Tag Archive | "trade"

Is the Hallyu Crisis with China Over?

By Jenna Gibson

Beijing has approved the broadcast of a new Korean drama that had been co-produced by a Korean and a Chinese company, according to a source in the Chinese entertainment industry, making it the first Korean show to get the green light since before the THAAD spat.

This move is good news for Korean entertainment companies, which have been lamenting the Chinese ban which had slowly pushed Korean stars out of the spotlight throughout last year and culminated in direct retaliation against tourist packages and Lotte Department stores. It also bodes well for drama co-productions, which had seen tremendous success in last year’s standout Descendants of the Sun. At the time, before THAAD derailed things, Korean-Chinese collaboration was seen as the new frontier in Hallyu, and key to the continued success of Korean creative content in the Chinese market.

What’s interesting is the impetus for China’s reversal on allowing Hallyu content. Beijing is likely trying to start off on a good foot with newly elected Korean President Moon Jae-In, himself a skeptic of the THAAD system, in an attempt to give Moon some leeway should he decide to review the deployment.

A recent op-ed in the People’s Daily-affiliated Global Times insisted that “It is likely that Moon will stop THAAD’s deployment,” saying, “The huge economic losses South Korea has suffered are a result of the Chinese public’s anger. South Korea, which relies heavily on China economically, needs to weigh its potential gains and losses carefully” and that “Both Beijing and Seoul should take Moon’s presidency as an opportunity to promote warmer bilateral relations.”

But in reality, Moon has little room to maneuver at this point. THAAD is already in place and operating at some capacity, and recent missile launches from North Korea (the second of which was detected by THAAD) have highlighted its necessity in the public eye.

Although there was a dip in approval last November, the Korean public has largely remained favorable toward the THAAD system, according to polling by the Asan Institute in Seoul.  As of March, 50.6 percent of Koreans approved of THAAD, with 37.9 percent opposed. Perhaps because of this, President Moon has softened his position from outright opposition during the early stages of the campaign to stating that he objects to the way the decision was made, not the system itself.

As Asan Vice President Choi Kang pointed out in a KEI podcast after the election, President Moon may be constrained both by domestic politics and public opinion. Moon’s Minjoo Party only has 120 seats out of 300 seats in the National Assembly, and he failed to breach 50 percent of the vote during his election.

“How he can make a coalition or compromise with opposition parties is going to be a very, very critical issue for him to handle in the early phase of his presidency,” Choi said.

This could be particularly difficult when it comes to China, which has seen a steep decline in popularity among the Korean public since they stepped up their economic pressure over THAAD. Beijing’s economic retaliation has included the ban on selling tourist packages to Korea as well as cancelled concerts and a block on Korean entertainment content being uploaded to streaming sites.

According to a new report from the Korea Institute for Industrial Economics and Trade (KIET), “China’s ban on South Korean cultural imports will amount to 5.6 trillion won (US$5.02 billion) and 15.2 trillion won (US$13.6 billion) in direct and indirect damage in the consumer goods distribution sector” if it continues for six months. New numbers from the Korea Tourism Organization show a 66 percent year-on-year drop in Chinese visitors in April, driving much of the estimated losses for industries such as clothing and cosmetics.

“It’s quite difficult for South Korea to improve its relations with China because public understanding of China has deteriorated over several months,” Choi said. “So unless there is a positive sign coming from China on this economic pressure, it is very unlikely for the South Korean government to improve drastically its relations with China.”

Now that China seems to be offering an olive branch, public opinion may begin to shift back in Beijing’s favor. But after months of panicked headlines over China’s latest crackdown, it’s unlikely that one fantasy romance drama will be enough to turn things around entirely.

At this point, Beijing may continue to roll back its content and tourism bans in the hopes of wooing President Moon to their point of view, or as a face-saving measure. Either way, though, Chinese leadership would be ill-advised to hold their breath for a THAAD removal.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Image from LG전자’s photostream on flickr Creative Commons.

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“Teaching To Fish”: How Training Koreans to Repair U.S. Cars May Boost Sales in South Korea

By Daniel P. Malone & Jin-Sung Park

On March 1, 2017, the United States Trade Representative (USTR) released President Trump’s Trade Policy Agenda. It discloses an apparent intent “to seriously review . . .” several trade agreements including the Korea/U.S. Free Trade Agreement (KORUS FTA), which took effect on March 15, 2012. Whether this will lead to formal renegotiation remains to be seen. The report simply states that, since the U.S. trade deficit with South Korea essentially doubled between 2011 and 2016, the overall agreement is “not working as anticipated”. The KORUS FTA is a comprehensive bilateral trade agreement that covers numerous industries. Naturally, not all industries have had the same experiences under KORUS.

Perhaps no industry reflects the trade imbalance that the USTR report alludes to more than automotive. The report’s suggestion seems to be that, if the trade imbalance has doubled in five or so years, then tariffs and, in particular, non-tariff barriers (NTBs) — the guts of trade agreements – must be the culprit. Under that scenario, renegotiating the agreement then emerges as the likely “solution”. Whether and to what extent, if any, the KORUS FTA should be revisited is far beyond the scope of this piece. Indeed, this article takes no position on that issue.

Currently, even though the market share of import vehicles in South Korea has grown significantly, particularly among German and Japanese offerings, products of the Detroit Three have lagged behind. This may involve customer choice as much, or more so, than trade agreements. Generally, the former consideration involves what makes a consumer buy one brand over others. The latter involves ensuring the proverbial “level playing field.” Both matter. Neither provides a complete solution.

Notwithstanding whether the KORUS FTA is eventually renegotiated, the former issue warrants attention. When exploring how U.S. manufactured vehicles can be more desirable to South Korea’s consumers, part of the answer may involve eliminating impediments to customer choice.

This article briefly examines one possible contributing factor to the current imbalance of vehicles sold, which has little, if anything, to do with trade agreements. It then offers an innovative, promising solution that may well result in more sales of U.S. vehicles in the South Korean market than a renegotiated agreement will.

Factors to Consider in Relation to U.S. Car Sales in South Korea

In any competitive market, some products sell better than others for a variety of reasons. Some involve marketing, quality, and differentiating features. Others involve practical impediments. There are practical impediments as well as potential opportunities, passed unnoticed so far, to selling U.S. vehicles in the South Korean market.

