Shihoko Goto is the senior Northeast Asia associate at the Woodrow Wilson International Center for Scholars, where she specializes in research, programming, and publications on South Korea, Japan, and Taiwan. Before she started working at the Wilson Center, she spent over a decade writing about the political economies of Asia for such publications as the Wall Street Journal, New York Times, BBC, and many others. Her work as a journalist earned her the Freeman Foundation’s Jefferson Fellowship and the John S. and James L. Knight Foundation’s journalism fellowship. Originally published in Spring 2017.
Expectations for South Korea to play a key role in ensuring stability in a region increasingly fraught with risks have perhaps never been higher. Korea literally finds itself in the middle of some of the biggest sources of tension in Asia, from the pervasive threat of neighboring North Korea to the rising nationalist rivalries across the region. Yet the political crisis that has been plaguing President Park Geun-hye’s government has all but crippled Seoul from rising to the occasion in the short term. The immediate question is how quickly a new, stable political leadership will emerge from the shadows of scandal. But even with the emergence of a strong government, Seoul will have to grapple with fundamental challenges to ensure its future growth, namely with geopolitical risks and the need to jump-start its economic foundation.
Shaken Confidence in Governance
The slew of large-scale protests across Korea following extraordinary revelations about President Park’s relations with her unofficial advisor and confidante ultimately ended with the National Assembly overwhelmingly voting to impeach her in early December 2016. But media coverage about Choi Soon-sil’s influence over the Korean president not only led prosecutors to investigate the ties between the Blue House and the old family friend, but also shook the core of the Korean public’s faith in the system of governance itself, causing citizens to go far beyond simply clamoring for a change in the head of state. It has also become a turning point for Korea’s confidence in the presidency and in democracy itself. After all, the country has undergone a remarkably rapid political transformation in recent decades, having emerged from a military dictatorship to become a vibrant liberal democracy in 1987. In fact, Park herself, at the time of her ascension to power, personified a seismic shift in Korean governance: she, the daughter of former president and military general Park Chung-hee, became the first democratically elected woman to lead the country.
Since South Korea continues to struggle to move up the ranks of gender equality, Park’s election four years ago was a breath of fresh air for the country, as many believed that Park could herald a new dawn by giving more opportunities to women, pushing for greater innovation in a country looking to move beyond its traditional economic base, and fighting corruption. Such hopes for instigating lasting social change under the Park presidency have obviously been thwarted, and instead, her legacy includes the unenviable title of one of the least popular Korean presidents in history. Looking ahead, though, the silver lining of the ongoing crisis is that it has led to closer scrutiny of the presidency and its relations with chaebols, large South Korean conglomerates. Should this latest meltdown lead to fundamental reform, it would likely make South Korea more resilient and economically competitive in the long term. But first, the Constitutional Court will need to move forward with the impeachment process, and if the court rules in favor of it, a presidential election will need to be held within 60 days of that decision. This, in turn, would move the presidential election, scheduled for December 2017, up by several months. It would also lead to upheaval in the ruling Saenuri Party and turmoil among the opposition parties, which will seek to make their bids for power.
Hobbled by a Power Vacuum
In the meantime, South Korea will be at a serious disadvantage on the global stage, as its political energy will inevitably be focused on internal affairs. Its priorities must first and foremost be reestablishing stability in leadership and restoring public confidence in the government. After all, the current power vacuum has already cost South Korea diplomatically, as Seoul has lost a number of opportunities to assert its position as a key power in Asia. It has three key issues to focus on: staving off threats from North Korea, having solid relations with both China and Japan, and ensuring continued economic growth. These interests will remain unchanged regardless of who succeeds President Park, but how these objects can be reached remains unclear because of the political vacuum. Moreover, Seoul has already begun to suffer diplomatically as a result of the uncertain leadership outlook. For instance, the trilateral summit meeting between South Korea, Japan, and China scheduled for December 2016 in Tokyo was canceled precisely because Park Geun-hye was unable to attend. The cancellation of the summit meeting was a blow for relations between East Asia’s biggest powers at a time when trilateral efforts to deal with Pyongyang are critical, especially in light of the limited impact of UN sanctions. The political stand-off in South Korea has also kept Seoul from being a fully-fledged player in ensuring regional stability and from having its voice heard on the global stage. For example, South Korea was represented by a caretaker prime minister at the latest APEC in November, and it was the vice foreign minister who met with then President-elect Donald Trump. As long as President Park’s successor remains unchosen, it will become increasingly difficult for South Korea to assert itself on the global stage and to ensure that the country is fully represented at the highest level.
