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Political Hurdles to a Japan–South Korea EPA

Tags: Economic Partnership Agreement , South Korea , Territorial Dispute , Deficit , Trade

Sekiyama, Takashi ( –2017.3)

October 06, 2011

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One of the major items on the diplomatic agenda of newly installed Prime Minister Yoshihiko Noda is a summit meeting with South Korean President Lee Myung-bak. Lee originally planned to visit Japan last spring, but the trip was postponed after a flare-up of bilateral tension over the disputed Takeshima islets (called Dokdo in Korean).1

An issue that is sure to come up as the two Asian leaders explore avenues for cooperation is resumption of long-stalled negotiations for a bilateral economic partnership agreement (EPA). In the following, I hope to shed some light on the role Korean attitudes toward Japan and domestic political pressures have played in creating this stalemate, in the hope of pointing a way toward its resolution.

Evolving Attitudes toward Japan

I spent August 15 in Seoul, where I was teaching a summer university class. Back in Japan, it was Shusen Kinenbi (marking the end of World War II), and all the major TV stations were airing programs commemorating the sixty-sixth anniversary of the war’s end.

In South Korea, August 15 is Independence Day, a holiday commemorating the Korean people's liberation from Japanese colonial rule. Given all the attention Shusen Kinenbi gets in Japan, one might easily imagine that August 15 in South Korea would be a day of nationwide events and programs replete with harsh words for Japan's colonial policy. But the truth is, whether one searches the public venues or the television lineup, it was difficult to find anything on the subject of Japanese colonial rule.

In fact, August 15 in Seoul differs little from any other day at the height of the summer vacation season, when Japanese tourists swarm through the Myeongdong shopping and entertainment district, eagerly waited on by store clerks fluent in Japanese.

Such scenes are almost enough to persuade one that anti-Japanese feeling has ceased to be an issue in South Korea. And indeed, hostility between the South Korean and Japanese people has subsided dramatically in recent years, thanks to the effects of cultural interaction.

In Japan, a major turning point came in 2003, with the broadcast of the popular South Korean television drama Winter Sonata (Gyeoul yeonga). The hit show ushered in a wave of South Korean cultural imports, which have become part and parcel of Japan's pop-culture scene and have contributed to a sharp rise in pro-Korean sentiment among the Japanese people.

According to the Japanese Cabinet Office's annual public opinion survey on foreign relations, the ratio of Japanese people with friendly feelings toward South Korea was stalled at around 40% during most of the 1990s, dropping as low as 35.8% in 1996. After 2000, however, that figure quickly rose to more than 50%, and in 2009 more than 60% of Japanese respondents expressed friendly feelings toward South Korea.

In South Korea, popular sentiment toward Japan began to improve when the government ended its ban on Japanese culture in 1998, particularly among the younger generation. When I asked my South Korean college students to name their favorite foreign countries, more than half cited Japan. In explaining their choice, they spoke in considerable detail about the merits of Japanese TV dramas, anime, and fashion.

All of this suggests a calm and genial bilateral relationship. But despite the overall improvement in attitudes, diplomacy with Japan remains a highly explosive political issue in South Korea.

Political Powder Keg

As recently as August 1, three Liberal Democratic Party politicians (lower house members Yoshitaka Shindo and Tomomi Inada and upper house member Masahisa Sato) were denied entry into South Korea. Bound for the South Korean island of Ulleungdo, just northwest of the controversial Takeshima islands, they arrived at Gimpo Airport outside Seoul only to be turned back by the South Korean authorities.

Protests had broken out in South Korea after word had spread of the Diet members' plans to visit Ulleungdo's Dokdo Museum and other spots in connection with the territorial dispute. I was on hand at Gimpo Airport the day the Japanese lawmakers arrived, and it was a chaotic scene, as several hundred protestors scuffled with police and aired their indignation by tearing up a Japanese flag. Confronted with such a domestic backlash, South Korean authorities took the extraordinary step of denying Japanese politicians entry into the country.

The controversy over Takeshima had initially flared up the previous March, after the Japanese Ministry of Education, Culture, Sports, Science, and Technology approved a middle school social studies textbook that asserted Japan's sovereignty over the disputed islands in relatively unequivocal terms. It was the hostile public reaction to this assertion that had caused President Lee to put his planned visit on hold.