Impediments to Enhancing convenient, reliable post-sale service 

A major consideration among South Korean purchasers of import vehicles relates to post-sales maintenance & service. Generally speaking, it has been poor, slow, complicated, especially expensive, and most of all, limited and concentrated only to a small number of auto-repair shops throughout the Republic of Korea (ROK). For example, there are only eight “official” repair shops to service all Chrysler products in Gyeonggi Province with its population of over 26 million. Neither Ford nor General Motors is substantially better in regard to its vehicles sold in South Korea, but made in the United States.[i]

Potential Opportunities: Skilled Repair Engineers

At the same time, however, an abundance of excellent repair and maintenance mechanics exist throughout the ROK. But the vast majority are trained and experienced to repair Korean made vehicles only. These automotive repair/maintenance experts in Korea refrain from touching import cars because they don’t want “messy” aftermaths from the repairs. In addition, they don’t have experience in dealing with the unfamiliar import cars. For example, what if a Korean mechanic fixed an import car, and subsequently, the car experiences a mechanical “glitch” soon thereafter? The customer (i.e. the owner of this import car), might blame the Korean mechanic who dared to go under the hood, having no previous experience with this foreign model.

Of particular importance, absent affirmative concerted effort, the fast approaching automated and connected vehicle technology will further exacerbate this situation. Indeed, the industry transformation straight ahead will require training in, for example, software, sensors, and electronics, among many other things. What is worse, the “official” dealers proclaim or threaten consumers that any of their own brands may not be repaired at their shops if it has any unofficial repair history.

On-Line & Mobile Transactions Are Both International and Personal

These days, international trade is rapidly going on-line, mobile, and personal. Korean customers, even housewives are ordering baby diapers, clothes, hand-bags, shoes, baby-carriage, and what not, on-line at Amazon.com, E-Bay, and other like sources abroad directly and without depending on ‘professional importers or sophisticated lines of credit (e.g. LC’ s via international banks). Instead, they use Paypal, credit cards, etc.; and “voila”, an international transaction is completed. Indeed, Koreans are ordering Samsung TVs on-line from U.S. sources and shipping them back to South Korea. The only procedure left, therefore, is physical logistics (i.e. international delivery – the convergence of international trade and logistics). The potential catalyst herein may be the globally well-advanced information & communication technology of South Korea.

A Practical Solution to the Impediments Which Have Been Crippling Sales of U.S. Vehicles in South Korea

This article sets forth a concept. If it gains appeal, numerous details can be discussed and fleshed out later.

“Post-sale Auto-repair Mechanics Exchange Program”[1] 

Suppose trained and certified Korean automotive repair mechanics went to the U.S. temporarily pursuant to a prescribed training program. Each of the Detroit Three could hire a prescribed number for temporary assignment at one of its plethora of (post-sale) service centers. Korean mechanics would work there while getting training and practical experience with all model lines. After orientation in the United States, (e.g. when VISA expires), the mechanics would return to Korea.

Armed with this training and experience, the Korean mechanics would then ambitiously and confidently re-enter the ROK repair market of import cars independently and order all the necessary auto-parts on-line directly from the United States (i.e. mobile transactions arranged through the Detroit Three). Doing so would promote robust competition.

Potential Impact of This Program

Pursuant to this “program”, the import car repair cost in South Korea would likely drop, perhaps dramatically, to a similar level to that of Kia and Hyundai cars. In time, more robust competition could result in a more efficient, affordable repair/maintenance market for imported cars in South Korea. This could likely be realized only after hundreds of Korean auto mechanics are “cured” of their “import-car-phobia.” Practically speaking, this grass-roots democratic market approach might be significantly more impactful than yet another top-down bureaucratic approach of renegotiation of a trade agreement. Indeed, it could make the import car, especially U.S. imports, friendly and favorable among Korean customers and Korean mechanics who have experienced various American automotive vehicles in the United States. They will discover by first-hand, personal experience that American cars are reliable and affordable, even compared with German cars.

Project Logistics

So what steps should be considered to make this miracle happen, or, more realistically, to get this project underway? The best, perhaps only, way for this exciting, promising project to work is via a well-organized, highly motivated and funded Public Private Partnership.

Simply stated, in the United States, the project would involve recruiting and orientating both Federal and State officials as well as Detroit Three executives to work collaboratively with the U.S. Immigration & Naturalization Services. The project would determine a special quota for certified Korean automotive mechanics willing to relocate for the requisite training period in the United States. That trained, focused, and motivated group could then partner with the Korea International Trade Association (KITA), which operates its World Trade Academy. It has the capability to assemble hundreds (or even thousands) of certified Korean automotive mechanics. It can also educate them in colloquial English and “automotive jargon” that is necessary for them to survive and work prominently in the US automotive repair market.

Once in operation, KITA’s Trade Academy can collaborate to arrange for VISA procedures as well as job interviews by one of the aforementioned American employers of these select KITA World Trade Academy graduates.

The successful and sustained commitment to this practical program would effectively address a current major impediment to U.S. import sales in South Korea. In time, American cars will gradually catch up and sell very successfully in South Korea. Those veteran mechanics with U.S. market experiences will open their own shop anywhere that can easily fix any problems with any — mostly US – import cars. That, in turn, should lower the significantly expensive auto insurance costs in South Korea, which, in turn, will bolster demand for import cars.

Conclusion

Big challenges call for innovative measures. If the Detroit Three want to sell more U.S. built cars in the ROK, then it should do so by bringing in certified Korean mechanics in mega-multitudes, training them, and providing practical repair experience on American cars in its post-sale, maintenance market. Then, let those trained mechanics return to Korea. They are already highly skilled in auto mechanics before entering this program. As the saying goes:

“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”

Doing so will empower these trained mechanics to serve as the cornerstone for and the voluntary spokespeople in favor of far more U.S. automotive sales in a most important market.

If there is a “will” to explore this project, then herein lies a vision and basic plan to address an impediment to increased sales of U.S. imported cars in South Korea. The Germans — Mercedes-Benz and BMW – have undertaken such a program a couple of months ago. Practically speaking, in the long run, this may be the only practical and promising way to increase the market share of American made cars in South Korea.

Daniel P. Malone is an attorney with the Detroit-based firm, Butzel Long, malone@butzel.com. He serves as the firm’s Director of Korean Client Relations and has extensive experience with South Korea. Jin-Sung Park serves as Head for the Korea International Trade Association (KITA)’s Northern Gyeonggi Province Center. He can be reached at iouakiss@kita.net. The views expressed here are the authors’ alone. Photo from RICO Lee’s photostream on flickr Creative Commons.


[1] If renegotiation occurs, this proposal could be part of an “amended” KORUS FTA.

 


[i] See generally Chrysler has eight repair, not showroom, facilities in Seoul’s Capital City Zone; FORD has 17 repair shops in the entirety of Korea; General Motors has 20 repair facilities for the entirety of Korea for U.S. imports. As for Chevrolet, like Hyundai-KIA, GM-Korea lists 445 repair shops on its website albeit primarily for Korean made cars. This is inadequate.

