Industrial Ministries in Korea, Germany, China, and Japan Also Handle Trade Functions
"Korea's Economy Relies on Trade... Current System Preferable to Reflect Corporate Opinions in Trade Policy"
Japan's Export Restrictions: Diplomatic Failure → A Key Example of Economic Security Threat
[Asia Economy Sejong=Reporter Kwon Haeyoung] Most countries with a high dependence on manufacturing, including South Korea, Germany, Japan, and China, have their trade policies led by industrial ministries rather than foreign affairs ministries. In South Korea, the 'trade function' was primarily handled by the Ministry of Industry since 1948, but it was transferred to the Ministry of Foreign Affairs during the DJ (Kim Dae-jung) administration in 1998, then moved back to the Ministry of Industry in 2013. Since the new government took office, the Ministry of Industry and the Ministry of Foreign Affairs have been competing over trade functions in preparation for government reorganization, but there is growing support for the current system where the Ministry of Industry, the main ministry for industrial policy, also handles trade functions in Korea, a global manufacturing powerhouse.
◆Global Manufacturing Powerhouses, Industrial Ministries Take Charge of Trade Policy＝According to government sources on the 18th, an analysis of the government organization status of major 20 countries (G20) and Organization for Economic Cooperation and Development (OECD) member countries showed that among the top 10 countries with the highest manufacturing share relative to gross domestic product (GDP), 9 countries have their industrial ministries in charge of trade functions.
These countries include Ireland, with the highest manufacturing share at 34.5%, as well as China (26.1%), South Korea (24.8%), Czech Republic (21.9%), Slovenia (20.6%), Japan (20.3%), Turkey (19.1%), Germany (18.1%), and Switzerland (18.1%) (based on 2020 World Bank data). For example, South Korea, strong in manufacturing, has the Ministry of Industry in charge; Germany has the Federal Ministry for Economic Affairs and Climate Action; Japan has the Ministry of Economy, Trade and Industry; and China has the Ministry of Commerce?all industrial policy ministries that also handle trade functions. These countries also share the commonality of having large trade volumes.
Among the top 10 countries with high manufacturing shares, Indonesia is the only one where trade policy is handled by an independent ministry, not by the industrial or foreign affairs ministries. This is similar to the U.S. Trade Representative (USTR) in the United States and the Department for International Trade in the United Kingdom, which are independent trade agencies.
On the other hand, countries with low manufacturing shares and trade volumes tend to have their foreign affairs ministries lead trade policy. For example, Australia’s manufacturing share is only 5.6%, and Canada (9.6%), Iceland (8.6%), and Chile (9.9%) all have single-digit manufacturing shares.
A trade expert said, "South Korea’s economy depends on companies producing goods and selling them overseas, living off trade," adding, "To reflect the voices of companies in trade policy, it is desirable for the current government organizational system to have industrial and trade policies under one ministry."
Sung Yun-mo, Minister of Trade, Industry and Energy, is giving an opening remark at the ruling party-government-administration situation check and countermeasure committee meeting on Japan's export regulations held at the National Assembly on the 29th. Photo by Yoon Dong-ju doso7@
◆Japan’s Export Restrictions Triggered by Diplomatic Disaster... Why Entrust 'Economic Security' to the Ministry of Foreign Affairs?＝The Ministry of Foreign Affairs argues that the transfer of trade functions to the ministry is necessary, citing the 'economic security' logic. They claim that due to global supply chain instability, alliances between countries are expanding from a traditional 'security' basis to an 'economic + security' basis. However, considering the industry’s upheaval caused by Japan’s export restrictions against South Korea in July 2019, there is considerable public opposition to giving the Ministry of Foreign Affairs the lead in trade policy.
In fact, since the Moon Jae-in administration began, South Korea-Japan relations deteriorated, shaking the Korea-U.S.-Japan trilateral alliance. Furthermore, South Korean courts issued rulings ordering the Japanese government and companies to compensate forced laborers and victims of the Japanese military’s comfort women system, completely souring bilateral relations. This led to Japan’s three major export restrictions against South Korea.
An official from the Ministry of Industry said, "After Japan’s export restrictions, it was the Ministry of Industry that filed a complaint against Japan at the World Trade Organization (WTO) in the trade policy sector and pursued self-reliance in materials, parts, and equipment through industrial policy," adding, "The Ministry of Foreign Affairs failed even at diplomacy, and the Ministry of Industry had to clean up the mess. If the trade function is also taken away, how can both diplomacy and trade be properly managed?" The Ministry of Industry expanded its organization related to materials, parts, and equipment after receiving recognition for managing the shock caused by Japan’s export restrictions, which were triggered by diplomatic failures.
The 'economic security' advocated by the Ministry of Foreign Affairs ultimately leads to supply chain management and individual item control, which is why some argue that the Ministry of Industry, responsible for both industry and resources, should oversee trade functions as well.
A trade expert who has attended multiple global trade agreements such as the Korea-U.S. FTA said, "The Ministry of Foreign Affairs has traditionally treated trade as a 'stepchild' and failed to properly carry out trade policy, which is why the function was transferred to the Ministry of Industry. Moving it back to the Ministry of Foreign Affairs is not desirable," adding, "If the trade function must be moved, it should be handled by an independent agency, not the Ministry of Foreign Affairs, and be elevated to a direct agency under the Presidential Office or the Prime Minister’s Office to strengthen the status of trade policy."
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