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Posted : 2016-02-05 15:25
Updated : 2016-02-05 18:27

Korea to lose in exports by missing TPP

By Yoon Ja-young

With the official signing of the Trans-Pacific Partnership (TPP), there are calculations on how it will affect Korea, which missed the chance of joining. While the government says it will not have much impact in the short term, some show concern that Korean firms may lose export markets to Japanese competitors in the long run.

The multilateral trade pact integrating the Asia-Pacific region has 12 member countries, which account for nearly 40 percent of the global economy. Korea, which has been signing bilateral free trade agreements (FTAs), did not join the TPP.

"Korea has already signed FTAs with 10 of the TPP member countries, with only Japan and Mexico left as exceptions," the Ministry of Trade, Industry and Energy noted in an analysis released to the media. "As the tariff has already been scrapped, Korea's advantage in the export markets of major countries will go on for a considerable time."

It cited automobiles as an example. "While the United States, which is the biggest export market for Korean automakers, is scheduled to scrap tariffs for 25 years on Japanese cars, Korean passenger cars have been exported without tariff from Jan. 1 this year," it notes, citing the benefits of the Korea-United States (KORUS) FTA.

However, it seems to be a different story for the long term. Japan, which has been passive in bilateral trade agreements, is expected to benefit from the TPP, which means Japanese products will have a competitive edge over their Korean rivals.

In a report titled "The Economic Effects of the Trans-Pacific Partnership: New Estimates," published by the Peterson Institute for International Economics, co-authors Peter Petri and Michael Plummer analyzed the TPP's impact.

"Japan benefits from improved market access throughout the TPP region, including early liberalization of auto imports in markets other than the United States, and from domestic reforms that reduce distortions in its protected service and investment sectors," they note in the report.

They expect that losses will be tangible for Korea, "because the TPP will erode that country's advantage in U.S. markets under KORUS."

The authors expect the TPP would lead to a 23.2 percent increase in Japanese exports by 2030, and a 2.5 percent increase in GDP. Korea's exclusion from the pact, however, will lead to a 1 percent decrease in exports and a 0.3 percent fall in GDP.

A 2013 report by the Korea Institute for International Economic Policy also notes that Korea's participation in the TPP would pull up its GDP by 1.7 or 1.8 percent after 10 years after the pact takes effect, while it will lose 0.12 percent in GDP by not joining the deal.

Je Hyun-jung, a research fellow at the Korea International Trade Association, said Korea, which relies on exports of intermediate goods, should participate in the TPP because the trade between TPP members will increase.

"They may be substituting Korean products with Japanese products, a member of the TPP, to get the benefits in tariffs using ‘cumulative rules of origin'," she said.

She said that on top of eroding the benefits from the KORUS FTA, the TPP will lead to fiercer competition with Japan in markets overseas.

"Japan already has huge investments in TPP member countries," Je said. "If it enhances its production capability by strengthening its production network within the TPP region, it can weaken the competitive edge of the Korean firms in the mid to long term."

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