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Challenges in Relations with the U.S. under the Moon Administration

This is the seventh in a series of blogs looking at South Korea’s foreign relations for the new Korean administration. The series also includes blogs on relations with North KoreaChina, Japan, Russia, the European Union, ASEANAfrica, the Middle East, and Latin America

By Kyle Ferrier

The United States is a crucial security and economic partner for South Korea. Not only is the U.S. treaty obligated to defend South Korea, but 28,500 American troops are stationed below the DMZ. Should an armed conflict arise on the peninsula Washington would assume operational control (OPCON) of South Korean forces. Since its implementation in March 2012, the KORUS FTA has helped to secure the U.S. as South Korea’s second largest trading partner, making it the cornerstone of the bilateral economic relationship. While the strength of these ties is built on a foundation of shared values transcending leadership transitions over the years, U.S. President Donald Trump has openly disputed fundamental aspects of the relationship. For the newly elected South Korean President Moon Jae-in, just as central to resolving the issues raised by Trump will be understanding his approach to foreign affairs.

Trump won the U.S. presidential election last November on a platform of radical change. In contrast to the mood of Obama’s campaign in 2008 which employed slogans such as “Hope” and “Yes We Can,” Trump’s “Make America Great Again” complemented his bleak portrayal of a broken American system abused by elites and foreign countries alike. Trump often put South Korea in his crosshairs, claiming they did not pay enough for U.S. troops stationed there—going so far as to suggest withdrawing military personnel in exchange for allowing Seoul to have nuclear weapons as a cost saving measure—and criticizing the KORUS FTA for destroying U.S. jobs.

Once elected, Trump was quick to reverse course on the alliance, assuring President Park of U.S. commitment just one day later. Since then South Korea has hosted a steady stream of senior U.S. officials, including Defense Secretary Jim Matthis, Secretary of State Rex Tillerson, Vice President Mike Pence, and most recently CIA Director Mike Pompeo. Although these visits are an extension of initial efforts to reassure Seoul, they are contrasted by Trump’s “disruptive” approach to foreign policy, which draws on his campaign rhetoric, prioritizes his interpretation of American interests, and is underwritten by unpredictability. The disruptive approach is seemingly being applied to adversary and ally alike, which directly impacts South Korea through U.S. policy on North Korea as well as issues of alliance management and bilateral trade.

The Trump administration has repeatedly stated Obama’s second term policy of “strategic patience” towards North Korea is dead, yet it may just be going by a different name. At the onset of his presidency, Trump was relatively quiet on North Korea, with some hoping this might be interpreted as a willingness to talk with Kim Jong-un. However, since mid-March the administration has taken a more forceful stance. Secretary Matthis first announced the end of “strategic patience” on his trip to Seoul. Soon after, multiple senior officials and even Trump himself claimed military options were back on the table, particularly a pre-emptive strike against North Korea. Then, after a two-month policy review, the administration released its agenda of “maximum pressure and engagement,” which some have noted is remarkably similar to “strategic patience.” Both are centered on pressuring Beijing to influence Pyongyang and waiting for credible indications from the North that they are willing to reduce their illicit weapons programs. Despite posturing otherwise, security realities in Northeast Asia look to be constraining Trump to largely continuing Obama’s approach, at least for the time being, which is more than can be said for alliance management and trade relations.

Although Trump seemed to be shying away from campaign calls for Seoul to pay more for U.S. military presence on the peninsula, recent comments raise new questions, particularly for an upcoming milestone in the alliance. Trump’s call for South Korea to pay $1 billion for the THAAD missile defense system in an April 28 interview was refuted by National Security Advisor H.R. McMaster only a few days later. However, it was not enough to erase the negative impact on the public discourse in South Korea, unnecessarily complicating Moon’s promised domestic review of THAAD’s deployment. The president’s comments also raise questions over how he may attempt to shape the renewal of the Special Measures Agreement (SMA) that is set to expire at the end of this year, which governs the burden sharing arrangement. It is certainly conceivable that Trump may influence SMA negotiations by similarly calling for Seoul to contribute more to the alliance, including the potential to leverage OPCON.

The last major challenge for the Moon administration will be addressing Trump’s criticism of the KORUS FTA. Trump has repeatedly attacked the trade deal, citing the U.S. bilateral trade deficit with South Korea, though it is still unclear if he will pursue the actions he has espoused. KORUS was one of only two trade agreements singled out for not meeting expectations in The President’s Trade Policy Agenda released by USTR, the other being NAFTA. Trump recently suggested that he might terminate the agreement if South Korea was not open to renegotiations, similar to the approach he has taken with NAFTA.

Whereas the relevant senior U.S. officials have attempted to counter Trump’s disruptive approach to North Korea and the alliance, competing coalitions within the administration on trade further obscures how U.S. policy might be carried out. On the one hand, there are those who favor policies more traditionally associated with protectionism: Secretary of Commerce Wilbur Ross, Director of the new Office of Trade and Manufacturing Policy Peter Navarro, and USTR nominee Robert Lighthizer. And on the other are those who support greater global engagement: Director of the National Trade Council Gary Cohn and Senior Advisor to the President Jared Kushner. Although it is not yet clear how the U.S. will seek to pursue new concerns over KORUS—despite generally favorable reports by USTR and the US International Trade Commission released in the past year—the first major hurdle will come at the end of June when Commerce and USTR are expected to release their findings from a major review of all bilateral trading relationships.

How soon the Moon administration attempts to address these challenges with the United States will significantly dictate their potential impact on U.S.-South Korea relations. Whether it is growing pains or a more structural issue, the Trump administration’s implementation of foreign policy so far has negatively influenced South Korean public opinion. While the newly adopted policy of “maximum pressure and engagement” is remarkably similar to “strategic patience,” the process of getting there raised serious questions about U.S. credibility through concerns such as the location of the USS Carl Vinson and the perception that Washington would pre-emptively strike North Korea without consent from Seoul. Efforts by senior U.S. officials to smooth over some of Trump’s more controversial remarks have helped to stabilize relations, but the U.S. loses face each time. Even so, there are still contentious remarks that have not been sufficiently addressed.

Recent polling shows Trump’s popularity in Korea has sharply declined—falling below China’s Xi Jinping who is punishing South Koreans over THAAD. Koreans still view the U.S. favorably, yet it is unclear how long this duality can be sustained. A poor public opinion of the United States would severely constrain Moon’s ability to successfully coordinate the issues Trump has raised, which should make early and direct dialogue with his counterpart in Washington a high priority.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

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Seoul, Washington, and Pyongyang: Delicate Diplomatic Triangle for President Moon Jae-in

By Robert R. King

The campaign is over; ballots have been cast; the result is clear—Moon Jae-in will be in the Blue House within a few days.

The most critical foreign affairs issue on the agenda of the new President is the South’s relationship with North Korea, and entwined with that issue is its relationship with the United States.  Though the new American President passed his first 100 days in office just a few days ago, there is still considerable uncertainty about the direction of American foreign policy, and one of the most sensitive issues facing the United States is North Korea and its nuclear ambitions.  The relationship with North Korea is the most critical question for the South and its new president, and because of the military ties with Washington, how to deal with the North will also be the key issue in relations with Washington.

