Bloomberg News

East Asia Leadership Change May Help Trade Trump Island Disputes

February 20, 2013

Japan's Prime Minister Shinzo Abe

Shinzo Abe, Japan's prime minister, center, speaks with guests during a New Year's party for business leaders in Tokyo on Jan. 7, 2013. Photographer: Kiyoshi Ota/Bloomberg

Leadership changes provide a good opportunity for China, Japan and South Korea to put aside territorial disputes to pursue a free trade deal, South Korea’s trade minister said.

The pursuit by China’s Xi Jinping, Japan’s Shinzo Abe and South Korea's Park Geun Hye of “more futuristic” relations than those of their predecessors is helping to facilitate trade talks, Bark Tae Ho said in an interview at Bloomberg’s Seoul office this week. Officials from the three countries meet in Tokyo for a second day today ahead of a three-way summit early this year.

Japan and China’s $334 billion trade links were damaged last year amid escalated tensions from overlapping territorial claims on resource-rich East China Sea islands. A trade agreement between three of Asia’s four biggest economies would create the world’s third-largest trading bloc after the North American Free Trade Agreement and the European Union, according to South Korea’s Trade Ministry.

“Last year some disputes delayed a little bit of our process but the free trade agreement is more of an economic issue,” Bark said. “I don’t see much delaying so far.”

Xi replaced Hu Jintao as head of the Chinese Communist Party and the nation’s military on Nov. 15. Abe in December became the seventh prime minister in Japan since he last held the post in 2007. In South Korea, Park, the daughter of former President Park Chung Hee, takes office next week to become the nation’s first woman leader.

“South Korea can only grow through trade,” Park told officials at the Korea International Trade Association and Korea Employers Federation in Seoul yesterday.

Trading Nation

South Korea has free trade and economic partnership agreements with ten partners including the U.S., Chile, India and the European Union. Asia’s fourth largest economy is also in talks with 11 other partners including Canada, Australia, New Zealand and the Gulf Cooperation Council.

Trade is equivalent to about 97 percent of the country’s gross domestic product, based on import and export data from Korea Customs Service. South Korea’s GDP grew 2 percent in 2012, the slowest pace since 2009, as the European debt crisis and global slowdown sapped overseas demand for its products.

Reliance on exports has made South Korean companies vulnerable to a strong won, which has strengthened more than 20 percent against the yen in the last six months, aiding the Japanese rivals of Korean companies including Hyundai Motor Co. and Samsung Electronics Co.

Shares of Toyota Motor Corp. (7203) reached as high as 4,920 yen last week, the highest since 2008. Samsung said last month that the won’s strength may erode its operating profit by more than 3 trillion won ($2.8 billion) this year.

Two Sides

“The exchange rate has always two sides of one coin,” Bark said. “Exporters will suffer but importers are gaining a lot, and we’re importing a lot, too, for exporting.”

“Their difficulties will be mitigated by the import side,” he added.

Petroleum imports increased 14.1 percent in January from a month earlier to $2.6 billion, according to data from South Korea’s Knowledge Economy Ministry. Imports of motor parts increased 498.3 percent, while freighter ship imports increased 155.9 percent from a year earlier, the data show.

The yen’s weakening has provided relief for Japanese automakers hit by a plunge in China deliveries in September and October as Chinese consumers shunned their cars. Japan’s purchase of three disputed islands from a private citizen in September prompted violent protests in China against Japanese businesses. The islands, called Diaoyu in China and Senkaku in Japan, are in an area rich in oil, natural gas and fish.

The combined gross domestic product of China, Japan and South Korea was $14.3 trillion in 2011, compared with $18 trillion for NAFTA and $17.6 trillion for the EU, according to South Korea’s trade ministry.

WTO Contest

South Korea is also monitoring progress on the U.S.-led Trans-Pacific Partnership free trade pact, Bark said. South Korea will consider joining if the agreement fits the country’s own free trade agreement with the U.S., he said.

Bark, 60, will continue to serve as South Korea’s trade minister until the Park’s new administration completes restructuring of ministries. He’s running against eight other candidates to succeed Pascal Lamy as head of the World Trade Organization. Lamy’s second and last term as Director-General of the World Trade Organization comes to an end on Aug. 31.

Bookmakers don’t see Bark winning the post, forecasting instead a victory for an African or Latin American candidate.

Bark described his candidacy as an “uphill” battle, with former South Korean Foreign Minister Ban Ki-Moon serving as Secretary General of the United Nations and Jim Yong Kim, a Korean-American, helming the World Bank. Still, he said he’s best qualified to advocate trade needs of both developing and developed nations.

The WTO needs to modernize to include “21st century issues” including investment competition, which are currently ignored as they are perceived as being applicable only to developed nations, Bark said.

“The WTO is becoming awfully outdated because of preoccupation with negotiations over the last 10 or 12 years,” Bark said. “Maybe the profile in the future will be different but the WTO is the only global governance organization regarding trade, so we have to strengthen somehow the WTO’s function.”

To contact the reporter on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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