Uneasy Relations with Japan to Persist
Seoul and Tokyo were able to conclude a General Security of Military Information Agreement (GSOMIA) to share defense intelligence last November despite the political turmoil in Seoul. The idea of sharing military intelligence had initially been floated nearly three decades ago, but in 2012, when the two countries were close to signing an agreement, it was thwarted at the last minute due to formidable opposition from South Korea’s National Assembly. The latest GSOMIA agreement will enhance satellite intelligence specifically to monitor the latest developments in North Korea, especially the latter’s submarine-launched ballistic missile program.
Still, Tokyo had hoped to deepen relations with Seoul even further by the end of 2016, even beyond advancing military cooperation. Indeed, Japanese Prime Minister Shinzo Abe had hoped to hold a bilateral meeting with President Park on the sidelines of the trilateral China-Japan-South Korea summit to discuss the latest developments regarding issues related to the “comfort women” who were forced into prostitution under Japanese occupation until the end of World War II. In December 2015, Japan reached an agreement with South Korea to establish a fund to provide one billion yen to compensate victims. By last autumn, the Japanese government had transferred the full amount to the South Korean fund established in July to disburse the money to the victims. Nevertheless, the statue of a young girl representing comfort women continues to stand in front of the Japanese embassy in Seoul, which Japan continues to call for the removal of as part of the 2015 agreement. In fact, the situation became more contentious as yet another statue of a girl representing comfort women was placed in front of the Japanese consulate in Busan in late December. In retaliation, the Japanese government has temporarily withdrawn its ambassador to Korea, stressing that the statue violates the spirit of the 2015 agreement for the two countries to resolve their dispute over the legacy of World War II.
Expectations for progress to be made on that front through direct talks between the Japanese prime minister and President Park had been high, especially given the slowly improving personal relations between the two leaders. Park’s scandal, however, has destroyed the hopes that personal ties would lead to progress. Moreover, given the sensitive nature of the subject, at a time when Korean politicians will be particularly sensitive to public opinion, it will likely be increasingly difficult for issues related to historical reconciliation to be resolved any time soon in the run-up to an election that is already fraught with tension.
There is, however, great danger in playing up the nationalist angle and politicizing historical memory on both sides. Already, the politics of history have spilled over from diplomatic relations into the economic realm. As a direct result of the statue placed in Busan, Tokyo declared in early January that it would hold off on negotiating the reestablishment of a bilateral currency swap deal that would allow Tokyo and Seoul to provide each other with US dollars in the case of a monetary crisis. Granted, Japanese finance minister Taro Aso had stated bluntly in late 2016 that the postponement in finalizing the bilateral currency swap agreement (originally planned for the end of the year) came not from any disagreement between Tokyo and Seoul, but rather because it was unclear whom to talk to about concluding the deal. The swap deal, which was first formed in 2001, was particularly effective in ensuring that the two countries had access to sufficient dollar funds during the eurozone sovereign debt crisis. Fortunately, both South Korea and Japan have adequate foreign currency reserves, and with seemingly no looming global financial crisis in sight, there appears to be no immediate need for the swap deal. Nevertheless, the inability of the two sides to reestablish the swap agreement that expired in 2015 will hurt broader Japan-South Korea relations, which will face further strains amid continued political uncertainties.
