SEOUL, KOREA -Last year, Korea broke the USD 1 trillion mark in trade volume, becoming the world’s ninth nation to join the One-Trillion-Dollar Trade Club, members of which include the US, Germany, China and Japan. However, there are doubts over whether Korea’s strengths which have helped catapult Korea into the One-Trillion-Dollar Trade Club will continue to prove their worth. Surpassing the USD 1 trillion threshold in trade is not a guarantee of the continued expansion of trade volume, as the global trade environment today is vastly different from the past owing to economic downturns in Japan and the US , as well as the EU fiscal crisis.
Over the past six decades, growth in the Korean economy has been spearheaded by large manufacturers. We may have been granted a glimpse of the Korean economy’s future by witnessing Japan, Italy and the UK, which hit the USD 1 trillion mark earlier than Korea. First of all, Japan has seen its trade sliding due to improper responses to changes in the global trade environment which has been upset by the yen’s prolonged upswing and economic recessions in developed nations. In the aftermath of the global financial crisis, the economies of Italy and the UK ended up regressing into a state where they were prior to posting over USD 1 trillion in trade. In order not to follow in the footsteps of Japan, Italy and the UK, Korea has to set a new direction to march towards as they attempt to surpass their next marker of USD 2 trillion in trade. Against this backdrop, Korea IT Times sat down with Han Jin-hyun, Deputy Minister of Trade & Investment Policy of the Ministry of Knowledge Economy (MKE) of Korea, to learn about the Korean government’s trade strategies.
Making Adjustments to Korea’s Trade Structure
This year, the MKE of Korea made drastic moves to revamp the structure of Korea’s key industries in order to put Korea on track for the USD 2 trillion mark in trade. For a start, the center of gravity shifted into the software industry from the hardware industry because the sophistication of mainstay industries is a must for sustainably enhancing Korea’s export competitiveness. Thus, the Ministry of Knowledge Economy of Korea is set to implement policies designed to reinforce the software industry –for instance, putting restrictions on large companies’ participation in public SI (System Integration) projects. In particular, as the globalization of the software industry is given increased priority, the software industry will be developed with a focus on open innovation and the formation of networks.
Han Jin-hyun, Deputy Minister of the MKE, said, “The shipbuilding industry will raise its competitiveness by developing energy-efficient, environmentally-friendly vessels and technologies, while we plan to create a market for eco-friendly vehicles in the auto industry at an earlier date.” In terms of the information and communications sectors, the domestic production of SoCs (system on chips), as well as the advancement of mobile software and services will continue to be pursued going forward. Deputy Minister Han stressed that high value added industries such as petrochemicals, fabric and fashion were also areas of primary interest.
Deputy Minister Han added, “Creation of next-generation food industries is also an urgent task. Sectors including biohealth, nano-based convergence and green energy have to raise their market share through proactive R&D activities and endeavors to make forays into overseas markets.” He also said that the MKE was poised to go the extra mile to win nuclear plant contracts such as the contract to construct a multi-billion dollar nuclear power plant in the UAE, and lend support to foster professional workforces in this sector. Yet, the current strategy to upgrade Korea’s flagship industries such as the shipbuilding, auto and IT industries will be maintained.
Stepped-up Support for Small but Strong Companies
The Korean government said it would strengthen Korea’s waist (the middle portion of the Korean economy) to help Korea advance towards the USD 2 trillion mark in trade volume. This implies that the Korean government will pave the way for Korean SMEs’ efforts to go global. The Korean government plans to expedite SMEs’ exports of their brands by running export support programs that offer customized services to each SME.
Deputy Minister Han pointed out, “Korea’s export structure has been highly dependent on manufacturing, so price competitiveness and growth driven by large companies have commonly been characteristic of Korea’s economic growth. Such a growth model is one of our weaknesses in relative terms. To take Korea’ trade to the next level, Korea needs to make modifications to its dependence on the manufacturing industry, price competitiveness and conglomerates that are deemed as the driving forces behind Korea’s ascent to the One-Trillion-Dollar Trade Club.
