
Q) A media tends to consider the RCEP and TPP as being in competition, is that right?
A) They do not oppose each other unconditionally and can form cooperative relationship. The RCEP and TPP have different features. The RCEP focuses on trade of goods and trade investments and try to raise efficiency through smooth production networks between member nations. Whereas, the TPP focuses on service and not trade of goods.
Q) China is interested in the TPP, why?
A) The media often says that China leads the RCEP, but it is not true. The Association of South-East Asian Nations (ASEAN) advocated the RCEP to curb China at first. Besides, Japan is a member nation of the RCEP and has power struggling with China. This means China cannot lead the RCEP. The influence of India and the ASEAN also cannot be neglected. In other words, too many cooks spoil the stew. The TPP occupies 38.4% of the world’s GDP and encompasses 25.9% of all trade in a world. The TPP is distributed from developed countries to developing countries and has East Asia which has high growth potential. Also, America is the largest market in a world. So, it is attractive for China.
Q) Is it possible for China to join the TPP?
A) Sure. When America retains a huge market like China, it is to dominate the world market. However, China will not join to the TPP, unless it gives up state privileges and display a flag of truce. It means that the terms for entering the TPP would be quite formal for China. The TPP would want China to exclude investments under state control, a buyer’s market, and government-run firm principles of a market.
Q) What is the direction of Korea between the RCEP and TPP?
A) The model of the TPP is the South Korea–United States Free Trade Agreement (KORUS FTA). So, even if Korea enters the TPP, there will be no new term. Korea has already a contracted FTA with 7 nations among the 12 nations of the TPP. Besides, as it is hard for the TPP to become a higher level than the KORUS FTA, so there is not much interest from the TPP. One thing is that we could negotiate a Korea-Japan FTA through TTP. It is called the ‘Back Door Korea-Japan FTA.’ Now the important thing is when we choose to enter the TPP. It is better to enter at the same time as China or right before it. At the expense of hurting the concentration of the Korea-China-United States FTA, Korea does not need to enter the TPP. Also, it is better to show strategic ambiguity. The TPP can be a good negotiation card with China. We can talk to China, “If you do not negotiate with us properly, we will enter the TPP.”
Q) There are many students who are not interested in world trade conditions. Do you have something to tell to them?
A) Korea has 90% dependence on trade. We should comprehend our economic and order within the whole world. If you neglect the all-round flow of world markets, you will have a hard time finding a job due to the Korean sales market being too narrow. Through FTA, we can develop new markets and when we see the world from a different viewpoint, we will have more choices.
We looked comprehensively into the RCEP and TPP with opinions from an expert. It might be hard to have an interest in this topic or even difficult to find some information. Similar to how no person who can live alone, there is also no nation that can live alone. Every country should trade and negotiate with other countries to develop its economy. Especially, it is not an overstatement that Korea heavily depends on such exchanges. Therefore, we hope you have an interest about the international situation as well as the economic community starting with the RCEP and the TPP.