Seoul's new strength tests economic
ties By Yong Kwon
Korean historians often use the idiom
"shrimp among whales" to describe the tumultuous
history of the Korean Peninsula - an appropriate
description for a place long targeted by more
powerful foreign forces attempting to assert
control over strategic territories or resources.
In particular, the two modern Korean
states are defined by the loss of sovereignty to
Japan in 1910 and the narrative of world powers
violently converging on their land during the
first half of the 20th century. It is certainly
fair to say that the desire to avoid replicating
these traumatic experiences constitutes the key
driving force of both Korean states.
But
more so than its northern counterpart, South Korea
is in a
historically
unprecedented position to dictate the terms of
regional power relations. Economically, militarily
and demographically, the Korean state has never
been more robust in recent history.
Recognizing its new status, Seoul has been
keen on becoming a more significant player in
regional and international affairs; the late
president Roh Moo-hyun even talked about becoming
a "whale among whales", inverting the age-old
image of Korea eking out survival between its
neighbors. However, Seoul's recent muscle-flexing
over maritime boundaries with Tokyo may be
diverting South Korea's and Japan's attention from
more pressing issues at hand.
Seoul's
strength was difficult to gauge during the Roh
administration (2003-08), when the world's
attention was largely trained on the Middle East.
Within South Korea as well, dealing with
socio-economic and political divisions became the
government's first order of business.
However, this began to change as the Lee
Myung-bak administration proactively pursued
free-trade negotiations, pushing to expand South
Korea's economic presence in the world further.
Despite the public backlash, Seoul managed to
ratify the Korea-US Free Trade Agreement (KORUS
FTA), adding to South Korea's expanding web of
free-trade agreements that already included the
European Union, Chile, Singapore, the European
Free Trade Area, and the Association of Southeast
Asian Nations. The business-oriented
foreign-policymaking of the Lee administration was
most likely instrumental in South Korea
maintaining a trade surplus for the sixth
consecutive month despite whimpering economic
conditions elsewhere in the world. [1]
There is also another dimension to Seoul's
industrious efforts to establish economic
partnerships: Korea's position relative to that of
Japan. It is likely that the Lee administration
hesitated to set a definitive timeline for talks
on a trilateral free-trade agreement among South
Korea, China and Japan because Seoul wanted to
secure a more economically advantageous position
in the China market over Japan (for further
discussion on this topic see Beijing,
Seoul, and Tokyo look to an uncertain future,
Asia Times Online, May 30, 2012).
The
rivalry between the two states has been subtle in
the past few years, but the recent controversy
around the Dokdo/Takeshima islets has pushed the
antagonism between the two countries to the
forefront of their bilateral relationship, which
only a few months ago was on the verge of
completing a historic accord on military
intelligence and logistics sharing.
The
maritime dispute between South Korea and Japan has
been going on since the end of World War II.
Arguments over fishing rights and possible mineral
resources were further intensified by a
long-standing historical feud between the two
nations (including the issue of comfort women from
that war, which has also recently come to
forefront). At the center of the conflict are the
troublesome islets, which South Korea administers
and are currently host to about 40 policemen and
civilians.
Seoul puts forward the claim
that the maritime border between Japan and Korea
should be drawn between these islets and the Oki
Islands, which lie 158 kilometers to the
southeast. Tokyo claims that the islets are
Japanese and draws the line between them and
Ulleungdo Island, which is 87km to the west. At
stake here is 20,000 square kilometers of
exclusive economic zone (EEZ).
Making
matters worse, to counter South Korea's 2006
decision to establish the EEZ vantage from the
Dokdo islets (rather than from Ulleungdo Island),
Japan has expanded the maritime dispute to the
East China Sea, where it has adjusted its claims
against South Korea's southern EEZ, placing an
additional 36,000 square kilometers under
contention.
Seoul and Tokyo are in an
unenviable position: Both governments (probably)
face elections within the year (South Korea's
presidential election is in December and observers
suggest the Japanese Diet may soon call a national
vote) and cannot compromise on the Dokdo/Takeshima
issue without suffering a significant loss in
voter confidence. It certainly does not help that
Prime Minister Yoshihiko Noda and the Democratic
Party of Japan already face a disenchanted public
after doubling the national consumption tax. [2]
The Lee Myung-bak administration is also
conscious of the upcoming election, but Seoul also
sees that it has the political capital to confront
Japan and wants to test the extent of Korea's
influence. Bold moves such as President Lee's
visit to the disputed islands on August 10, which
South Korean foreign-policymakers knew would
provoke an intense response from Japan, would not
have occurred otherwise.
South Korea is in
a more advantageous position in the region. In
terms of their respective relations with the
United States, the Washington-Seoul ties have
become increasingly solidified by Lee's close
relationship with US President Barack Obama and
the recent ratification of the KORUS FTA.
Meanwhile, Noda opted to concentrate on the
consumption-tax debate over pursuing the
US-promoted Trans-Pacific Partnership. As a
result, cooperation between Tokyo and Washington
has been scarce in the past few years.
Furthermore, with trade relations between
South Korea and China deepening and a possible
bilateral free-trade agreement in the works
between Seoul and Beijing, Japan is increasingly
finding itself isolated from the economic
arrangements that are likely to become crucial in
the near future.
The economic issue is
closely tied with the maritime dispute between
South Korea and Japan and was made evident by
Tokyo's decision to consider adjusting the terms
of the $70 billion currency swap with Seoul and
possibly to forgo purchasing Korean government
bonds after Lee's visit to the islets. However,
many market watchers suggest that Tokyo's decision
will have little effect on the South Korean bond
market. [3]
For the foreseeable future,
Seoul has little to lose from its dispute with
Japan and gets to assert its diplomatic muscle in
the region. However, this row will benefit neither
side in the long term as economic cooperation
between these two robust Asian economies is
crucial not only for each other's welfare, but
also for the health of the global economy. Lee
himself noted this year that the economic
partnership in Northeast Asia would facilitate
"economic recovery and growth in the world".
Neither country is necessarily in great
shape. South Korea still maintains a trade
surplus, but it has decreased to $2.76 billion
last month from $4.65 billion in July 2011, a 41%
drop. Meanwhile Japan saw a 2.3% annual decline in
exports, with shipments to the European Union and
China down by 21.3% and 7.3% respectively compared
with the year before. [4]
Both countries'
economic troubles stem from very similar
challenges in the international market: The key
destinations for both South Korean and Japanese
exports have all been hit by the economic
slowdown, while Washington's aggressive sanctions
on Iran have placed a major burden on both
countries' oil-dependent export industries.
Considering of these overlaps, Tokyo and
Seoul ought to be partners rather than political
enemies. And before the recent falling out, Seoul
and Tokyo appeared to have recognized this fact -
the swap agreement that is now being reconsidered
because of the maritime dispute was originally
expanded to $70 billion in October 2011 from $13
billion because Seoul and Tokyo believed that such
an arrangement would offer mutual protection from
external shocks such as the EU's ongoing debt
crisis. [5]
More broadly, South Korea and
Japan are instrumental players in the Chiang Mai
Initiative, which seeks to pool $240 billion from
13 nations to help stabilize the economies of
North and Southeast Asia, a crucial task for
development in the region.
Alas, the
international community will probably have to wait
it out until at least after both countries have
new leaders at the helm.
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