Deputy Minister Han also mentioned that the diversification of Korea’s export portfolios was a matter of utmost urgency. In other words, continued growth in Korea’s trade necessitates the creation of new driving forces (e.g. agriculture, food, cultural contents, bio-health, nano technology, robots, convergence-based industries and green energy). In addition, the MKE aims to ramp up the materials and parts industries’ global competitiveness by securing key technologies through expanded exports of intermediate goods and promoting M&A activities in consideration of technologies and market conditions.
Deputy Minister Han said, “The Ministry aims to turn 100,000 domestic companies into exporters by 2020. Leading exporters are aiming to post USD 5 million in exports, and small but strong exporters will be provided all-out support from us.” Sector-specific export support programs will be made available in sectors such as electricity and IT and roadmaps for Korean SMEs’s entry into overseas markets will be drawn up to offer customized marketing services. On top of that, the MKE looks to beef up marketing activities for Korea’s SME brands, especially in emerging markets and the markets of Korea’ FTA partners.
FTA-Triggered Changes in the Trade Environment
Deputy Minister Han emphasized, “Korea’s well-built industry infrastructures and IT prowess will allow Korea to serve as a hub of global trade.”
As a FTA hub nation, Korea, which already has several FTAs under its belt, has been thrust into the spotlight. The signing of FTAs with the US and the EU resulted in Korea’s economic territory becoming the world’s third largest. Now, Korea has better access to the global market. Once Korea strikes an FTA with China, foreign investors are likely to break into the Chinese market by setting up their production bases in Korea. Besides, Korea is a nation packed with excellent industrial infrastructures and a sustainable management environment. Since global business titans like Samsung and LG are based in Korea, entry into relevant industries would be relatively easy. By entering the markets of Korea’s FTA partners, Korean companies can easily secure price competitiveness. Backed by such advantages, Korea is on the rise as a hot spot of the global economy. Deputy Minister Han said that the MKE also hammered out strategies for leveraging Korea’s FTAs to ensure Korean companies’ smooth entry into overseas markets. The Korean government proactively assists Korean companies in making efforts to take on the procurement markets of the US and the EU, and supports their push for opening up new markets such as renewable energy and medial bio markets.
Deputy Minister Han said that the MKE would assist Korean companies in taking full advantage of Korea’s FTAs through the FTA Information and Business Support Center. Meanwhile, the Korean government plans to help Korean companies exploit Korea’s FTAs by thrashing out systemic measures. The FTA Information and Business Support Center, a public-private entity, provides Korean companies with professional consulting services as Korean SMEs desperately require professional consulting on ways to conserve FTA country of origin rules to qualify for preferential tariffs. Moreover, sector-specific FTA manuals were designed to facilitate SME’s utilization of FTAs. In addition, FTA experts, tariff officers and experts on FTA country of origin rules will be nurtured and, in the mid- and long term, FTA-based export marketing will be scaled up to a great degree.
When asked about “U-turn” companies that were cited in a recent government report, Deputy Minister Han answered, “We will see more U-turn companies which are returning to Korea to reap the benefits of tariff elimination under the current FTAs.” U-turn companies refer to those who return to Korea to make the most of FTA tariff removal after suffering from deteriorating managerial environments (e.g. rising labor costs) in China and South east Asian nations and others.
Accordingly, the Korean government is pondering various measures to permit the hiring of overseas talent and the creation of U-turn company complexes. Deputy Minister Han stated, “Though the homecoming of U-turn companies has yet to be visualized, it is very important to lure them back through vigorous promotions of FTA benefits and full-blown support. Measures to support U-turn companies include the expansion of corporate income tax reductions and provision of subsidies for facility investment and new hiring, as well as one-stop services offered by KOTRA overseas branches. At the end of the interview, Deputy Minister Han once again iterated that Korea, armed with sustainable industrial infrastructures and IT strengths, will evolve into a hub for global trade.
