Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Korea in dilemma over joining CPTPP
By Nam Hyun-woo
By Nam Hyun-woo
Korea is in a dilemma over joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as the Japan-led mega free trade deal is expected to pose long-term challenges to its outbound shipments.
Experts said Monday there will likely be no huge immediate impact on Korea's trade with the members of the deal because the country has built respective free trade networks with most of them, but it has to study the feasibility of joining the program, given the expected significance of the CPTPP in terms of global trade.
This is an aerial view of a port in Ensenada, Mexico, Dec. 30. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership entered into force on Dec. 30 for its initial six ratifying countries ― Mexico, Japan, Singapore, New Zealand, Canada and Australia. / EPA-Yonhap
According to officials, the CPTPP went into effect on Dec. 30, with the first round of tariff cuts being applied immediately for six of its members.
The CPTPP is a free trade deal comprised of 11 member nations ― Japan, Canada, Mexico, Australia, New Zealand, Vietnam, Malaysia, Singapore, Brunei, Chile and Peru.
As of 2017, member nations' combined GDP and trade accounted for 13.9 percent and 15.2 percent of the world's total, respectively, making it the world's third-largest free trade deal.
Many of its member nations are Korea's core trade partners, accounting for 23.3 percent of the country's outbound shipments.
Despite the deal's size, the impact on Korea's trade will likely be contained because Korea has signed free trade agreements with all of the member countries except for Japan and Mexico.
However, experts said the deal will scrap the advantages which Korean automotive, machinery and electronics firms have been enjoying in those markets over Japan, which paid high tariffs before the CPTPP.
“In terms of prices, Korean manufacturers' performance in those nations may not be as good as it used to be before the CPTPP,” a Korea Trade-Investment Promotion Agency (KOTRA) official said.
“Since many Japanese carmakers outsource their auto parts production to Southeast Asian countries, they will see their parts procurement costs going down, possibly leading to cuts in consumer prices. This will be a threat to Korean automakers, which are already faced with challenges from Chinese brands in those regions.”
Another disadvantage for Korea over the CPTPP is the expected opportunity costs in the Mexican market.
Mexico allows government-led industrial projects only to companies from nations with which it has signed free trade agreements. Since Korea has no free trade deal with Mexico, it is likely to allow opportunities in the country to Japanese firms or those from other countries.
Despite the potential impacts of not joining the CPTPP, the Korean government is still wavering on whether it should jump into the deal because of its trade deficit with Japan, which stood at $28.31 billion in 2017.
“For Korea, joining the CPTPP is tantamount to signing a free trade agreement with Japan,” the KOTRA official said. “And the deal is concerned to expand Korea's trade deficit with Japan further.”
Currently, Japan imposes no tariffs on transport equipment and non-electrical machinery, while Korea is slapping hefty tariffs on Japanese industrial products, especially cars, electronics and machinery. If the barrier is lifted, domestic products will face strong competition against Japanese products.
With Korea apparently trapped in a dilemma, experts also showed mixed opinions as to whether Korea should join the deal or not.
“Along with Korea's existing free trade agreements with the member countries, the United States is not included in the deal, thus there will not likely be an urgent disadvantage for Korea,” said Sung Tae-yoon, a professor at Yonsei University. “Rather than a hasty decision, Korea should focus on a feasibility study on one-on-one trade relations with Japan.”
On the other hand, Seoul National University professor Lee Phil-sang said Korea should “actively consider joining the deal,” as a way to bolster its presence in the toughening global trade environment.