Disadvantages and Uncertainties in Trade Negotiations
The more immediate economic concern for South Korea, though, will be the prospect of trade relations worldwide, especially with the United States. Many governments are anxious about their relations with Washington under a new administration, and Seoul is no exception, especially since it will clearly be at a disadvantage in establishing solid personal ties with Donald Trump while its own leadership vacuum persists. South Korea will certainly be facing more challenges than other countries in ensuring that it is able to articulate its position and enhance South Korea’s trade relations with the incoming US leadership. At the same time, Trump is unlikely to adhere to the status quo on US trade agreements. Admittedly, personal appointments are not policy directives, but given his selection of officials who will be at the helm of key trade posts, it is most likely that Trump will indeed adhere to much of his campaign rhetoric on trade-related issues, namely that he will push for the renegotiation of NAFTA and will not ratify the Trans-Pacific Partnership (TPP) agreement. Given that South Korea is not a founding member country of the TPP, the deal not being ratified will not have any immediate impact on Seoul. However, with 16 free trade agreements (FTAs) across the globe, South Korea has one of the largest number of FTAs in the world, including agreements with the United States as well as with Canada.
The South Korea-United States FTA, known better as KORUS, came into effect four years ago and is the second-largest FTA for the United States, preceded only by NAFTA. There is growing concern that should NAFTA be renegotiated, KORUS would draw similar scrutiny, especially given that KORUS has come under attack from a number of members of Congress, who have argued that it has been a one-way trade deal that is far more advantageous for South Korea than for the United States. The fact that US cars sold in South Korea are now effectively duty-free and that US car exports to South Korea more than doubled post-KORUS has not been highlighted, nor has the fact that KORUS opened up opportunities for US financial institutions, causing US services exports to rise by 34 percent to over US$22 billion. The lack of adequate attention to these figures has been worrisome to Seoul. With expectations that the Trump administration will focus more on the enforcement of trade rules and that trade will take on a more overtly protectionist tone in the Trump administration, South Korea’s position will not be helped as long as it is unclear who is in charge in Seoul.
Moreover, a shift in US trade policy will impact South Korea’s broader economic growth prospects. Many in Seoul had hoped that South Korea would be able to join the TPP once it was ratified by all 12 member countries, not only for the trade benefits the agreement would bring, but also for the external pressure it would provide to push South Korea to pursue structural reform within its own borders and to spur domestic demand. After all, while the export-led growth model was hugely successful in transforming South Korea into a global economic powerhouse, the limitations of that mode of economic expansion have become increasingly clear. Indeed, President Park had called for policies to ensure a second economic miracle in the country by focusing on innovation in the service sector. In addition, the country faces challenges that many other industrialized nations face, including a rapidly aging society coupled with a declining birthrate. Another challenge is youth unemployment, with many highly educated people in their 20s and early 30s facing greater difficulties in finding opportunities that would make full use of their skills.
The True Cost of a Power Vacuum
From 2012 to 2013, South Korea had the opportunity to be a member country of the TPP. That opportunity was lost largely for domestic reasons—mostly because of the leadership change from Lee Myung-Bak to Park Geun-hye and the ensuing shifts to streamline South Korea’s trade policy and concentrate negotiation capabilities in the commerce ministry. In short, the timing of the TPP negotiations, which came on the heels of concluding the KORUS agreement, found South Korea in a difficult position to enter yet another round of trade talks. In hindsight, however, many South Korean trade analysts argue that South Korea should have overcome those hurdles and become a founding member country of the TPP. If there is a lesson to be learnt from that experience, it is that timing matters greatly, and that absence will lead to missed opportunities.
Since the scandal about President Park first broke, Seoul has already lost a number of opportunities to ensure that its diplomatic, security, and economic interests are fully represented. Meanwhile, as the Asia-Pacific region faces greater uncertainties, South Korea can ill afford to be mired in domestic issues. How quickly and effectively Seoul can rebound from the current political crisis as a stronger, more transparent democracy will ultimately define not only South Korea’s long-term economic competitiveness, but also its role as a leading Asian power.