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1. Is South Korea vulnerable to EU and US carbon border restrictions?

Author:
Jeffrey J. Schott and Megan Hogan
Publication Date:
07-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
South Korean exports, especially carbon-intensive products like steel, are increasingly vulnerable to both the European Union’s proposed carbon border adjustment mechanism (CBAM)—set to begin on January 1, 2023—and the proposed Clean Competition Act (CCA) before the US Congress. Schott and Hogan caution that Korean exporters should not count on Korea’s decade-old EU and US free trade agreements (FTAs), nor on the multilateral trading rules of the World Trade Organization (WTO), to protect them from new carbon-based import barriers in key foreign markets. The WTO and the FTAs have broad and loosely defined exemptions for environmental protection. Nor is Korea likely to be shielded by its own cap-and-trade emissions trading system (the K-ETS), because of extensive use of free allowances and large differences between EU and Korean carbon prices. While the threat the EU CBAM poses to Korean exports is imminent, passage of the CCA faces major legislative obstacles. But US imports of Korean steel and other carbon-intensive goods are still subject to climate-related duties at the US border under US unfair trade statutes. The US Department of Commerce has ruled that free allowances issued under the K-ETS (and EU ETS) are implicit subsidies that can be offset by countervailing duties. These charges are in addition to the harsh tariff-rate quotas on imported Korean steel applied under the “national security” authority of Section 232 of US trade law, which are more restrictive than measures imposed against European and other steel exporters. The authors suggest relaxing these US barriers, as they have been for shipments from Europe, in return for Korean participation in the nascent US-EU talks to establish a “Global Arrangement on Sustainable Steel and Aluminum.”
Topic:
Economics, International Trade and Finance, European Union, Exports, and Carbon Emissions
Political Geography:
Europe, Asia, South Korea, and United States of America

2. South Korea should prepare for its exposure to US-China technology tensions

Author:
Mary Lovely and Abigail Dahlman
Publication Date:
07-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The stated goal of the US-led Indo-Pacific Economic Framework for Prosperity (IPEF) is to create standards that enhance and elevate regional trade and investment flows, but it is clearly aimed at reducing the role of China in global supply chains. As China is Korea’s largest trading partner, US policy discouraging Chinese participation in supply chains has immediate detrimental implications for Korean manufacturers. The United States is the second-most important destination for Korean exports. Given the values of these triangular trade flows, Lovely and Dahlman assess South Korea’s exposure to US demands to remove or reduce Chinese participation in the manufacture of exports destined for the US market. The reliance of the proposed framework on certain standards will likely reduce Chinese participation in IPEF trade networks. Korea may benefit from this trend, but IPEF could also increase production costs for Korean companies, especially in the electronics sector, a problem that would worsen if China retaliates against these companies. To reduce these risks, Korea might find it prudent to reduce its reliance on intermediate goods from China for products it produces for export to the United States. The Korean government should also seek to better understand its exposure to US–China trade tensions and diversify its trade relations. Korean firms should start preparing for supply chain disruptions, perhaps by making investments at home. Korea could also help other IPEF members reduce supply chain disruptions while addressing security concerns over China.
Topic:
Economics, Science and Technology, Supply Chains, and Competition
Political Geography:
China, Asia, South Korea, North America, and United States of America

3. China's CPTPP bid spurs South Korea to act on Asia-Pacific trade pacts

Author:
Jeffrey J. Schott
Publication Date:
06-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
China’s sudden application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in September 2021 has broad implications for South Korea’s economic relations with China, Japan, and the United States. In the past, Korea frequently debated but invariably postponed deciding whether to participate in negotiations on the CPTPP, despite the substantial benefits to be gained from doing so. However, China’s application has prompted Korean officials to get off the fence and apply as well. As China moves to deepen its ties to regional partners, Korea needs to follow suit, complementing the ongoing implementation of the Regional Comprehensive Economic Partnership (RCEP) with expedited negotiations to join the CPTPP and participation in the US-led Indo-Pacific Economic Framework for Prosperity (IPEF). Korean participation in the RCEP, CPTPP, and IPEF is desirable and mutually reinforcing and should allow Korea to sustain its strong commercial interests in both the US and Chinese markets.
Topic:
Economics, International Trade and Finance, Treaties and Agreements, and Trade
Political Geography:
China, South Korea, and Asia-Pacific