South Korean attitudes toward Japan remain prickly, and the impact of these sentiments can sometimes cast a shadow over economic relations. The clearest example of this in recent years has been the fate of Japan–South Korea EPA negotiations.

Economic Sticking Points

The campaign for a Japan–South Korea EPA was kicked off in 1998 with a joint research project conducted by the private sector. Government talks began in December 2003 and continued through November 2004. But negotiations broke down during the sixth round, and they have yet to be resumed. During the seven-year hiatus, high- and mid-ranking diplomats have continued to hold working-level meetings in hopes of laying the groundwork for renewed negotiations, but despite their ongoing efforts, the next round is nowhere on the horizon.

Economic issues certainly played a part in the breakdown of talks. Japan's insistence on protections for domestic farmers is a persistent bone of contention in EPA negotiations, and the Japan–South Korea EPA was no exception. In this case, however, the biggest stumbling-block was the clash of interests in the manufacturing sector.

As things stand now, Japan's average tariff rate on manufactured goods is close to zero, while South Korea's is in the neighborhood of 8%. This means that under the status quo, most manufactured goods from South Korea can flow into Japan virtually unhindered by tariffs, even while South Korean manufacturers enjoy robust protection against competition from Japanese imports. Accordingly, a Japan–South Korea EPA that eliminates tariffs on manufactured goods would offer significant benefits to Japanese businesses exporting manufactured goods to South Korea, without having much impact on South Korean exports to Japan.

South Korea posts a chronic trade deficit with Japan even now, owing to the structure of its flagship automobile and electronics industries, which import key components from Japan and export the assembled products abroad. According to statistics released by the South Korean government, the country's trade deficit with Japan jumped from $27.7 billion in 2009 to an all-time high of $36.1 billion in 2010. Authorities in Seoul are concerned that a Japan–South Korea EPA would leave South Korea's weak parts industry defenseless against a flood of Japanese imports, causing the trade deficit with Japan to balloon even further.

That said, an EPA offers undeniable benefits for South Korea, as well as for Japan, since the elimination of tariffs on Japanese-made parts would help South Korean manufacturers keep costs down in the face of rapidly mounting competition from inexpensive Chinese cars and electronics.

What, then, is preventing the resumption of negotiations?

Political Hurdles

A high-level Japanese diplomat in Seoul explained it as follows. "From the South Korean standpoint, it's much easier to see the downside of a Japan–South Korea EPA than the potential benefits. Given the fraught political atmosphere surrounding relations with Japan, it would be politically risky for the government here to be perceived as rushing toward an EPA with Japan that doesn't have obvious benefits for South Korea."

President Lee's low standing with the public compounds the problem. With approval ratings below 30%, Lee has little political capital to spend in improving relations with Japan. In the words of a South Korean university professor who has studied in Japan, "There's a real danger that Lee would be crucified by the media and the academic community if he simply advocated stronger ties with Japan."

In the meantime, South Korea has been busy pursuing trade agreements elsewhere. The South Korea–European Union FTA went into effect provisionally in July 2011; an FTA with the United States is in the works; and domestic opinion is building for an FTA with China. In the midst of such progress, the prospect for renewed negotiations with Japan continues to recede.

A Need for Leadership

Because free trade agreements almost always involve costs as well as benefits, political leadership is typically needed to negotiate a pact in the face of resistance from domestic interests. In the case of the Japan–South Korea EPA, the political climate in South Korea makes such leadership all the more critical.

At every bilateral summit and foreign ministers' meeting since the Japan–South Korea EPA negotiations broke down in 2004, the two sides appear to have reaffirmed the importance of concluding an agreement as quickly as possible. They have held working-level meetings to that end in the knowledge that the two countries' shared interests far outweigh the differences that divide them. That negotiations have nonetheless remained on hold for a full seven years points clearly to a lack of true political leadership.

The anticipated summit meeting offers a golden opportunity to display such leadership. A summit would naturally produce a joint statement outlining areas of agreement. Armed with sufficient political resolve, the two leaders could make the most of the summit to get the EPA negotiations back on track. Conversely, in the absence of such leadership, the Japan–South Korea EPA could languish indefinitely.

As South Korea's December 2012 presidential election draws closer, Lee will be under increasing pressure to steer clear of politically risky initiatives. We can only hope that a meeting is held soon, and that when it is held, our leaders will summon the political will to act for the economic good of both nations.

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