Financial Times | 27 October 2013
South Korea warms to idea of joining TPP trade group
By Simon Mundy in Seoul
South Korea will need to join the Trans-Pacific Partnership trade group, but will wait for the project to take clearer shape before entering talks, the chief economic adviser to the president has said.
“Basically, our thinking is that we need to take part in the TPP, but we have to consider very seriously when is the right time,” Cho Won-dong told the Financial Times, stressing that no final decision had been taken.
The TPP’s negotiating parties, which include the US, Japan and Australia, are battling to meet their goal of completing talks this year to create a free trade group that would account for 40 per cent of the world economy.
“There is the risk of [the TPP] degenerating into a series of loosely tied bilateral deals,” the Asian Development Bank said in a report last week, warning that limited progress in recent talks exposed conflicts of interest between the prospective members.
Entering the TPP as its fourth-largest member economy would cap a flurry of trade deals for Seoul over the past decade, and would further strengthen its key alliance with the US, which is driving the talks.
But South Korea has avoided committing itself on the subject, despite speculation that President Park Geun-hye would set out a position at a regional summit in Bali earlier in October.
“The future of the TPP is not clear yet,” Mr Cho said. “We want to know the extensiveness in terms of . . . what products will be liberalised.” One area of potential concern is the South Korean beef and dairy farming sectors, which would expect increased competition from Australia and New Zealand.
South Korea already has bilateral free trade agreements with four of the TPP’s negotiating nations, and is in talks on FTAs with six others – something that would limit the benefits of entering the TPP, Mr Cho said.
But failing to join would still put South Korean exporters at a disadvantage, he added, noting the potential rewards of improved access to the Japanese market. Talks on a bilateral FTA with Japan have been undermined by fraying relations between the countries.
Separately, Mr Cho warned of the potential for a damaging reversal of recent capital inflows into South Korea when the US Federal Reserve begins to scale back its monetary easing policy.
Foreign ownership of South Korean stocks hit a six-year high last week, as Asia-focused investors turn to an economy seen as more stable than some emerging nations in the region. “Korea now stands out as a safe haven for investors, especially amid global macro uncertainty,” economists at Morgan Stanley wrote earlier in October.
But Mr Cho questioned this analysis. “Investors still do not regard the Korean won as a safe asset,” he said. “That means once turbulence appears in global financial markets – such as a sudden exit of [quantitative easing by the Fed] – then investors will not want to purchase the won . . . We have to be prepared for the worst.”