4. Why gender disparities persist in South Korea’s labor market

Author:
Karen Dynan, Jacob Funk Kirkegaard, and Anna Stansbury
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Although the South Korean economy fared relatively well on the whole during the pandemic, the labor market consequences were uneven, with women experiencing worse outcomes than men. These gender disparities have reinforced and highlighted important longer-term gender-related challenges in the South Korean labor market. Despite an above-average level of female tertiary education, the gender pay gap in South Korea is at the top of the range among OECD countries. The labor force participation rate is 20 percentage points lower for women than for men, a difference that is about one-quarter larger than the average for high-income countries. These disparities—as well as fertility that is the lowest of any advanced economy country in the world—reduce South Korea's future economic prospects and will contribute to fiscal challenges as the population rapidly ages. The analysis in this paper suggests that the combination of low female employment and low fertility in South Korea reflects features of the traditional nature of work that create a particularly stark tradeoff for women between work and family and put pressure on women to choose one or the other. This tradeoff has increased in recent years because the opportunity cost of having a child has risen with the rapid growth in the tertiary education rate of South Korean women. Regressions based on individual-level data from the Korean Labor and Income Panel Study (KLIPS) show that the entire gap in female labor force participation is driven by married women, particularly women with children. Unmarried women with no children are just as likely to be employed as men. A sizable "child earnings penalty" for South Korean women is fully explained by women dropping out of the labor force after the birth of their first child rather than reducing hours or hourly wages. Although South Korea has made strides toward making work more family friendly, there is scope to do better.
Topic:
Economics, Inequality, Labor Market, Fertility, and Gender
Political Geography:
Asia and South Korea

5. The pandemic’s long reach: South Korea’s fiscal and fertility outlook

Author:
Jacob Funk Kirkegaard
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
South Korea was one of the first countries affected by the COVID-19 pandemic in early 2020. A combination of high societal discipline and competent and prompt government actions on mass testing capacity and technologically enabled tracing and quarantines enabled South Korea to quickly control the pandemic. Consequently, South Korea did not need to enter into full economic lockdown in early 2020 and needed only much smaller fiscal stimulus than most other advanced economies. The limited fiscal impact of COVID-19 is fortuitous for South Korea, as the pandemic coincided with the country’s dramatic demographic transition to a future of rapidly shrinking working-age population and accelerating overall aging. South Korea recorded the lowest total fertility rate of any advanced economy in 2020. Unless fertility rates rise, the country will not escape large and negative economic effects from what will be a rapidly declining total and working-age population. Kirkegaard proposes several policy reforms for South Korea, while arguing that the direct role of government action in increasing the South Korean fertility levels is likely to be modest.
Topic:
Demographics, Economy, Fiscal Policy, COVID-19, and Fertility
Political Geography:
Asia and South Korea

6. RCEP Is Not Enough: South Korea Also Needs to Join the CPTPP

Author:
Jeffrey J. Schott
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The benefits of the Regional Comprehensive Economic Partnership (RCEP) for South Korea are limited and need to be supplemented by more comprehensive agreements that deepen Korea’s ties to strategic allies in the Asia-Pacific region. RCEP's most important achievement is its new regional content rule that will encourage deeper integration of supply chains across the 15 markets, a key benefit for Korean industries invested in the region. But Schott notes that the pact also has significant limitations. To complement RCEP, he recommends that South Korea move forward with two other trade negotiating priorities, membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and upgrading the Korea-US Free Trade Agreement (KORUS), the latter aimed at encouraging US reengagement in the Asia-Pacific integration pact.
Topic:
Markets, Treaties and Agreements, Partnerships, Regional Integration, and Economic Policy
Political Geography:
Asia and South Korea

7. Collateral benefits? South Korean exports to the United States and the US-China trade war

Author:
Mary Lovely, David Xu, and Yinhan Zhang
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
This Policy Brief assesses the extent to which the United States increased its imports from South Korea after the US imposition of tariffs on Chinese exports. Korea benefited from this shift in US imports, although the increase was relatively small in most sectors. The authors use highly disaggregated US import and tariff data to examine adjustments in US purchases of manufactured goods from its trade partners. Their analysis indicates that Korea made a small gain in the US market following the levying of US tariffs on Chinese exports, with Korea’s share of overall US manufacturing imports rising 0.9 percent and its share of US manufacturing imports subject to trade war tariffs rising 1.0 percent. Gains were spread across a variety of manufacturing sectors—such as wood products, textiles and apparel, and machinery—reflecting both the choices made by US officials regarding which Chinese exports to tax and the nature of preexisting trade relationships between South Korea and the United States.
Topic:
Markets, Economy, Trade Wars, and Exports
Political Geography:
China, Asia, South Korea, and United States of America

