After several months of internal discussions, South Korea’s government has formally voiced interest in joining with the 12 countries, including the U.S., now negotiating a Trans-Pacific Partnership (TPP) trade agreement. The Koreans are interested in the large integrated market it will create and the expectation that its rules will serve as a benchmark for global trade. The Korean government has not made a final decision to seek entry. That will depend on the status of the negotiations, talks with TPP countries and domestic considerations.
Korea is no stranger to the TPP countries; it has bilateral free trade agreements (FTAs) with seven of the 12 countries, including the U.S., and is engaged in negotiations with Australia, Canada and New Zealand. A tentative agreement with Australia was announced just days ago and one with Canada may be reached by the end of the year. Korea also has a FTA with the EU. It has made changes to its domestic economy so it can compete in a world with more open trade. All the current members of the TPP have been positive about Korea joining the group. U.S. Vice President Biden said after meeting with the Korean President and Prime Minister that Korea would add momentum to the agreement and other efforts by the U.S. to establish new rules for 21st century trade and commerce.
The existing 12 TPP countries, the U.S., Australia, Brunei Darussalam, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, have a total population of 800 million people with a combined GDP of $28.1 trillion, 39 percent of the world total. Korea is a perfect match for the TPP. It is a middle income developing country with a population of almost 50 million and a GDP of $1.13 trillion in 2012, the world’s 12th largest, with a GDP per capita of over $22,000. Its GDP in the 1960s had been similar to the poorer countries of Africa and Asia. Korea’s GDP is 3 percent in agriculture, 40 percent in industrial goods and 57 percent in services. Its world class industries include electronics, telecommunications, automobiles and shipbuilding.
Korea is coming late to the TPP negotiating process that has been ongoing for three years. It is willing to accept everything that is agreed to up to the point that it joins and has no intentions of delaying the talks. Japan said the same thing when it joined the talks earlier this year, but there is little doubt it slowed the talks as expected by many participants. The Korean government expects to be included in some of the final negotiations. The Koreans may have caught a break on that point. The official goal was to wrap up negotiations before the end of 2013, but that appeared to be unlikely. When the most recent negotiations ended on December 10, the Ministers and Heads of Delegations release a statement that included notice that they would meet again in late January. The talks are expected to continue into late winter or early spring.
If Korea does move ahead on the TPP, the move will not be quick. It will need to complete bilateral consultations with current TPP member who then need to complete various domestic processes. For the U.S. that includes the U.S. Trade Representative (USTR) giving Congress 90 days notice before a new country joins the TPP, as required under the now expired 2002 trade promotion authority (TPA). The Administration followed that procedure when Mexico, Canada and Japan joined the talks. That would delay Korea’s formal entry into the talks by three months after the date that the 12 countries agree to let it join. The USTR followed a formal notice-and-comment process earlier when the previous three countries joined.
The Korean government is waiting for a study expected in March from the Korea Institute for International Economic Policy that will be part of the information it considers before making a final decision. The government is also required to submit a report to the Korean National Assembly before making a major trade policy decision. The go slow approach would not be a problem for the U.S. because Congress has not provided the President TPA and Congress needs to be further informed on the details of the agreement.
The U.S.-Korea FTA implemented in March 2012 may also slow down the process. Inside U.S. Trade reported USTR Michael Froman said Korea needs to fully implement existing obligations, an apparent reference to disputes over how Korea has implemented certain provisions of the FTA. Issues mentioned include automobiles, financial services, drug pricing, and orange juice. Disputes when implementing a new trade agreement are common, but how the Korean government responds takes on added importance.
Having Korea as part of the negotiation may be helpful in working with Japan on agricultural issues. Japan is attempting to exclude from tariff rate reductions five categories of sensitive agricultural products – rice, beef and pork, wheat and barley, sugar, and dairy. Korea, much like Japan, had participated in expansion of industrial trade under the WTO rules, while at the same time protecting domestic agricultural producers to the maximum extent possible.
In the U.S.-Korea FTA, Korean tariffs for the most important pork products are phased out by 2016, and those for beef products by year 15 of the agreement. Wheat became immediately duty free and barley has a tariff free quota and a WTO tariff rate quota (TRQ) with tariff advantages for the U.S. within in the quota. Dairy products also have TRQs with zero tariffs in quota. Additional access was not provided for rice; access is provided under a 2004 WTO agreement. Sugar was not an issue. These market openings are not as good as immediately going to zero tariffs which was the original TPP vision, but similar provisions could start providing meaningful access to the Japanese market and a build a base for future negotiations.
The Korean government obviously sees value in becoming part of the TPP trade agreement. They have taken time to weigh the benefits and the costs and are ready to talk about what else they must bring to the table. With first-hand knowledge of the difficulties of negotiating trade agreements, Korean officials see the potential of gaining access to a large market that is moving to more open trade within the TPP. This is a golden opportunity that neither side should waste.
Outstanding trade issues should be resolved, but no one should make demands that result in a loss of potential trade policy gains. Whatever is done, the outcome should attract more middle income developing countries to the TPP.