TRUST YOUR NEIGHBOR

Panmunjom on the Korean Border

By James Kim
Staff Writer

A mother often punishes her child whenever he misbehaves and rewards him if he deserves it. So goes the ideology of Trustpolitik, the new South Korean policy on containing North Korean aggression. Since Park Geun-hye became South Korea’s first female president in 2012, Trustpolitik has offered a much more assertive approach to Kim Jong-un’s continuation of his father’s policies of nuclear extortion. If the North tries to provoke the South, President Park will cut off aid to her neighbor. This is a reversal of her predecessor’s Sunshine Policy, which was a more conciliatory approach, usually with no strings attached. Nonetheless, Park promises to help alleviate North Korea’s economic woes and reaffirm existing agreements if they can prove their commitment to the truce. Park’s inauguration address spoke of “a trust-building process, for Koreans [to live] prosperous and freer lives” [1].

On October 23rd, Lee Jong-joo, a representative of the South Korea’s Ministry of Unification, visited UC San Diego to explain what Trustpolitik means for South Korea’s future diplomacy with its northern neighbor. She pointed out in a slideshow that Kim Jong-un uses the nuclear game as a show of force to both the outside world and to inner party dissenters who question the young leader’s ability to rule. For the North Korean leader, nukes are merely a short-term political asset to a long-term economic goal as his nation still endures a devastating famine, not to mention the recession that has ailed the Communist bloc since the fall of the U.S.S.R. [2]. Obtaining nuclear weapons provides him not only with a cheap method for national security (as opposed to feeding and paying a burgeoning military), but also leverage in diplomatic talks with both the Republic of Korea across the 48th Parallel and the United States. Nonetheless, the recent flare-ups this spring show how precarious the double-edged sword of nuclear diplomacy has proven to be for Kim Jong-un, who not only incurred the wrath of the U.S. military, but also increased tensions with his only ally, China, which does not want an unstable nuclear-armed regime on its border [3].

Continuing in her lecture, Lee mentioned how the city of Kaesong represents a critical link between the two Koreas. Located inside North Korea near the Demilitarized Zone, the Kaesong Industrial Region helps stabilize the North Korean economy while providing South Korea with a source of physical labor for its chaebol, or major corporations [4]. The area’s closing during the spring tensions proved to be one of first tests for the Trustpolitik policy, as President Park refused to send back her economic advisors until North Korea could ensure it would not cause another international stir. She even warned “if North Korea launches another strike, then Seoul must respond immediately to ensure Pyongyang understands the costs of military provocation.” Since Kim Jong-un originally closed the economic zone, President Park wanted to see how long North Korea could stomach the loss of a vital part of its economy as well as handle a miscalculation by its leader. It appears that Kaesong was more important to the North then to the South, as the area was reopened in August and the North gave compensation to South Korean businesses that lost profit from its closing.

Trustpolitik survived its first trial, but it has yet to encounter a situation that actually involves loss of life, such as the sinking of the Cheonan that occurred during the administration of Park’s predecessor, Lee Myung-bak, a hardliner who refused to escalate the protests against North Korean aggression. It may be that the new policy will face rougher waves as Kim’s nuclear policy does not appear to be slowing down. However, Trustpolitik’s ability to extract concessions in its first major test still shows that this policy has had a fortunate start on its road to détente.

1. Lee, Jong-joo. Trustpolitik: A Way Forward on the Korean Peninsula. IR/PS: UCSD. 23 Oct. 2013. Event.

2. Ibid.

3. Ibid.

4. Ibid.

Image by Joe Doe

FREE TRADE ON THE HORIZON IN SOUTH KOREA

By Andrew Kim
Staff Writer

As East Asia establishes itself as a region of rising financial importance, the world is experiencing a newfound obsession with understanding the economic dynamics of countries such as Japan, China and South Korea. With Japan’s current position as the world’s second largest developed economy alongside China’s emergence as a global superpower, the Western world has largely ignored South Korea as an economic player. Yet the country’s economic rise within the past few decades is so remarkable that many refer to it as the “miracle on the Han River.” South Korea is the only country in the world to go from a net aid recipient to net aid donor of the Organization for Economic Cooperation and Development (OECD).

Now the world’s fourteenth largest economy, the country not only boasts a plethora of internationally recognized corporations—from Samsung to LG to Hyundai—but also has the seventh largest currency reserves worldwide(at an estimated $333 billion). With ever-increasing economic prominence, South Korea is a country that is well positioned to maximize growth from globalization. With this in mind, one of the most critical pieces of legislation regarding the economic future between the United States and South Korea is the Korea-U.S. Free Trade Agreement (KORUS FTA).

First ratified on June 30, 2007 and renewed in 2011, the KORUS FTA represents the United States’ most commercially significant free trade agreement in approximately two decades. The U.S. International Trade Commission estimates that the FTA will add between $10 and $12 billion to both U.S. and South Korean GDPs. Under the FTA, over 90 percent of bilateral trade in both consumer and industrial products will become duty free within the first five years of implementation. Many on both sides argue that the KORUS FTA will only serve to increase prosperity on both sides of the Pacific, and a look at the mere numbers would initially serve to strengthen that notion.

Yet a deeper analysis of the KORUS FTA presents a rather nuanced outlook for both countries, as numbers only reveal so much. As South Korea’s technological companies are globally competitive, a significant reduction in tariffs would lead to reductions in the overall price of goods within the domestic U.S. market. As Samsung currently has the largest global market share in the smartphone industry, a price reduction in their goods, when coupled with competitive mobile devices, such as Galaxy line, would only serve to negate rival company’s sales. While price reduction is good for the consumer, this would spell trouble for rival companies such as Apple that are currently fighting for every edge in a rather cutthroat market. The KORUS FTA, in this regard, can exacerbate the rise of South Korean conglomerates, which could inadvertently lead to sales losses for American tech companies domestically.

While the KORUS FTA does pose a danger to certain economic sectors, American companies such as Apple are still considered clear winners in terms of innovation. When assessing the impact of the FTA on South Korea, the country has much more to lose, especially in the long-term. A recent McKinsey report concluded that South Korea’s economy is significantly top-heavy, in the sense that the chaebols (South Korean family conglomerates) have too much of a political and economic sway. Samsung alone employs 20 percent of South Korea’s private sector, and when combined, the top 30 South Korean companies produce over 80 percent of the country’s GDP.

The FTA forces South Korea to place a dangerous overreliance on a few dozen companies, instead of helping spur growth for small and medium sized businesses. Moreover, as a physically small country, South Korea lacks the natural endowments needed to produce agriculture and sustain its people. With the price of a mango running up to $34 (you read it, one mango), the FTA will naturally allow U.S. agricultural companies to relatively dominate the playing field. If South Korea’s chaebols were to experience a decline for even a few quarters, this would spell trouble for the majority of the country’s private sector employees. This, coupled with a rise in inflation and agricultural goods (which are already freakishly expensive by normal U.S. estimates), could lead to legitimate suffering for many South Korean households.

For the short-term, both countries will significantly benefit from the FTA. As for the long-term, South Korea in particular needs to assess how to prepare for such fallout scenarios like the one fore mentioned. Imagine living in South Korea, finding out Samsung, LG and Hyundai aren’t doing as well for a few quarters, or even a few years, and having the price of a mango surge up to even $40 or $50 dollars.

Photo By United Nations Photo