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The Need for Deepening US-Korea-EU Economic Cooperation – The Diplomat

Earlier this year, President Yoon Suk-yeol became the first South Korean president to attend a NATO summit. His visit signaled the prospect of deepening security cooperation between South Korea and Europe, something that has been furthered with the recent acceptance of a South Korean Mission to NATO. While South Korea’s security cooperation with Europe is bringing two of the United States’ most important security partners closer together, all three would benefit from expanded trilateral economic cooperation.

The desire for deepening cooperation between NATO and South Korea is driven – as NATO has put it – by the need to cooperate with out of region partners to address “cross-regional challenges and shared security interests.” However, the same challenges– whether Russia’s invasion of Ukraine or China’s growing assertiveness – that are generating the need for cross-regional security cooperation are also creating a need for cross-regional cooperation on issue related to energy and technology. Meanwhile, broader economic trends such as digitalization and scientific innovation in biotech and nanotechnology, as well as climate change, require similar levels of cross-regional cooperation.

These issues are not neatly regionally bound, but rather require cooperation with extraregional partners. Washington, Seoul, and Brussels would be wise to develop mechanisms that bring together the best partners for cooperation on set issues rather than stick to a traditional regional focus for cooperation.

Trilateral cooperation among the United States, European Union, and South Korea would tap into the already deep economic ties between the three economies and provide an opportunity for improved coordination on emerging economic issues. All three economies are among each other’s top 10 trading partners; all are technological leaders and pursing ambitious climate objectives. South Korea was also the first major economy to have free trade agreements with both the United States and European Union.

Trilateral cooperation would also address the challenge of integrating South Korea into regular discussions on economic and tech issues with Europe, given Tokyo’s reluctance to see Seoul added to the G-7.

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While there is potential for deeper cooperation, any effort to build trilateral cooperation should be limited in its early stages to avoid overburdening the relationship and focus on cross-cutting challenges and opportunities related to technology, energy, and climate change.

Tech Cooperation

The era of globalization that saw technology largely flow to other countries unimpeded is over. While the shortages of the pandemic highlighted the need for the United States and EU to have enhanced domestic semiconductor manufacturing capacities, competition with China is driving much of the shift on how critical technologies such as semiconductors are viewed.

Beginning with the Trump administration, the United States has sought to limit the flow of advanced technologies to China. The Biden administration continued this effort by tightening export restrictions on the sale of semiconductors and related equipment to China, and is weighing export restrictions for biotechnology and the algorithm underpinning artificial intelligence. The EU is also moving toward to the view that it must maintain a technological edge over China.

With more than 75 percent of the world’s semiconductors produced in Asia, the United States has looked to deepen ties with partners in the region through the Chips 4 initiative and outreach to South Korea specifically. However, any semiconductor initiative that does not include the EU, which is a critical partner for semiconductor equipment, is suboptimal at best. Trilateral cooperation between the United States, South Korea, and the EU would bring together three critical players in the industry and fill a gap in Chips 4.

While semiconductors should be the focal point of any initial trilateral cooperation, as three of the world’s leading tech economies, enhanced consultations could help smooth over differences in approaches to technology and digital trade. The United States and EU have often taken different positions on data privacy, while South Korea is at the forefront of developing the metaverse and pushing for new standards for in-app payments. The U.S., EU, and South Korea will not always agree on these issues – Washington and Seoul have different views on in-app payments, for example – but all have an interest in working together and ensuring standards that support open and transparent technologies.

The United States and European Union could facilitate trilateral cooperation by expanding the U.S.-EU Trade and Technology Council (TTC) to include South Korea. The TTC was initially designed to show that democratic and market-oriented approaches to trade, technology, and innovation still worked in a world of growing state-led capitalism. Including South Korea could enhance that process.

