South Korea in the new geoeconomics: Digital economy

On January 26, 2022, the Middle for East Asia Coverage Research on the Brookings Establishment convened a bunch of consultants from the US and South Korea for the second workshop in a collection to evaluate South Korea’s position within the new geoeconomics and its implications for U.S.-South Korea relations and South Korea’s financial diplomacy in Asia. The theme of the second workshop was the digital economic system. Each the U.S. and South Korea have signaled the digital economic system as an essential space to deepen bilateral cooperation, particularly in rising applied sciences, 5G networks, semiconductor and EV battery provide chains, in addition to tech requirements. This dedication was emphasised by the allies on the spring 2021 summit between U.S. President Joe Biden and South Korea President Moon Jae-in.

The workshop opened with framing remarks supplied by two consultants who provided evaluation from the factors of view of South Korea and the US. Chul Chung, senior analysis fellow on the Korea Institute for Worldwide Financial Coverage (KIEP), highlighted that the deal with bilateral cooperation in digital economic system points has continued past the Moon-Biden summit with statements by South Korean Commerce Minister Yeo Han-koo and United States Commerce Consultant Katherine Tai on the Joint Committee Assembly on the U.S.-Korea Free Commerce Settlement (KORUS FTA) in November 2021. Chung singled out semiconductor, battery, and community industries as the important thing digital industries South Korea ought to focus upon, all of which have been sophisticated by U.S.-China competitors, pandemic-related world provide chain disruptions, and local weather change. Strategic areas of cooperation inside these industries may embrace enhancing manufacturing capability, cultivating R&D and facility funding, enhancing non-public sector cooperation, securing subsequent era core applied sciences, and strengthening laws and institutional assist.

Chung defined that as demonstrated by the Digital Financial system and Society Index (DESI), which measures particular person international locations’ digital efficiency and progress in digital competitiveness, the U.S. is on the entrance of the pack. Though the U.S. holds the biggest share of the worldwide semiconductor market at greater than 50%, semiconductors are South Korea’s prime export. South Korea subsequently maintains an essential position as a significant producer of reminiscence semiconductors. China, as the highest world chip shopper at over 60% market share as of 2019, stays a really influential market participant, although its chips don’t attain the cutting-edge technical customary of these produced by U.S. allies. The spectacular standing of the US and South Korea within the digital economic system present alternatives for bilateral cooperation, and level to areas with room for enchancment as nicely. South Korea would profit from enhancing productiveness ranges by implementing insurance policies that higher diffuse expertise throughout the economic system, and deal with digital expertise gaps current between SMEs and enormous companies and between generations.

In line with Chung, probably the most outstanding challenges for digital economic system are the fragmentation of digital guidelines and requirements, and non-interoperability of digital methods. Policymaking to handle these issues would require consistency and transparency in world guidelines and requirements, effectively constructing out infrastructure and connectivity, emphasizing public-private partnership, and garnering worldwide cooperation. The Korean New Deal launched by the Moon administration to create jobs, assist the transitioning to a digital/inexperienced economic system, and develop South Korea’s position as a post-pandemic world chief, is an important step for South Korea in tackling these challenges.

Subsequent, Clara Gillispie, senior advisor to the Nationwide Bureau of Asian Analysis (NBR), provided her framing remarks. She pressured that South Korea is a vital companion for the US on digital points extra broadly, and in reaching the Biden administration’s agenda for digital improvement within the Indo-Pacific particularly. Gillispie emphasised that South Korea is betting large on the following wave of digital transformation at house with the Korean New Deal and overseas with its New Southern Coverage which boosts its ties to Southeast Asia and India. Whereas Washington and Seoul haven’t all the time been on the identical web page on implement digital improvement in Asia, the joint assertion from the 2021 Moon-Biden summit mirrored a shared understanding of the significance of digital cooperation within the alliance relationship.

