Top businesses seek clarity on US-led Indo-Pacific economic initiative
By Kim Yoo-chul
President Yoon Suk-yeol and his administration are set to support U.S. President Joe Biden's call for deepening their economic alliance during Biden's state visit, here, as Yoon will explore advanced ways to expand South Korea's role in jointly addressing the continued global supply chain bottleneck throughout the Indo-Pacific Economic Framework (IPEF).
The 90-minute summit between the heads of the two countries at the presidential office in Yongsan District, Saturday, is taking place because Washington and Beijing have intensified their rivalry for greater influence and weight in the region. Biden and his Chinese counterpart, Xi Jinping, are laying out the details of new plans in order to resolve each of their respective strategic blind spots.
U.S. politicians are increasingly asking top Biden aides to level up Washington's engagement with Seoul and Tokyo as a way to take a tougher line on China.
China's leadership has been challenged in the wake of Russia's invasion of Ukraine, with Moscow's apparent failure in reaching its initial war aims, this, it seems, has made Beijing feel the need to have a better strategy to counter Washington.
From a business standpoint, unsurprisingly, the heads of Korea's top four conglomerates are set to meet Biden in a planned and scheduled business summit. Officials told The Korea Times that the participating business tycoons are intending to seek greater clarity on what the IPEF is, what it primarily seeks to do and even how it would be negotiated.
The Yoon-Biden summit is set to touch on all four pillars of the IPEF: fair and resilient trade; supply chain resiliency; infrastructure, clean energy and decarbonization; and tax and anti-corruption.
"The prime focus of participation in the planned business summit is not to announce a new set of billion-dollar investments. What matters the most is to check Washington's level of readiness before the actual rollout of the IPEF and to find the estimated benefits from the launch of the economic pact," a Samsung source said, asking not to be named.
Samsung Electronics is one of the largest foreign investors in the United States with the world's top memory chip supplier operating a huge chip-producing factory in Austin, Texas. Very recently, as a gesture of its support to support Biden's initiative to boost the semiconductor industry, Samsung decided to invest an additional $17 billion in building another foundry for a new line of production nearby in Taylor, Texas.
|White House National Security Adviser Jake Sullivan speaks during a daily briefing at the White House in Washington, May 18. AP-Yonhap|
Lee Soo-hoon, a senior researcher at the Korea Institute for Defense Analyses, welcomed President Yoon's idea of supporting the U.S.-led IPEF framework. "I would say it's sensible for South Korea to remain active in establishing new trade, supply chain orders. That would be a plus factor for the Yoon administration to move forward with its security- and economy-focused policy agenda."
Estimates by the Korea Chamber of Commerce and Industry (KCCI), the country's largest business lobby organization, showed that South Korea's total investments in the United States over the last five years had an annual increase of 22.67 percent, totaling $99 billion. Over the same period, U.S. investments here totaled $27.9 billion.
No way but to maintain flexibility
From Washington's perspective, Asia ― including South Korea and Japan ― is just as important. Getting more support in this region will help Biden craft the standards and rules he hopes for more effectively.
However, because the IPEF still lacks a level of certainty in terms of its clarity and legal terms, if China offers more tangible incentives in terms of attracting more foreign direct investment, then there are chances that leading Korean exporters will also keep their eyes on the alternative to the IPEF, the Chinese-led Regional Comprehensive Economic Partnership (RCEP), experts and officials said.
|Chinese State Councilor and Foreign Minister Wang Yi meets with Park Jin, the new foreign minister of the Republic of Korea (ROK), via video link in Beijing, May 16. Xinhua via Yonhap|
Citing Korean exporters' decades-long dedication to investing in China, a senior trade ministry official said that he was expecting China to file its complaints to the government as soon as Seoul officially joins the IPEF pact.
"The IPEF has been planned out so as to provide economic benefits. But the main purpose of the pact is that Washington wants to break Asian countries' deepening economic cooperation with Beijing," said one high-ranking trade ministry official by telephone, adding that the IPEF is aimed at establishing trade principles and strengthening supply chains without China.
Just like Biden administration's aim to win over regional Asian partners, the situation isn't much different from China's viewpoint. China has significant economic influence; however, it has thin network of partnerships and alliances, pushing Beijing to tout its own version of the IPEF.
The amount of direct and indirect investment by leading Korean exporters in China is significant. Samsung is also one of the largest foreign investors there, with the company operating two massive chip plants in Xi'an. SK Group and LG Group technology affiliates invested substantially in the world's No. 2 economy and have been operating joint ventures with Chinese regional governments. Overall, experts say Korean companies have situated themselves to maintain greater flexibility amid the Washington-Beijing contest.
"Today, trade doesn't only mean the exchange of services and even goods, it means the sharing and collaboration of advanced tech, because the global economy is dependent upon the use of technology," said Kim Yang-hee, a senior analyst in the Department of International Economy, Trade and Development Studies of Korea National Diplomatic Academy, adding that the Yoon administration should try hard to convey to the United States that any attempt to "decouple from China" could hurt the best interests of its Asian allies.
Executives at SK Hynix, which trails only the leader Samsung, in the global memory chip industry, said that the company will maintain greater flexibility in terms of making investment decisions both in the United States and China until there is clarity on the estimated benefits from supporting the IPEF or the China-initiated Global Security Initiative (GSI).
However, more to the point, there are chances that Korean exporters could get new incentive packages and various other types of benefits both from the United States and China, as the two economic superpowers are set to continue competing through their imperfect economic and security patchwork plans.
"Korean companies could raise the bar for more incentives before making their investment decisions in the United States or China," said Kim Kyung-hoon, a senior researcher at the Korea International Trade Association (KITA).