President Moon begins his contacts with the new American president at something of a disadvantage.  When President Trump moved into the White House, South Korea was in the midst of the impeachment of Moon’s elected predecessor Park Geun-hye.  As a result, Trump met with Japan’s Prime Minister during the transition (his first post-election meeting with a foreign leader) and again after his inauguration in Washington and at Mar-a-Lago.  The American President also met in early April with Chinese President Xi Jingping.  The American Secretary of Defense and Secretary of State have both met with counterparts in Seoul in recognition of the importance of Korea in American policy, but the chemistry and content of bond between the two presidents has yet to emerge.

It is also not clear where there may be differences on the North between the two leaders.  During the campaign, Moon has expressed the desire for engagement with the North and better relations.  Trump has expressed serious concern about North Korea’s nuclear and missile programs, but he has also expressed a willingness to meet directly with the North’s leader Kim Jong-un.  His first statement was made early in his tenure, but he repeated it again just last week.  Trump told Bloomberg News just a week ago that he would meet with Kim Jong-un under the right circumstances—“If it would be appropriate for me to meet with him, I would absolutely; I would be honored to do it.  If it’s under the, again, under the right circumstances. But I would do that.”

South Korea’s new president, who was still a candidate ten days ago, cited this statement by America’s President and concluded that Trump is “more reasonable than perceived” and suggested that he and Trump were taking a similar position in favor of bringing the North back to negotiations on the nuclear issue.  It remains to be seen, however, how close the two presidents are on the details of how best to bring the North into denuclearization negotiations.

Another potentially serious issue that could create problems between the two presidents and their countries with regard to policy toward the North is THAAD, the U.S. defensive missile system now deployed in the South as agreed to by Moon’s predecessor.  The U.S. rushed to get the system in place before the election, although Moon expressed concerns about the deployment and the belief that the next government should review the decision, his political and ideological allies were vocally opposed to the deployment throughout the election.  This will likely be a serious point of contention that could create difficulties for relations between the U.S. and South Korea.

It is made more complex by the fact that China has been particularly opposed to THAAD and has taken steps to make the deployment more costly for the South by significantly cutting back Chinese tourism to South Korea—a major source of income and consumer goods sales in the South—as well as boycotting retail outlets in China owned by the South Korean conglomerate which sold land to the South Korean government on which THAAD is based.  THAAD is an issue that has serious security and domestic political implications for President Moon, but one of the most difficult will be the effect the issue has on the American-South Korea relationship.

Making the issue even more awkward and controversial was President Trump’s pronouncement last week that he expected the South to pay the $1 billion cost for the missile defense system.  His comment came less than ten days before the South Korean election, and was certainly not welcomed by pro-U.S. presidential candidates in the South.  Trump’s statement calling for the South to pay for THAAD was linked to his call for a renegotiation of the U.S.-South Korea trade agreement (KORUS).  The U.S. National Security Advisor, General McMasters, however, reassured his counterpart in Seoul that the U.S. would keep its previous commitment on the missile system.

The bottom line is that uncertainty and shifting policy signals from the Oval Office will not make the task of the new South Korean president an easy one.  He will likely have his own learning-curve and unintended missteps, which will make his task harder.  The relationship between Seoul and Washington is critically important for both countries, however.  It will take a great deal of maturity and understanding on the part of both presidents to deal with North Korea.  There is a great deal at stake for all sides.

 

Robert R. King is a Non-Resident Fellow at the Korea Economic Institute of America.   He is former U.S. Special Envoy for North Korea Human Rights.  The views expressed here are his own.

Photo from Morning Calm Weekly Newspaper Installation Management Command, U.S. Army’s photostream on flickr Creative Commons.

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Deepening South Korea’s Relations with the Middle East

This is the sixth in a series of blogs looking at South Korea’s foreign relations in the run up to the next Korean administration taking office on May 10. The series also includes blogs on relations with North Korea, the United StatesChina, Japan, Russia, the European UnionASEANAfrica, and Latin America

By Juho Choi

The active relationship between South Korea and the Middle East Area is relatively young. Since South Korea established its government after the Korean War, most exchanges with Middle East nations had been based on oil and overseas construction. While there is significant geographic distance and cultural differences, the relationship has evolved significantly in recent years.

Korea’s active economic ties with the Middle East go back many years as Korean companies have often looked to the region for construction projects. However, ties have grown closer in the 21st century. As oil prices soared, many oil-supplying nations needed additional oil-related facilities and social infrastructure.

Middle East Blog Table

Out of the top 10 countries where Korea has construction work, 6 are in the Middle East including the top 4 countries. Under the two former presidents (Lee Myung Bak and Park Geun Hye), ties with Middle East nations were significantly expanded. Both presidents toured the Middle East and signed hundreds of memorandum of understanding (MOU) in various fields. In fact, some of them led to contracts such as plant building and operation contracts, including ones in the UAE for a $20 billion deal to build four nuclear power plants and $49.4 billion contract to operate the plants over 60 years.

Lifting sanctions on Iran also helped Korea’s economy advance and brought hundreds of millions of dollars in contracts. Daelim Industrial landed a $2 billion deal with the Esfahan Oil Refining Company and Hyundai Heavy Industries clinched a $700 million deal to build 10 ships for Iran’s state-owned shipping companies. Also, Turkey, which is called a brother nation in Korea, signed a $3 billion contract with SK E&C to construct the world’s longest suspension bridge.

In addition to economic ties, cultural exchanges have dramatically increased. According to Korea Customs statistics, Korean confectionery exports to UAE and Saudi Arabia have risen 60.8 percent and 141.8 percent, respectively, compared with 2011. The popularity of Hallyu (K-Wave) is also remarkable. Starting with the success of ‘Dae Jang Geum’ which recorded a 90 percent rating in Iran, many Korean TV shows have aired successfully in the Middle East. The growing popularity of K-pop is also considerable. The first music and culture convention ‘KCON Abu Dhabi 2016’ was a huge success with 8,000 fans and many idol groups have had concerts in the Middle East. State level effort also has continued to share cultural value in depth. Two Korean Cultural Center are running in the Egypt and Abu Dhabi and different events has been offered by Korean embassies around the Middle East.

This K-Wave trend has led to a boost in tourism. According to the Korea Tourism Organization (KTO), the number of tourists from the Middle East has soared over the past few years. In 2016, nearly 200,000 tourists from the Middle East visited South Korea, double the number of tourists in 2011.

