The coronavirus pandemic has forced a “fundamental shift” in global trade policies as governments increasingly focus on supply-chain resilience and securing access to next-generation technology, according to South Korea’s trade minister.
Yeo Han-koo told the Financial Times in an interview that the traditional concentration on market access and supply-chain efficiency had been found wanting.
“The scope of trade policy that we had before the pandemic — basically just market opening in trade in goods and services, rules of origin and so on — that is not the trade policy that we are witnessing in this new era,” said Yeo.
“Digitalisation, supply-chain vulnerability and developing the rules of the road for emerging technologies: these are the new challenges.”
Yeo cited an acute shortage of diesel exhaust fluid in November as an example of a supply-chain shock that had rattled policymakers.
South Korea depends on China for more than 97 per cent of its DEF imports. But after Beijing restricted exports of urea, an essential ingredient in DEF used to reduce toxic emissions from diesel engines, the country’s logistics sector faced imminent paralysis. The South Korean military was forced to airlift tens of thousands of litres of the fluid from Australia, south-east Asia and the Middle East.
“This was not even a high-tech product, but we woke up one morning to realise that we were relying on just one country. We need early-warning systems to stop these situations from developing into something serious,” said Yeo.
South Korea is the world’s eighth-largest exporter of goods and services, according to the World Bank. Booming trade in chips, cars and ships are driving the country’s economic recovery from the Covid crisis, with exports and trade volume expected to reach record levels this year.
Asia’s fourth-largest economy announced this month that it was preparing to apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, after China’s bid to enter the regional trade pact assuaged Seoul’s fears of upsetting its biggest trade partner.
But it is unclear how Seoul’s formal application, which is expected to be submitted before President Moon Jae-in’s term in office ends in May, will be received in Japan.
The countries are embroiled in a dispute at the World Trade Organization over export controls that Tokyo imposed on South Korean semiconductor components in 2019 linked to a fight over Japan’s wartime occupation of Korea. All members of the CPTTP must approve any new entrants to the pact.
Yeo admitted that “we haven’t really had the chance to have in-depth conversations” but insisted that the responsibility for improving relations lies squarely with Tokyo.
“It is Japan that imposed these export control measures, and since then Korea has rectified all of the issues that Japan has raised,” he said. “So it is Japan’s turn to come forward with a more positive, more constructive stance and see how we could solve this problem.”
Separately, Yeo insisted that Seoul would not “take sides” in the dispute between the US and China.
“The previous equilibrium in US-China relations has been broken, so now everyone is recalibrating to find a new equilibrium,” said Yeo.
South Korea and like-minded governments “don’t want this conflict leading to more serious chaos in the world economy”, he added.
“It is not only Korea. Many countries in the region face a similar situation.”
Seoul has worked closely with the Biden administration to deliver on Washington’s priorities in sectors including electric vehicles and semiconductors.
Yeo praised Katherine Tai, the US trade representative, for her intervention to broker a settlement to end a bitter dispute between the battery-making affiliates of Korean companies SK and LG.
The disagreement had threatened the future of SK’s $2.6bn battery plant in the US state of Georgia, and Ford and Volkswagen’s plans to build electric vehicles in America.
“Katherine Tai’s intervention saved thousands of jobs and the US-South Korea supply chain in EV batteries,” said Yeo. “It was an example of what active trade authorities can do.”
But he acknowledged that South Korean chipmakers had been unsettled by US demands for details about chip supply and demand, inventory and different customer segments.
“Companies will worry that this kind of information may reveal sensitive information related to their consumers and their business secrets,” he said. “We have communicated our concern, and the US has communicated that it understands that concern.”
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