Potential for US-Korea-EU trilateral cooperation

By Troy Stangarone

Earlier this month, the Korea Economic Institute, along with partners in South Korea and the European Union held a conference at George Washing University to discuss the potential for trilateral trade cooperation between the United States, South Korea and the European Union. While there are obstacles to deeper U.S.-Korea-EU cooperation, the general consensus was that there are real opportunities.

Traditionally, trilateral cooperation in the context of the U.S.-Korea alliance has meant a focus on U.S.-Korea-Japan cooperation grounded in the threat all three face from North Korea's pursuit of nuclear weapons and ballistic missiles. However, a changing geopolitical context requires new thinking and new partners.

In little more than a decade, the world has faced disruptions from the 2008-2009 Global Financial Crisis and more recently from the pandemic. These disruptions have been paralleled by growing Chinese assertiveness, Russian military adventurism, a failure to adequately address climate change, and shifts in technology that have placed a greater emphasis on the need for cooperation in areas ranging from semiconductors to digital trade. These changes have also put a greater strain on existing global institutions.

One facet of many of these challenges is that they are not uniquely regional issues, but rather ones that require cooperation more broadly.

Climate change is perhaps the clearest example of this. Climate change is a global challenge that all countries face. A single country or handful cutting their emissions will not prevent an irreparable rise in temperatures. However, as three of the world's largest greenhouse gas emitters and technologically advanced nations, trilateral cooperation could provide benefits in reducing emissions, spurring the development of new technologies and avoiding trade disputes.

Reducing emissions will require the uptake of clean technologies, such as wind and solar, but also a transition to electric vehicles (EVs). South Korea has the potential to play an important role in both the United States and the EU in this area. Even with the restrictions on subsidies that negatively impact the export of EVs to the United States, South Korean battery makers are positioned to play a crucial role in the electrification of vehicles in both the United States and the EU. The U.S. and the EU are also the two most significant export markets for Korean EVs, with nearly half of all Korean EV exports going to the EU alone in 2021.

To achieve these goals greater investments are needed in the mining and refining of minerals used to produce lithium-ion batteries for EVs. Here cooperation would benefit all three parties, especially given the concerns regarding China's dominance over the mining and refining of many of these minerals, creating secure supply chains for these critical inputs. However, the trade restrictions of the Inflation Reduction Act could hinder the potential benefits of cooperation.

EVs aren't the only climate-related area where the potential for trade conflict on climate issues could be smoothed by trilateral cooperation. According to the World Steel Association, the European Union, the United States, and South Korea are three of the world's six largest producers of steel. At the moment, the United States and the European Union are working to develop new standards to address the carbon intensity of steel. As part of these talks, the U.S. and EU are also considering means to limit the market access of steel producers that do not meet the new carbon intensity standards.

Though South Korea is not currently part of these talks, POSCO is working to reduce the carbon intensity of its steel and is committed to achieving carbon neutrality by 2050. Expanding cooperation to include South Korea would bring three of the world's largest producers into alignment and reduce the potential for trade friction. It would also provide opportunities to expand the adoption of new standards among the world's largest producers and to cooperate on developing new methods to reduce the carbon intensity of steel.

While EVs and steel are just two examples, increased trilateral cooperation would also help with the development of new carbon border adjustment mechanisms to address the carbon intensity of imports ― an issue that is likely to become increasingly prominent in the years ahead.

Lastly, trilateral cooperation on climate change could extend to the development of green standards and green finance to help facilitate the adoption of green technologies in developing countries and ensure that their development does not add to global emissions.

The world is changing in ways that are not necessarily conducive to regional solutions. Technology, digital trade, climate change, energy and access to critical minerals will shape the security and economic environment of the 21st century. These are not issues that can be easily managed merely in the Indo-Pacific or Europe. They call for deeper coordination among interested parties who share common approaches and values on these issues. In some cases, meeting these challenges will require larger groupings, but in this new context, it is time to begin exploring the potential of trilateral cooperation between the United States, South Korea and the European Union.

Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.