South Korea and the CPTPP: Better Late than Never

Against all odds, a slightly modified version of the Trans-Pacific Partnership (TPP) will enter into force for six of the original signatory countries on December 30, with the seventh to follow soon thereafter. After President Donald Trump withdrew the United States from the deal in January 2017, the multilateral free trade agreement (FTA) seemed to be dead in the water. The revival of the amended TPP – known as the Comprehensive and Progressive Agreement for TPP (CPTPP) – by the remaining 11 members has been widely attributed to Japanese leadership, but it is also a testament to the demand for ambitious trade rules in the region.

A longtime observer of the negotiations, South Korea never opted to join the TPP despite its dependence on trade in high-tech industries. Seoul’s reluctance to officially participate in the TPP talks in the past largely stemmed from the focus of successive administrations on building a network of bilateral arrangements, resulting in separate deals with nine out of the 11 CPTPP countries. While many experts have called on the government to take the extra step of joining the agreement, particularly since the CPTPP was signed in March, it’s not yet clear if the Moon administration is ready to do so.

Three key issues have emerged that could delay or even call into question South Korea’s accession to the CPTPP as the ratifying countries look to start accepting new members early next year. Yet the significance of each pales in comparison to the benefits of joining the deal. 

The first issue stems from the business community’s concerns over increased competition from Japan. Japan is South Korea’s third largest trading partner but ranks first among its bilateral trade deficits. Last year South Korea imported $28 billion more goods from Japan than it exported there. While growth in exports to Japan this year has far outpaced growth in imports, there is a long way to go to balance trade. Since Japan is one of the two CPTPP countries South Korea does not have a separate trade agreement with – the other being Mexico – joining the arrangement would likely have a much greater impact on trade with Japan than with other members. Some South Korean companies are worried the CPTPP could further skew the trade imbalance with Japan.

In the context of other regional initiatives, however, a trade agreement with Japan as part of the CPTPP arguably best serves the interests of South Korean companies. Japan is South Korea’s largest trade partner without an FTA and is party to the two regional trade deals Seoul is currently negotiating – the China-Japan-Korea (CJK) FTA and the Regional Comprehensive Economic Partnership (RCEP). In spite of the ongoing tensions over historical issues, there are clearly other forces at play pushing Tokyo and Seoul toward an FTA in some form.

The alternatives to a deal with Japan as part of the CPTPP are either no agreement, which will leave the trade imbalance unaddressed, or a less ideal one. RCEP talks continue to struggle, and should such an agreement enter into force it would only target tariffs, omitting many of the high standard trade rules needed to further the interests of South Korea’s most competitive industries. The CJK FTA seems even less likely to be concluded in the near future, but would probably also be of low ambition as is Beijing’s preference. However, if South Korea were to join a completed CPTPP it could provide momentum to push the CJK FTA forward on the basis of more advanced standards, which Seoul and Tokyo see more eye to eye on.

The second issue that could delay Seoul’s accession to the CPTPP is a wait-and-see attitude as to whether Washington will rejoin. This is in part related to trade with Japan as greater access to the U.S. market in the original deal was seen as a way to offset increased competition from Japan. But it is also in part related to gauging the competition between the United States and Europe over the future of certain rules, such as those governing data privacy. Nevertheless, there is far too much on the line for Seoul to not take any action soon on the CPTPP.

Given recent shifts in the United States and China, who will be setting the future agenda for global trade rules looks to be up in the air. U.S. President Donald Trump’s “America First” economic policies are in many ways antithetical to how Washington has traditionally driven the global trade agenda, which has long served as a vital source of strength for Seoul. South Korea’s rapid economic growth in the second half of the 20th century was underpinned by U.S.-led international trade liberalization. The country’s most recognizable multinational conglomerates today have also increasingly depended on higher trade standards pushed by the United States on intellectual property, investment, and services.

Chinese President Xi Jinping is attempting to fill the leadership vacuum left by the White House, though his less than liberal methods have certainly received a fair amount of pushback. After facing economic coercion from Beijing over the Terminal High Altitude Area Defense (THAAD) missile defense deployment, which has cost South Korean companies billions of dollars, Seoul should understand more than most the potential repercussions of Beijing driving global trade rules. Joining the CPTPP would bolster the current push for ambitious trade standards, thus contributing to the long-term competitiveness of South Korean companies.

The last issue often raised is that the current domestic political climate is not conducive to passing the CPTPP. Largely elected on a mandate of socioeconomic reform, President Moon Jae-in’s economic platform is designed to boost domestic demand and diminish the economy’s reliance on large multinational corporations. There seems to be a concern that joining the CPTPP would run counter to this agenda and its underlying mandate by increasing South Korea’s dependence on trade and allowing big business to further dominate the economy. However, the CPTPP could actually complement Moon’s domestic economic policies at a time when they are struggling to find success.

Fostering innovation in the service sector is one of the two core pillars of Moon’s economic agenda, but it has been slow to get off the ground. Advanced economies over the past 50 years have moved from manufacturing to services to sustain economic growth. While South Korea has followed this trajectory toward services, productivity is stagnating, largely because most of these new service jobs are not in the high-value knowledge industries. The CPTPP – especially its chapters on cross-border trade in services, telecommunications, and e-commerce – could help to push through new laws that would be difficult to enact otherwise to encourage knowledge- and technology-intensive industries. The CPTPP provisions on small- and medium-sized enterprises (SMEs) could also ensure the competitiveness of small businesses in these areas.

In light of recent shifts in the global economic order, waiting to make a decision on the CPTPP is hardly a luxury South Korea can afford. The reasons to delay joining currently being discussed in South Korea exaggerate the costs of the arrangement, especially when considering the benefits and alternatives. Seoul is already late to the game; it shouldn’t risk being any later.