8. From hermit kingdom to miracle on the Han

Author:
Douglas A. Irwin
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In 1960, South Korea’s exports were about 1 percent of GDP, and the country’s ability to import depended almost entirely on US aid. After changing its foreign exchange and trade policies in the mid-1960s, Korea saw a surge in exports to more than 10 percent of GDP by the end of the decade. What factors account for the shift in policy that enabled this dramatic export growth to occur? The United States helped initiate the process by withholding financial assistance, pressuring Korea to devalue its currency and reform its foreign exchange regime. Initially, the Korean government resisted taking these steps, but in 1964 it became firmly committed to an export promotion strategy to boost foreign exchange earnings and end its dependence on American aid.
Topic:
Economics, Foreign Exchange, Reform, Exports, and Trade
Political Geography:
Asia and South Korea

9. Developing Countries Can Help Restore the WTO's Dispute Settlement System

Author:
Ana González and Euijin Jung
Publication Date:
01-2020
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
By refusing to fill vacancies in the World Trade Organization’s (WTO) Appellate Body—the top body that hears appeals and rules on trade disputes—the Trump administration has paralyzed the key component of the dispute settlement system. No nation or group of nations has more at stake in salvaging this system than the world’s big emerging-market economies: Brazil, China, India, Indonesia, Korea, Mexico, and Thailand, among others. These countries have actively and successfully used the dispute settlement system to defend their commercial interests abroad and resolve inevitable trade conflicts. The authors suggest that even though the developing countries did not create the Appellate Body crisis, they may hold a key to unlock it. The Trump administration has also focused its ire on a longstanding WTO practice of giving these economies latitude to seek “special and differential treatment” in trade negotiations because of their developing-country status. The largest developing economies, which have a significant stake in preserving a two-step, rules-based mechanism for resolving trade disputes, could play a role in driving a potential bargain to save the appeals mechanism. They could unite to give up that special status in return for a US commitment to end its boycott of the nomination of Appellate Body members.
Topic:
Development, Government, World Trade Organization, Developing World, and Donald Trump
Political Geography:
China, Indonesia, India, South Korea, Brazil, North America, Mexico, Thailand, and United States of America

10. Korea and the TPP: The Inevitable Partnership

Author:
Jeffrey J. Schott
Publication Date:
08-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Korea's decision to delay joining the Trans-Pacific Partnership (TPP) talks was a tactical mistake. It is now left with primarily two options to participate: (1) ask to join the TPP, if possible between signature and entry into force, or (2) accede to the TPP after the agreement is ratified and goes into effect—either alone or as part of a group of countries seeking TPP membership. For Korea the burden of adjustment in the TPP—in terms of liberalization commitments—will probably be higher than had it joined as an original signatory. As a major trading nation, it stands to reap large gains from increased trade and investment with TPP countries and should opt to join the TPP as soon as the window for entry reopens.
Topic:
Economics and Treaties and Agreements
Political Geography:
South Korea

11. Going Beyond Economic Engagement: Why South Korea Should Press the North on Labor Standards and Practices

Author:
Marcus Noland
Publication Date:
04-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In recent years, despite a history of enmity and armed conflict that never really ended after the Korean War more than 60 years ago, South Korea has been a major investor in North Korea, and South Korean firms have employed more than 50,000 North Korean workers. South Korea's stated goal has been to encourage sufficient economic progress by North Korea, emboldening it toward establishing a meaningful basis for reconciliation and, ultimately, national unification. The expectation, or at least the hope, has been to use economic engagement to lessen the North's direct state control over the economy and to encourage the development of a middle class that might demand greater internal opening. The goal, as enunciated by former South Korean President Kim Dae-jung, has also been to foster a rise of interest groups with an enhanced stake in peaceable external relations.
Topic:
Economics, Human Rights, International Trade and Finance, and Bilateral Relations
Political Geography:
Asia, South Korea, and North Korea