One of South Korea’s great economic successes of the past 10 years has been its embrace of free trade. High-profile free-trade agreements with the U.S. and European Union have opened new markets abroad for Korean manufacturers, while also bringing more competition and lower prices to a long-sheltered economy. So it is troubling to see that President-elect Park Geun-hye is undermining this success before she even takes office.

Ms. Park, who will be sworn in on Feb. 25, has set off a firestorm with her plan to reorganize the country’s bureaucracy. In particular, she wants to shift responsibility for international trade negotiations away from the Ministry of Foreign Affairs and Trade, or Mofat, into an agency equivalent to America’s Commerce Department, to be christened the Ministry of Industry, Trade and Energy. Bureaucratic reshuffles are common in Korean politics, but this one will have serious negative consequences.

Trade policy will come back under the control of a ministry that, despite periodic name changes, always maintains close relations with the country’s largest manufacturing companies. The commerce ministry traditionally “regulates” domestic industries, which in practice means feeding steady government guidance to the country’s chaebol, or large, family-run conglomerates. But in practice, the influence flows both ways. Bureaucrats are often explicitly tasked by the country’s leaders with fostering those companies. In a system where a prevalent view holds that what’s good for the chaebol is good for Korea, regulatory capture is a particular problem.

The commerce ministry’s industrial policy hurt trade liberalization when it was responsible for trade policy up until 1998. The ministry showed minimal interest in negotiations with the country’s economic partners, while Korea imposed a bewildering array of protectionist barriers on imports that competed with chaebol products. Policies such as uniquely onerous safety standards on imported cars created ever-increasing friction with Americans and Europeans, among others.

All that changed when, in 1998, responsibility for trade was shifted to the foreign ministry under then President Kim Dae-jung. The renamed Mofat boasted an elite corps of English-speaking diplomats who became more involved in trade. They brought to the job a focus on Korea’s broader economic interest, rather than on the interests of individual industries or companies, as well as a keen sense of how Korean protectionism affected Korea’s relationships with strategic partners.

A golden era of sorts followed, as Seoul signed trade agreements with Chile, the U.S. and the EU, among others. These high-quality deals brought a dramatic opening of the Korean market across a wide range of goods and services, and stimulated new investor interest in the Korean economy. Attuned to the strategic implications of trade agreements, Mofat is now negotiating with China, Australia, Canada and New Zealand, and is considering joining negotiations for a Trans-Pacific Partnership trade deal. Indeed, when Seoul hosted the G-20 summit in 2010, Korea emerged as a leading voice for trade liberalization.
Returning trade policy to the commerce ministry’s domain threatens all this progress. Commerce bureaucrats, with their narrow domestic orientation, are simply not equipped to handle such issues where geo-strategic considerations must be weighed alongside a sophisticated grasp of economics.

Although some key personnel could be expected to move their offices to the new ministry, the best and brightest will have a strong incentive to stay in the foreign ministry’s elite diplomatic corps. Meanwhile the inward looking culture of the commerce ministry doesn’t match the outward focus of a foreign ministry when it comes to fostering trade negotiations. Not to mention that the minister ultimately in charge of the commerce ministry would find himself caught in conflicts between the interests of domestic industries and the dictates of trade negotiation.

This is why Korea’s Minister of Foreign Affairs and Trade Kim Sung-hwan and Trade Minister Bark Tae-ho, along with others who share a more enlightened worldview, publicly opposed the president-elect’s plans this week when the reorganization was presented in the National Assembly. It is unclear whether Ms. Park, who is reportedly adamant that her plan be passed next week, will succeed.

It’s in everyone’s interest that this plan fail. In the U.S., which has long been a global leader on trade issues, President Obama is contemplating a similar bureaucratic reshuffle that would downgrade the Office of the U.S. Trade Representative by moving it into the Commerce Department from its current home in the White House—a move that would have similar effects to Ms. Park’s proposal.

If Seoul rushes ahead down the same road, it will cede a promising area of international influence where its leadership is especially important. That would be a bad result for an economy that has benefited so much from trade already, and for a new president whom voters expect to deliver growth over the next five years.

Mr. Rushford publishes an online journal that tracks trade politics and diplomacy.

Ms. Park’s Dubious Idea

posted by
on February 12, 2013

By Greg Rushford

 During her successful campaign to become South Korea’s first female president, Park Geun-hye projected intelligence and a calm strength under pressure. She’s sure going to need those qualities.

Imagine walking into such a job. Since her December election triumph, the Korean won has appreciated so much vis a vis the Japanese yen that the value of Korea’s exports — which amount to about a third of Korea’s GDP — could fall this year by six percent, or even more. Projections on new Korean domestic job creation this year are pessimistic. Not to mention the continuing threats from a hostile, impoverished North Korea, which announced earlier today that it had successfully tested a “miniaturized atom bomb,” while working on missiles that could reach the U.S. west coast. It’s a good guess that Park, who turned 61 last week, has been way too busy to enjoy a proper birthday party.

Too busy, perhaps, to think everything through properly. Even before the president-elect will be sworn into office on Feb. 25, she has run into several political controversies. The Korean press has criticized her presidential transition committee for being overly secretive. Her first choice for prime minister had to step down when questions were raised about his ethics and finances. And President-elect Park has set off a firestorm in the National Assembly by picking a fight with Korea’s respected Ministry of Foreign Affairs and Trade. This fight with Mofat’s diplomats — which is widely interpreted overseas as both unnecessary and unhelpful — has caused great consternation. Indeed, Park has given worried Korean trading partners good reason to ask whether South Korea’s trade relations under her administration will be headed, well, south. Read the rest of this article »