Beyond cultural exchange, South Korea has also contributed to keeping peace in the Middle East. The Cheong-hae naval unit has been deployed for international maritime security and to counter the spread of terrorism. They also carried out an operation called ‘Dawn of Gulf of Aden’ which was successfully rescued 21 crew members of a Korean ship hijacked by Somali pirates. In addition to the Cheong-hae unit, the Dong-Myung unit has been engaged in rebuilding in Lebanon and the Ake unit has helped to train soldiers of the Persian Gulf state in UAE.

However, several obstacles such as fluctuating oil prices, unstable regional security, cultural, and religious difference still remain. In particular, armed conflict and unstable political situations in the Middle East need worldwide cooperation and focus to move forward. Considering Korea’s growing interest in the regions, it’s possible to play an important role by cooperating with Middle East nations in depth. According to Korea Institute for International Economic Policy (KIEP), many oil-supplying nations are promoting economic diversification for falling oil prices, it will lead to increased investment in non-oil based industries such as medical care, tourism, finance and others. South Korea has mainly enhanced its business tie with Middle East in construction and resource related industries. South Korea is also endeavoring to follow this diversification especially medical care. However, Korea should diversify investment in accordance with this phenomenon and prepare the post-oil era with the Middle East to greet the real ‘Second Middle East Boom’

Juho Choi is an intern at the Korea Economic Institute of America and a student of the Dong-A University in Busan. The views expressed here are the author’s alone.

Photo from Gordon’s photostream on flickr Creative Commons.

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Prospects for U.S.-Korea Economic Relations under New Administrations in Seoul and Washington

By Phil Eskeland

In 2017, both the Republic of Korea (ROK) and the United States face various challenges and opportunities in the growing economic relationship.  Korea is now America’s 6th largest trading partner, ahead of the United Kingdom and France.  As a nation that once was a major recipient of U.S. foreign aid, South Korea has rapidly advanced to become the world’s 13th largest economy, ahead of Canada and Spain.  However, these achievements are not locked in forever.  As the new ROK and U.S. administrations interact and deal with each other, both sides must avoid “unforced errors” and cooperate with each other as much as possible to confront domestic and international trends that place impediments on both economies, such as stagnant wage growth, aging population, mismatched workforce, and the siren song of trade protectionism.

The first major challenge is establishing an accurate analysis of the Korea-U.S. Free Trade Agreement (KORUS FTA).  The agreement’s success or failure should not be measured by just a single metric of the merchandise trade deficit, which parenthetically decreased in 2016, but on a comprehensive review of all of its effects.

  1. Total trade volume (imports and exports) between the two countries has increased since pre-KORUS levels (2011).  In fact, the most recent data from the Commerce Department shows that the U.S. exported a record level of manufactured goods and agricultural products to Korea for the month of March 2017 at $4.36 billion, the highest level since March 2014.
  2. The United States continues to break records in the export of services to Korea, producing the highest trade surplus ever for the U.S. in 2016.  This trade surplus reduced the overall goods and services trade deficit between the two countries to $17 billion.  As a result, Korea’s bilateral trade deficit with the U.S. is ranked well below other nations, including China, Germany, Mexico, Japan, and even Italy.
  3. According to the Commerce Department, U.S. exports to Korea have led to an increase of 87,000 jobs in the United States between 2009 and 2015, including 55,000 jobs in the goods sector, which pay 16 percent more on average than other employment.
  4. Korea now represents the 5th fastest-growing source of Foreign Direct Investment (FDI) into the United States, employing over 45,000 workers in the U.S. earning an average compensation package of $92,000 a year.
  5. Because U.S. exports of items covered by KORUS have increased by 18 percent since 2011, the agreement has helped to reduce the merchandise trade deficit by nearly $16 billion.

Thus, the KORUS FTA meets every metric of a successful trade agreement as outlined by the Trump Administration.  In fact, if reducing the trade deficit is the main concern, then the Trump Administration should focus their attention on other countries first before Korea.

Nonetheless, there is always room for improvement.  The KORUS FTA has a binational committee process to iron out differences in implementing the agreement.  This has greatly helped resolve numerous thorny issues without having to go through the difficult process of amending KORUS.  For example, clarifying the rules of origin on orange juice helped to dramatically increase sales to Korea, giving a boost to Florida citrus growers and producers at a critical moment when the U.S. market is declining.  In addition, Donald Trump won the Sunshine State – a key “swing” state with the most Electoral College votes – in the last presidential election.  However, both sides should avoid unforced errors by either scrapping the agreement or refusing to negotiate.  If KORUS is scrapped, hard-won gains for many U.S. exporters, including Florida orange juice producers, would vanish.  While KORUS is relatively new, it could be updated in a few areas, such as in intellectual property and e-commerce, though preferably through supplemental side agreements to avoid re-opening up the entire text.  The Trump Administration could lift the relevant IP and e-commerce sections from the now defunct Trans Pacific Partnership (TPP) agreement and offer to add these provisions to KORUS.

Second, international monetary policy could be another challenge to the U.S.-Korea relationship.  Every six months, the U.S. Treasury produces a report that identifies potential currency manipulators if three conditions are met:  (1) if there is a significant bilateral trade surplus with the United States; (2) if there is a material current account surplus; and (3) if the nation has engaged in persistent one-sided intervention in the foreign exchange market.  While Treasury did not identify any trading partner as a currency manipulator in its most recent report, the department included six countries, including Korea, on its monitoring list.  Some in the U.S. advocate adding provisions to prevent currency manipulation by other nations into trade agreements.  However, this challenge could represent an opportunity for Korea to be pro-active in responding to critics by being fully transparent in any governmental actions in foreign exchange operations.

Third, U.S. “fair trade” laws could also represent a challenge and opportunity in U.S.-Korea economic relations.  As with most U.S. administrations, the emphasis on trade during the first year in office usually focuses on enforcing existing agreements, not enacting new ones.  The Trump Administration is no different, but the prominence of trade enforcement has been amplified, particularly with the announcements of a series of reviews and investigations.  Both sides should take a step back to insure that enforcement actions do not lead misperceptions and unforced errors.  Korean companies should be extremely vigilant to make sure that they do not sell their product in the U.S. at a loss.  On the flip side, the Commerce Department should also be diligent to make sure it is not biased towards U.S. industry regarding allegations of unfair trade.  For example, the U.S. should implement the World Trade Organization (WTO) decision that disallows the use of “zeroing” (i.e., disregarding allegedly “non-dumped” sales in order to inflate dumping margins) to estimate higher tariff penalties.  Commerce should also consider the ramifications of a trade case for the entire U.S. economy because, ultimately, increased tariffs are another form of taxation that gets passed along to consumers in terms of higher prices.  As learned during the 2002/2003 steel tariff debate, many more American jobs at manufacturing facilities that used steel were at risk than in the steel industry as their final products were priced out of the marketplace.

