With the overlap of the Trump second administration's tariff strengthening and the EU's Carbon Border Adjustment Mechanism (CBAM), Korean companies face a double burden. ESG.ONL met "foreign attorney Hong Seung-pyo," who specializes in EU law and international law, to learn about the ESG competitiveness needed in an era of global trade that is becoming blocked around interests.
President Donald Trump's second administration put the brakes on ESG policies from the start. Following withdrawal from the Paris Agreement and the abolition of DEI policy, it has recently caused confusion for companies worldwide with tariff pressure. Furthermore, our country is expected to see politically turbulent circumstances continue for the time being. Amid the absence of national leadership, Korea faces the difficulty of the public and private sectors each having to join forces and newly devise a trade strategy toward the US.
ESG.ONL met foreign attorney Hong Seung-pyo, an international-law specialist at "Espée & Lancée," from whom we had sought advice on the direction of Europe's ESG after Trump took power, and asked about the position Korea's ESG policy should take at the prologue of the global trade war triggered by the US-originated tariff bomb.
Europe's CBAM, America's Tariff Policy: "In Fact, the Risk Has Doubled"
Attorney Hong Seung-pyo began the interview with concern about the current turmoil in the trade market, which is pressuring from both Europe and the US. The EU is scheduled to fully implement the Carbon Border Adjustment Mechanism (CBAM) from 2026. Through this, it imposes a carbon cost on imports such as steel and aluminum. It is a situation in which trade barriers are rising — Europe with carbon costs, the US with an expanded tariff policy. When the same item is simultaneously subject to both sides' regulations, a double burden of carbon cost and tariff arises, and so companies' compliance officers need to move quickly to respond to such cost issues.
In particular, the role of the new government to come is important. It should strengthen cooperation systems with companies to support carbon-emission verification and reporting systems, and prevent discriminatory application from occurring through negotiations with the EU. In this process, the possibility of trade disputes is also high. Attorney Hong said that it is wise to keep watching the situation and for the government and companies to enter joint negotiations in a timely manner.
[Attorney Hong Seung-pyo © ESG.ONL]
Responding to Tariff Risk Through Local Investment and Market Diversification
Expanding local production within the US is one method of avoiding tariffs. So the news that POSCO, Hyundai Steel, and others are pushing to build factories in the US was recently a big topic. Korea has exported 2.63 million tons of steel to the US annually, and it is obvious that, when tariffs are applied, maintaining the market and entering it will become difficult due to worsening profitability. In particular, if auto parts and steel sheets for electric vehicles are included in the tariff targets, an increase in the production cost of eco-friendly vehicles is inevitable. Because of this, related companies are striving to bypass the tariff burden and respond to demand through local production. Is there no other way?
Attorney Hong recommends entering markets with low geopolitical risk besides the US, such as India and the BRICS bloc. Expanding entry into emerging countries with populations over 100 million, such as Nigeria, Indonesia, and Bangladesh, would also be a good alternative. He said there is also the method of Korea strengthening regional trade agreements. Building a cooperation model with European companies when entering the African market by utilizing our "Free Trade Agreement (FTA)" with Europe can also be seen as an effective strategy.
In particular, Attorney Hong added the opinion that, to respond to the dispute-mediation vacuum that arose because the Trump administration refused to appoint judges to the "World Trade Organization (WTO)," it is necessary to actively utilize dispute-resolution bodies such as the "Regional Comprehensive Economic Partnership (RCEP)." RCEP is an agreement in which 15 Asia-Pacific countries participate; as an institution that manages trade disputes through structured procedures, it includes in its work a plan to review its dispute-resolution provisions.
A Clue to a Solution for Finding Stability in an Unstable Environment: ESG Management
There are concerns even with the solutions presented above. Attorney Hong said, "The biggest problem domestic companies face when they build production bases abroad is the problem of managing workers," continuing his voice of concern for Korean companies currently abroad. The number of Korean SME corporate entities that have entered Mexico and Canada reaches about 200. In particular, "Samsung Electronics," "LG Electronics," and "Hyundai Motor" are in Mexico, and "LG Energy Solution" and "EcoPro BM" have entered Canada. A worsening of these companies' profitability is foreseen due to the US tariff policy. And this situation can lead even to the reduction of jobs for local workers in labor-intensive industries and to unpaid-wage problems. The concern that conflict between local workers and companies could spread into an international controversy cannot be ignored either.
It is important to prepare response measures for this too, and the solution Attorney Hong presented is that a "localization strategy" must first be strengthened. "SK Hynix" in Indiana, USA, showed a good case of supplying manpower and building the local community's trust by operating a technical-manpower training program in cooperation with the local "Purdue University." Amid the continuing movements of global-level power and companies' management directions, not only in Korea, ESG management through harmony with the local community where a company is located and building transparent labor-management relations will become the foundation of competitiveness — securing business stability.
["Attorney Hong Seung-pyo," active in Europe and Korea © Espée & Lancée]
Ways for Korean Companies to Sustain ESG Management
If the tariff burden grows, will Korean companies reduce ESG investment such as eco-friendly technology development? Attorney Hong, a foreign attorney well-versed in European circumstances — having long resided in Europe and with an office also in Luxembourg — stated, "In Europe, as greenwashing lawsuits over exaggerated disclosure of environmental performance increase, the legal risk of ESG activities is coming to the fore," saying that companies will find it hard to easily choose to reduce ESG investment. In particular, for carbon-intensive industries, purchasing emission allowances is essential to respond to the EU's CBAM. There is a possibility that this will lead to profitability pressure. Because of this, Attorney Hong advised that, to avoid the carbon tax, one must hurry to convert to low-carbon product lines starting now. He also emphasized that one should gain momentum to sustain ESG management by actively utilizing the ESG cooperation clauses of the "RCEP" and the "Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)" for the Asia-Pacific region.
Attorney Hong said, "The US is currently dreaming of bringing in competitive manufacturing plants from other countries to create jobs at home and revive the nation," and thinks that President Trump's sweeping tariff-related policy push is a kind of courtship, seeking to take global companies hostage. The active attitude of our companies in responding to the US tariff policy — building factories, investing, and pursuing change — can be a good plan in the mid-to-long term. Attorney Hong also said, "It's hard only at first, weighing the anxiety factors, but once success cases arise, other companies can follow the precedent." He proposes a shift in thinking — focusing on mid-to-long-term response rather than excessive worry about what might happen during the adjustment period.
Attorney Hong Seung-pyo's interview can be summarized as: to avoid being swept up in the wave of global protectionism, it is important first to prepare response measures combining compliance with international law and a localization strategy. A win-win-type cooperation model with developing countries is also a good idea for market expansion. As the saying "crisis is opportunity" goes, if we approach even a blocked trade environment with prepared technology, the use of global networks, and the spirit of ESG management, our sustainable growth will not stop here.
by Editor L
[Reference Article] DEI — Diversity, Equity, and Inclusion