S. Korea’s ex­ports and the China free trade agree­ment

The China Post - - COMMENTARY -

Both bad news and good news came Mon­day re­gard­ing South Korean ex­ports: The na­tion’s out­bound ship­ments suf­fered their big­gest fall in al­most six years in May, but South Korea and China of­fi­cially signed their bi­lat­eral free trade agree­ment.

The news about the dwin­dling ex­ports, while largely an­tic­i­pated, is very bad: Ex­ports in May came to US$42.39 bil­lion, down 10.9 per­cent from the same month last year. It was the largest onyear decline since a 20.9 per­cent plunge in Au­gust 2009 when the global econ­omy suf­fered a fi­nan­cial melt­down. It also was the first two-digit re­duc­tion in six years. Sim­ply put, the prime en­gine for the South Korean econ­omy is sput­ter­ing.

There are some un­der­stand­able rea­sons for the fall in ex­ports: Global trade is down due to slow­down in the world econ­omy — in fact, all ma­jor global ex­porters but China are strug­gling; lower oil prices are bring­ing down the prices of ma­jor South Korean ex­port items; the weak yen is erod­ing com­pet­i­tive­ness of South Korean ex­ports; Chi­nese firms are fast catch­ing up with South Korean ex­porters.

All th­ese threats come while the South Korean econ­omy is suf­fer­ing from slug­gish do­mes­tic con­sump­tion and in­vest­ment.

Of­fi­cials may well have a sense of cri­sis, and they said that the gov­ern­ment would an­nounce ex­port-boost­ing mea­sures soon, which could in­clude dereg­u­la­tion, tax cuts and sup­port for ex­port fi­nanc­ing and mar­ket­ing.

Th­ese short- term mea­sures are not suf­fi­cient for pre­serv­ing ex­ports as the lo­co­mo­tive of the South Korean econ­omy. We need more than that. We need a longert­erm struc­tural shift.

The South Korea-China FTA should pro­vide the mo­men­tum for such en­deav­ors as it would open up op­por­tu­ni­ties for South Korean busi­nesses to di­ver­sify their ex­ports in the mar­ket, which make up about 45 per­cent of South Korean ship­ments.

South Korean ex­ports to China had been fo­cused on petro­chem­i­cals, steel, ship­build­ing and heavy industrial plant, in the form of in­ter­me­di­ary and cap­i­tal goods. But Chi­nese firms have al­ready de­vel­oped enough to pose se­ri­ous chal­lenges to South Korean busi­nesses in th­ese ar­eas.

What’s good about the FTA is that it opens up the huge Chi­nese mar­kets not only for man­u­fac­tured prod­ucts but also for ser­vices sec­tors like cul­tural con­tent, fi­nance, com­mu­ni­ca­tion, en­vi­ron­ment and even e-com­merce. Cos­met­ics and foods are also promis­ing items in the huge Chi­nese mar­ket.

Both gov­ern­ment and busi­nesses should re­di­rect their ex­port strate­gies to­ward China in a way to take full ad­van­tage of the free trade agree­ment.

It goes with­out say­ing that the same struc­tural shift in South Korean ex­ports should be pur­sued to­ward other ma­jor over­seas mar­kets. Also im­por­tant is to ac­cel­er­ate ne­go­ti­a­tions for on­go­ing talks on mul­ti­lat­eral and bi­lat­eral free trade deals. This is an ed­i­to­rial pub­lished by The Korean Her­ald on June 3.

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