Fourth, the two new administrations should give an opportunity for Korea to shine by highlighting and publicizing more of its FDI into the United States.  As stated above, Korea is now the 5th fastest growing source of FDI into the United States, which has accelerated since the implementation of the KORUS FTA.  If new investments are forthcoming, Korean companies would do well to let the American people and the Trump Administration know of this news to generate good will.

Finally, both countries would do well to continue its global partnership on numerous fronts:  cybersecurity, space, science, energy, environment, health security, Arctic cooperation, among others, that have enormous economic ramifications for both countries.  These important issues unfortunately do not receive the attention that they deserve because they are non-contentious, apolitical concerns.  Just because these initiatives were started by previous administrations should not mean that they are put to the wayside.  If anything, these issues, such as continuing the work of the U.S.-Korea Joint Committee on Science and Technology, should form the foundation for building further cooperation on economic and trade issues between the U.S. and the Republic of Korea.

 

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

Photo from Saik Kim’s photostream on flickr Creative Commons.        

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Why This May Be South Korea’s Most Consequential Presidential Election

By Troy Stangarone

After months of protests across South Korea that culminated in the impeachment of President Park Geun-hye, South Koreans will go to the polls on May 9 to select her successor. Regardless of which candidate wins the election, the upcoming presidency may be the most significant for South Korea since the transition to the opposition with Kim Dae-jung cemented the democratic ideal of the transition of power and he was thrust into managing what is known in South Korea as the IMF crisis. The next administration will come into office at time when South Korea faces a wide array of economic, political, social, and security challenges.

The next president will need to begin by restoring confidence in government. The impeachment of President Park has divided society and exposed the continuing ties between government and business that have left a legacy of scandal trailing each administration. Prior scandals have not always directly involved the president, but the impeachment indicates a growing intolerance in South Korean society for ever too close of relations between the government and business. Addressing this issue will mean the next administration will need to consider reforms in both government and the chaebol.

If restoring confidence in government were not challenging enough, the next president will come into office at a time when South Korea faces critical domestic and international challenges that will need to be addressed. The South Korean economy in many ways is at a crossroads. After years of success as an exporting powerhouse, exports have been largely stagnant in recent years and South Korea faces increasing competition from lower wage countries such as China which have cut into key sectors for South Korea’s economy such as steel and shipbuilding, while becoming increasingly competitive in consumer electronics as well.

The challenges from international economic competition are coupled with domestic economic challenges. South Korea’s rate of economic growth has continued to decline and is expected to only by 2 percent in 2018. As the economy slows, income inequality has risen and will likely only continue to do so the economy becomes more oriented around services industries.

To begin addressing slowing economic growth and income inequality, the next administration will need to focus on structural reforms and labor market reform. South Korea needs structural reforms to address overcapacity in troubled areas such as steel, shipping, and ship building. At the same time, reforms are needed in the labor market as well. South Korea’s current two-tiered system made of a well-protected class of permanent workers and temporary workers who have few protections has created rigidities in the labor market that have limited job growth, especially for the young.

South Korea’s economic challenges have also created social challenges. As South Korean society rapidly ages, young South Koreans have seen their opportunities narrow even with one of the highest rates of college graduates in the world. While facing decade long highs in unemployment, young South Koreans face concerns about their future in a slowing economy and in a society that they see as constraining their opportunities.

If the young have seen increasing challenges, South Korea itself faces impending problems from its rapidly aging population. In the years ahead, over the next administration the working age population is expected to decline to just under 36 million and continue declining in the years after while the overall population will continue to grow until 2030. This means an increasing percentage of South Korea’s population will be in retirement with fewer workers to support them. This challenge is compounded by South Korea having the highest level of old age poverty in the OECD despite President Park having worked to improve the social safety net.

South Korea’s international relations may not be any less complex than its domestic challenges. On top of the agenda will be North Korea. While that will not have changed from prior administrations, Pyongyang has significantly advanced its nuclear weapon and missile programs under Kim Jong-un. As a result, the strategic situation could significantly change under the next administration should North Korea successfully deploy not only a nuclear deterrent but a viable second strike capability.

As a result, the administration may find its options for dealing with North Korea constrained, both by North Korea’s progress on its weapons programs and the policies of regional states. Relations with China have soured over the decision to deploy THAAD to defend against North Korean missiles, and China’s use of economic pressure may leave the next administration with a Scylla and Charybdis type dilemma of accepting significant economic harm or weakening South Korea’s defenses against North Korea.

Managing this situation will require close relations with the United States and Japan, both of which could be problematic if divisions over how to handle North Korea develop, or in the case of Japan historical issues complicate relations. While the Trump administration so far has been more conventional in its approach to North Korea than many foreign policy issues, Seoul and Washington will need to ensure that they do not diverge on how to handle North Korea. At the same time, there could be tension in the relationship, as the Trump administration is taking a harder position on trade and has indicated that it may review the KORUS FTA.

Whoever South Korea elects as president in May will face a more fluid domestic and international environment than prior South Korean presidents, one shaped by the impeachment and the need to enact reforms. While South Korea has gone through difficult economic times, such as the Asian Financial Crisis, or faced challenging relations with the United States or China, it is the degree and the number of challenges that South Korea may face over the next five years that make this election so consequential.

Troy Stangarone is the Senior Director for Congressional Affairs at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from sinano1000’s photostream on flickr Creative Commons.

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The European Union: A Key Partnership for the Next South Korean Administration

This is the fifth in a series of blogs looking at South Korea’s foreign relations in the run up to the next Korean administration taking office on May 10. The series also includes blogs on relations with North Korea, the United StatesChina, Japan, Russia, the Middle EastASEAN, Africa, and Latin America

By Gwanghyun Pyun

Since 1963, the Republic of Korea (ROK) and what has evolved into the European Union (EU) have been steadily developing economic and diplomatic relations. The EU, a large single market consisting of 28 European countries, is an important trading partner for the ROK and its soft power in the global community can assist with peace on the Korean peninsula.  Most importantly, the EU and South Korea share important values such as human rights, democracy and a market economy, making the EU an important partner for South Korea and the next presidential administration.   

The fundamental basis of the EU-Korea relationship, a Free Trade Agreement (FTA)

When the EU-ROK FTA talks began, the South Korean government sought to expand its export market, raise the amount of foreign investment in South Korea and increase job opportunities. The EU is the world’s largest trade block and an advanced economy that primarily trades in are automobiles, machinery and appliances, transport equipment and chemical products with South Korea. In fact, the amount of trade between the EU and the ROK has steadily increased to 90 billion euros since the agreement came into effect in 2011.

However, South Korea has not seen the results it expected. According to a report by the Korea Institute for International Economic Policy (KIEP), five years later, the EU-ROK FTA has resulted in just one-third of the benefits that the South Korean government expected initially. The report concluded that the result comes from the economic recession in the EU from lingering Eurozone related issues, but that South Korea has fared better than other countries such as China and Japan.