Energy and Climate Change Cooperation

Russia’s invasion of Ukraine and weaponization of energy exports has heightened the need for cooperation on energy security. Prior to Russia’s invasion the European Union was dependent on Russia for around a third of its petroleum imports and more than half of its LNG imports. South Korea is less dependent on Russia, which accounted for only 9 percent of its fossil fuel imports, but is much more dependent on the Middle East – another region potentially subject to conflict.

In the immediacy of the crisis, the United States has increased its energy exports and helped the EU to secure other sources of energy – including from South Korea which agreed to allow some of its LNG to be diverted to Europe.

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Climate change is where these immediate concerns and their national security implications begin to converge with the potential of cooperation on tech and energy. The United States, South Korea, and the European Union each have their own ambitious climate change initiatives. The United States is targeting a 50-52 percent reduction in emissions from 2005 levels by 2030, South Korea a cut of 40 percent from 2018 levels, and EU 55 percent from 1990 emission levels. Achieving these targets will require transitioning to electric vehicles, greening high carbon intensity processes such as steel production, and developing new energy sources, while also considering carbon border adjustments for trade. These are all potential areas for cooperation.

One example of this convergence is the transition to electric vehicles (EVs). South Korea is set to play an important role the transition, specifically in the area of EV batteries. South Korean firms have announced more the $13 billion in EV battery production facilities in the United States that will meet the needs of both domestic and foreign producers. South Korean firms are also expanding their production in the EU to meet European demand.

The U.S. Inflation Reduction Act (IRA), however, requires increasing levels of the minerals used in the production of EV batteries to be from the United States or U.S. FTA partners to be eligible for half of the EV subsidy provided under the IRA. While this has created tensions in relations with South Korea and the European Union, it is designed to encourage the movement of supply chains in minerals viewed as critical for high tech products and national security to the United States or friendly partners and away from China, which has come to dominate the mining and refining of these minerals.

Increased trilateral cooperation would not only facilitate resolving disputes over the IRA with two key U.S. partners, it would allow for better coordination on setting new standards for reducing emissions from steel, where the U.S. and EU are already cooperating and South Korea’s major steel producer has committed to achieving carbon neutrality by 2050. Cooperation could also extend to discussions on designing carbon border adjustment measures and commercializing new fuels such as hydrogen, which has the potential to replace gas in some applications and is being pursued by all three economies.

Cooperation in each of these areas would help the U.S., EU, and South Korea develop more secure energy supply chains while also developing advanced technologies in energy and energy related fields.

Despite the potential, there will be obstacles to deeper trilateral cooperation. The United States and the European Union, as the world’s two largest economies, may be reluctant to bring in new partners like South Korea and instead work together to create standards for new technologies or rules for carbon border adjustments. That would be at best inefficient and at worst self-defeating as the frustration of both the EU and South Korea over the Inflation Reduction Act demonstrates.

Despite concerns about China’s lead in 5G patents, for example, South Korean firms are a close second in total patents. With the U.S. and EU added in, the three economies have a significant lead. Quality of patents will matter, but whether it is 5G, semiconductors, or other technologies South Korea is a key partner for discussions in the areas of tech standards.

South Korea will face its own obstacles for trilateral cooperation. While the Yoon administration has promoted the idea of South Korea becoming a global pivotal state, there has previously been an unwillingness to take certain steps amid concerns about China’s response. South Korea has taken some tentative steps with Chips 4, for example, despite Chinese criticism, but a more significant alignment with the United States and European Union might be difficult.

Despite these challenges, there would be benefits from trilateral economic cooperation. The test, however, for any new forum of cooperation is whether it brings new skills and capacities to the table or fills gaps in the existing architecture. At a time when the G-20 will likely decline in importance due to China-U.S. competition, to say nothing of the question of Russia’s role, there is no robust platform connecting the United States, European Union, and South Korea – three of the world’s largest economies and critical tech partners. There will be issues, such as climate change, that more broadly will require working with other partners, but boosting trilateral cooperation on technology, energy, and climate change would help to fill an important cooperative gap improve coordination on emerging issues, and provide economic benefits.

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