In line with Gillispie, enhanced bilateral cooperation within the Indo-Pacific may take a number of kinds, together with new joint efforts on enhancing regional connectivity, supporting regional regulatory and authorized capability constructing, and strengthening regional knowledge governance norms and values. Connectivity is a longstanding theme of cooperation between the U.S. and South Korea, however there may be alternative for additional engagement on this house, particularly provided that two billion folks nonetheless lack primary web entry within the area. The allies could search to assist construct out not solely cutting-edge 5G and 6G networks within the Indo-Pacific, but in addition present assist for methods constructed utilizing 4G and different earlier requirements, as a variety of international locations are anticipated to proceed to make use of these requirements for years to return. Moreover, South Korea has not solely been a worldwide chief within the roll-out of 5G and different rising applied sciences, nevertheless it has additionally demonstrated talent in rigorously balancing the usage of large knowledge to handle rising societal challenges (such because the COVID-19 pandemic) whereas making certain accountability of such instruments to democratic governance. South Korea may thus be a key companion to international locations within the area that need to replace their very own authorized frameworks round digital improvement, together with sharing its personal classes realized in tackling reforms. Selling privateness rights might be a further space of cooperation between the allies.

Nonetheless, Gillispie defined that will probably be important for the allies to additionally make progress on addressing their very own home digital innovation challenges in the event that they hope their respective approaches to digital improvement is likely to be seen as amongst regional finest practices. South Korea, for instance, should resolve the difficulty of SMEs struggling to attain the identical leads to knowledge purposes that bigger companies have achieved, and the U.S. should deal with points with capability constructing and competitiveness in sure manufacturing sectors. Commerce agreements and non-binding ideas are two tracks out there to implement cooperative initiatives. The allies must also reap the benefits of current mechanisms already in place reminiscent of outstanding fora (APEC, G20, East Asia Summit) and look to construct digital commerce initiatives into the Biden administration’s Indo-Pacific Financial Framework.

A standard theme that emerged within the subsequent group dialogue was how American and South Korean views align and diverge concerning China’s rise as a digital energy, and the way U.S.-China rivalry will have an effect on the way forward for the digital economic system and related industries. Most individuals agreed that Seoul might want to rigorously stability its relationships with the US and China; South Korea will seemingly comply with U.S. technique and adjust to many U.S.-led guidelines, restrictions, and export controls, however South Korea doesn’t need full-scale decoupling and can make efforts to retain some entry to the profitable Chinese language market. Some individuals additionally contended that U.S. tech insurance policies shouldn’t essentially goal to single out sure international locations attributing malign intent (China) since such insurance policies are troublesome for allies and companions to publicly assist. Quite, the U.S. ought to goal to stamp out undesired practices, and guidelines ought to be uniformly utilized to all international locations and their companies.

South Korea is a essential companion to the Biden administration’s provide chain resilience initiative in semiconductors and EV batteries. Workshop individuals pressured the significance of decreasing dependency on China for essential elements and an entire end-to-end analysis of provide chains in these key industries. Whereas South Korean companies are constructing most of its high-capacity vegetation within the U.S.  for EV batteries within the coming years, it nonetheless sources element supplies reminiscent of cobalt from China which presents a possible chokepoint in manufacturing. For semiconductors, one participant famous that the main focus of the U.S. shouldn’t be on denying China entry to the chips themselves, however relatively limiting Chinese language entry to cutting-edge manufacturing tools that might enable China to construct out capability surpassing that of the US; Such a distinction is essential to South Korean semiconductor companies working in China.

One other dialogue theme was the prospect of a digital economic system settlement involving South Korea and the US. Individuals broadly agreed that binding guidelines shall be essential to any potential settlement. It was famous that Washington seems to have shifted its stance over time in assist of soppy (i.e. non-legally binding) commitments and dialogue, however Seoul would like the readability and predictability that include binding guidelines and enforcement mechanisms. A number of individuals agreed {that a} bilateral deal is a extra manageable start line than signing onto a regional deal such because the Regional Complete Financial Partnership (RCEP) or the Complete and Progressive Settlement for Trans-Pacific Partnership (CPTPP) which may take important time. Choices may embrace upgrading the e-commerce chapter of the KORUS FTA or initiating negotiations by way of the Indo-Pacific Financial Framework. The U.S. Congress has indicated that the U.S.-Japan digital settlement may function a mannequin for future negotiations. Nonetheless, the danger of fragmentation in knowledge governance between a closed mannequin (China) and an open mannequin (U.S., South Korea, Japan, and others) was repeated by individuals as a priority.

Whereas the 2021 Moon-Biden summit signaled a robust dedication to bilateral cooperation on digital points, one participant famous that the upcoming (March 9) presidential election in South Korea might be a possible turning level for even deeper cooperation; all candidates have launched digital-related pledges that display a rising concern over digital points in South Korea. Lastly, biotech and biodata had been repeatedly talked about by individuals as a sector for future cooperation.