Although this unsatisfying result has been caused by the EU’s economic recession, there are rising voices saying that the FTA should be revised. Indeed, at a meeting of Asia-Europe Meeting (ASEM) last year, then President Park Geun-hye and EU leaders already shared the view that there was a need to revise the FTA.

Besides the economic relationship, the EU and South Korea have developed a strategic partnership.

The EU and ROK have entered into and developed three major agreements – the FTA (2011), an EU-Korea Framework Agreement (2010) and The Framework Participation Agreement (2014). With these agreements, the EU and South Korea can promote coordination and cooperation on international and regional concerns.

Based on these partnerships, the EU can support South Korean international policy. For example, when North Korea conducted their fifth nuclear test last year, South Korea and the EU agreed to utilize all means necessary for denuclearization. Also, the EU has currently imposed unilateral sanctions against North Korea. On the other hand, Last February, Chancellor Angela Merkel said during a meeting with the U.S. President Trump that ‘the EU-Korea FTA is win-win deal’ to champion free trade. In addition, the EU can expand its free trade market to other Asian countries based on the case of EU-Korea FTA that is the EU’s first trade deal with an Asian country.

Furthermore, South Korea and the EU have many areas of possible corporation because they share common values in various fields. First, both recognize the importance of higher education. They have kept up academic exchanges through Erasmus+ and the co-funded Industrialised Countries Instrument — Education Cooperation Programme (ICI-ECP). Also, South Korea and the EU cooperate in the cultural field through a protocol on cultural cooperation under the EU-ROK FTA. In science, they have arranged the Agreement on the Scientific and Technological Cooperation (2007) and decided to cooperate on research related to ICT, nanotechnology, health/bio, energy and satellite navigation. Both can work together to solve energy problems, as the EU is a leading energy consumer and South Korea is the 12th largest country of greenhouse gas emission.

An uncertain future for the EU

Now, the EU faces a number of uncertainties. The EU has an advantage as an economic and political union of 28 European countries. However, the opinion on the union is split among various countries in the EU. This is because of a strong unity that limits each country’s sovereignty, while  maintaining the union can place an economic burden to some of the EU countries.

Last year, a majority of British citizens voted for the United Kingdom (UK) to exit from the EU. The process of ‘Brexit’ is still in the process of being completed but should be concluded in two years. This year, in the first round of the French Presidential election, the right-wing politician Marine Le Pen got 21.3 percent of the vote, slightly less than the leading vote getter Emmanuel Macron at 24.01 percent. Le Pen has said that if she wins the election, she will seek to pull France out of the EU or redenominate France’s debt in franks, placing the euro at risk.

On the other hand, this wave to exit the EU cannot easily break the union because many of the EU leaders and European politicians are trying to maintain the union. Last January, German Chancellor Angela Merkel said Britain cannot do ‘cherry picking’ during Brexit and urged the unity of the other EU members. Two major French parties, the Socialist Party and the Republicans, along with outgoing President Francois Hollande, declared their support for Macron who is a pro-EU politician and received 64% support from the French people in an initial poll after the first round of the French presidential election.

Stability in the EU matters for South Korea as Germany, France, the UK and Italy are top four export markets for South Korea as they account for 43 percent of the Korea’s export to Europe.

The most urgent task for Korea is to continue relations with the EU as well as the UK.

Amid the crisis of the EU, South Korea should try to maintain a ‘win-win’ relationship with European countries. Fortunately, the EU President Jean-Claude Juncker said that Brexit would not have any impact on EU-ROK relations, and insisted that the EU would continue to keep bilateral cooperation with South Korea as a ‘trustworthy’ partner.

In addition, South Korea will need to build new economic ties with the UK as it exits from the EU. A report by the Korea Institute for International Economic Policy estimated that Brexit will cause a 0.5-0.8 percent decrease in Korea’s economic growth rate in the short-run if South Korea does not sign a UK-ROK FTA. However, in the long-run, if South Korea has a FTA with the UK as well as the EU, the Korean economy is expected to experience more trade benefits than before. South Korea and the UK sent positive signals to each other in a meeting between the Korean Foreign Minister and the British Ambassador to Korea, indicative that they would reinforce economic relations between the two countries.

The EU is an important partner for South Korea

When the new Korean administration takes office, the EU-ROK FTA revision and the UK-ROK FTA negotiation will be on the docket. They must not forget that the EU is an important global partner for South Korea and the EU-ROK FTA and other agreements are the basis of the relationship.

The new administration will also need to closely observe the situation in the European Union. First of all, when the UK exits from the EU, South Korea will need to reaffirm ties with the UK as an important partner on trade and security issues, while keeping in mind that a strong partnership with the EU and the UK would help South Korea economically, politically as well as socially.

Gwanghyun Pyun is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Sogang University in South Korea. The views expressed here are the author’s alone.

Photo from the European Parliament’s photostream on flickr Creative Commons.

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Prospects for Stronger Ties with Africa for the Next South Korean Administration

This is the fourth in a series of blogs looking at South Korea’s foreign relations in the run up to the next Korean administration taking office on May 10. The series also includes blogs on relations with the United StatesChina, North Korea, the European Union, Japan, Russia, the Middle EastASEAN, and Latin America

By Jennifer Cho

For the longest time, South Korea has not prioritized Africa within its foreign policy. The main exception was in the 60s, when the South competed with North Korea to earn more votes in the United Nations. Recently, however, interest in Africa has significantly increased because of its abundant natural resources and huge oil deposits. Although Korea embarked on closer diplomatic relations across Africa in recent years, Seoul has tended to focus on short-term projects that lack continuity.

In the past, each Korean president came up with similar approaches with different titles, but some projects were forgotten with changes in the administration. With a new administration in Seoul after the May 9 election, it remains to be seen whether this short-term approach will continue – so far, none of the presidential candidates have clearly stated any plans for Africa policy once they are in office.

Despite some governmental efforts toward economic cooperation, South Korea’s engagement with Africa started late compared to other countries. For example, China’s trade volume with the continent increased from $10 billion in 2000 to $300 billion in 2015. However, South Korea’s trade volume remains at about $19 billion. Along with trade volume, South Korea also lacks investment in Africa. To fill these gaps, the Korean government is looking to play a significant role in backing up domestic firms and companies.

One way Korea has done this is through President Roh Moo-hyun’s “Korea Initiative on Africa’s Development,” which began in 2006. Through this project, Korea hosted several Korea-Africa Fora to establish partnerships and strengthen economic and political cooperation in the future. The past three fora provided South Korea with opportunities to build economic relationships with more African countries, including a cooperation framework called the Korea Africa Economic Cooperation Framework (KOAFEC), which provides aid to Africa and chances to collaborate with the African Development Bank. The most recent forum was held last December in Addis Ababa, Ethiopia, where the African Union (AU) headquarters are located. More than 150 people, including cabinet ministers and representatives from 14 African countries, participated in the fourth forum and discussed challenges for establishing peace and stability and also how to tackle joint economic development projects.

Besides economic opportunities, these fora provided a space to discuss security policy in regards to North Korea. During the fourth forum last December, South Korean Minister of Foreign Affairs highlighted the importance of security issues on the Korean peninsula. South Korea asked for cooperation from various African countries in regards to North Korea and requested support for U.N. Security Council Resolution 2331 that strengthened sanctions measures against the DPRK. Last month, the South Korean defense vice-minister visited Egypt to sign an MOU on defense cooperation for security issues related to the DPRK. Because Egypt is located between Africa and the Middle East, a stronger relationship with Egypt will expand South Korea’s influence on both continents.

Continuous dialogues on targeting mid- to long-term projects will play a significant role in Korea-Africa relations in the future. Africa has ample natural resources and extensive potential for economic and energy development. In addition, the continent’s increasing population has greatly increased demand for infrastructure and has creased possibilities for the development of manufacturing, which can reach a huge group of consumers. South Korea’s effort to strengthen ties with various African countries, including Egypt, Kenya, and Angola, will not only strengthen previous diplomatic ties but also promote businesses development across the continent. It will be important for the new administration that takes power in May to review previous policies and continue recent dialogues to create lasting, long-term partnerships.

Jennifer Cho is a graduate of Kalamazoo College and an intern at the Korea Economic Institute of America (KEI). The views expressed here are the authors’ alone.

Photo from Korea.net’s photostream on flickr Creative Commons.

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The Next South Korean Administration and Relations with Latin America

This is the third in a series of blogs looking at South Korea’s foreign relations in the run up to the next Korean administration taking office on May 10. The series also includes blogs on relations with North Korea, the United StatesChina, Japan, Russia, the European Union, the Middle EastASEAN, and Africa

By Rose Kwak

In the 1990s, relations between the Republic of Korea (ROK or South Korea) and Latin America and the Caribbean (LAC) developed at a rapid rate, demonstrated by President Roh Tae-woo’s first official visit to Mexico in 1991, followed by President Kim Young-Sam visits to five countries in Latin America, namely Guatemala, Chile, Brazil, Argentina and Peru in 1996. Moreover, around this time, many Korean companies launched businesses in Latin America. Since then, the ROK– LAC economic relationship has evolved significantly, culminating in South Korea’s free trade agreements (FTAs) with Chile, Peru and Colombia. Moreover, starting in the 2000s, ROK-LAC relations moved beyond the economic front, demonstrated by increases in cultural exchange programs and people-to-people programs, highlighting greater efforts by the two sides to strengthen diplomatic relations.

Most recently, the Park Geun-hye administration continued to place a greater importance on the region, manifested by Park’s official visits to Colombia, Peru, Chile and Brazil, followed by her visit to Mexico the following year where she openly established bilateral economic relations.  According to the Ministry of Foreign Affairs, Park Geun-hye’s visits to Colombia, Peru, Chile and Brazil in 2015 made the relations between the two regions “friendlier and stronger than ever.”

However, despite the significant growth in both economic and cultural relations between the two sides, the future South Korean administration has several important issues to consider. In the past, South Korea repeatedly expressed its interests in joining the Transpacific Partnership, a trade agreement between 12 countries that border the Pacific Ocean. However, in recent years, TPP has not only lost its momentum but also the new U.S. administration recently abandoned the TPP. It is therefore essential for the future South Korea’s administration to find a replacement model for TPP by continually engaging in FTAs with countries in Latin America to liberalize trade and develop a clear strategy to strengthen diplomatic ties with the region.

The ROK-LAC cooperation:

Trade between the ROK and LAC has been growing rapidly since the 1990s, increasing by 17 percent per year on average. Moreover, since 2004, foreign direct investment (FDI) from South Korea to the LAC increased by ten-fold. This impressive growth in trade and investments between the two sides exemplify the greater need for strong trans-Pacific ties in recent years. Developing a strong economic relationship provides benefits on both ends: South Korea can provide knowledge-intensive industries such as automobiles, electronics and high-tech manufactured goods while many of the LAC countries can provide minerals and other agricultural commodities. One of the major obstacles in liberalizing trade between the two sides, however, has been high tariff costs, although in the past two decades both sides have cut import tariffs significantly. Despite several obstacles, South Korea signed free trade agreements with Chile, Peru, and Colombia, which accelerated tariff liberalization. As a result, in 2013, 96 percent of export goods from Chile faced zero tariffs.  Apart from economic cooperation, there has been an increase in cultural exchanges. For instance, in 2016, the second annual Latin American Film Festival took place in Seoul. Moreover, Latin American K-Pop fans participated in K-Pop song and dance competition in Buenos Aires.

Park Geun-hye administration and its progress with ROK-Mexico relations:

One of the critical achievements by the Park administration was its attempt to develop stronger economic relationship with Mexico. South Korea’s top two export destinations among LAC countries are Mexico and Brazil. Arguably, the primary reason that South Korea expressed its interest in the Transpacific Partnership (TPP) was “driven by Korean manufacturers’ desire to expand their presence in Mexico.” Mexico and South Korea signed 17 cooperation agreements during Park Geun-hye’s visit to Mexico which encompassed various issues such as technology and innovation, electricity and clean energy, transnational organized crime, tourism and intellectual property. Mexico also expressed support for Korea to join the TPP, and the two countries agreed to hold working meetings starting from the fourth quarter of 2016 in order to “promote trade, investment and cooperation” and to “confirm the friendship and cooperation between Korea and Mexico.” Between 2000 and 2015, total trade between the two countries increased from $4 billion to $17.5 billion. In the same time frame, Korea’s annual investment in Mexico increased by more than 24 times. President Park has reiterated the importance of the ROK-Mexico relationship, as Mexico is South Korea’s largest trading partner in Latin America and holds promising opportunities for the future growth.

Finding a replacement model for Transpacific Partnership?

With new U.S administration withdrawing from the TPP, developing strong economic and diplomatic relations (whether done bilaterally or multilaterally) with Latin America through FTAs and cultural programs is essential for the future of South Korean foreign policy. Latin America and the Caribbean region holds enormous potential for strategic, diplomatic and economic opportunities for South Korea. The Park administration made steps forward in furthering the ROK-LAC relations as exemplified by strengthening its relations with Mexico, Chile, Peru, Brazil and Colombia. From both strategic and economic stances, it is critical that the future South Korean administration continue to expand trade and investments in Latin America.

Rose Kwak is an intern at the Korea Economic Institute of America and a graduate of Davidson College in North Carolina. The views expressed here are the author’s alone.

Photo from Rafa Bahiense’s photostream on flickr Creative Commons.

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About The Peninsula

The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.