Facing Challenges
Although Korea has become the world’s sixth largest exporter for the first time, there are a number of pessimistic indicators to show the warning in export behind it. According to the data in November compiled by the MOTIE, exports of oil and petrochemical products, which are traditional main export items of Korea, dropped 36.3 percent and 24 percent, respectively, from a year ago, while the figure of semiconductors fell 9.6 percent. Due to the slowdown in the Chinese economy, low oil prices and the rise in U.S. interest rates, there are many unstable factors for the global economy next year. Accordingly, experts say that it is urgent to seek a radical reform to improve the competitiveness of conventional major industries.
Petrochemical Products, China to Become Variables
The domestic petrochemical industry has gained benefits from FTAs in the last five years. According to the data from the KITA, the trade balance of petrochemical products increased as much as 41.7 percent from US$22.41 billion (26.39 trillion won) in 2010 to US$31.77 billion (37.41 trillion won) last year. Exports grew 22 percent in five years from 26.3 million tons in 2010 to 32.1 million tons last year, but imports had not changed much from 10.6 million tons in 2010 to 10.8 million tons last year. This is the result from the improvement in price competitiveness as an average of 5.5 to 6.5 percent of the customs tariffs on petrochemical products lifted. Exports to countries, with which Korea has signed FTAs including the U.S. and Vietnam, rose 11.3 percent in 2013, 18.8 percent last year and 5.5 percent this year.
However, the amount of petrochemical product exports dropped from US$48.38 billion (56.97 trillion won) in 2013 to US$48.21 billion (56.77 trillion won) last year as the price of products went down due to the recent decrease in oil prices. As of the end of October this year, the figure amounted to US$31.97 billion (37.64 trillion won
Also, the industry sources think that the effect of the much anticipated Korea-China FTA will be limited as China will remove tariffs only on 16 percent of the import amount for the total 253 petrochemical products (HS 8 codes) within 10 years and have a restricted tariff concession plan. Korea is heavily dependent on China, accounting for over 45 percent of the total exports in the last decade. Therefore, industry watchers have long been concerned that the domestic petrochemical industry will be adversely affected when the China’s economy slows down and its self-sufficiency rate increases.
Beleaguered Steel Export
As Chinese low-priced steel products are flooding in, the U.S. and Australia start controlling imports and even the European market, which has been the only export outlet, shows the movement to strengthen protectionism, domestic steel companies are beleaguered.
Recently, the Council of the European Union discussed the crisis of the steel industry in Europe and agreed to take a concrete action to protect the steel industry through the ministerial-level talks. From January to October this year, Korea’s steel product exports to the EU regions reached 1.97 million tons, up 33 percent from a year ago, making up weak imports to other regions. When the protective trade of steel products in Europe has strengthened in the future, however, steel product exports, which suffer from weaker price competitiveness from the strong won and growing competition in export, will be hit harder.
The overall Korean steel product exports this year are estimated at 31.4 million tons, down 2.6 percent from last year. As regulations on Korean steel products are increasingly strengthening, such as the U.S. recently imposing anti-dumping duties on hot rolled steel sheets and Australia imposing anti-dumping duties on steel reinforcement, Korea is likely to face difficulties to expand exports in the future.
In addition, China, which recorded a record high of 100 million tons of steel product exports this year, will also be inevitable to expand exports next year due to slowing domestic demand. Therefore, it will continuously increase “push exports” to the Korean market, in which distribution costs are low.
Imports of Chinese steel products this year are likely to total 13.5 million tons, recording the biggest figure ever for a second successive year. However, the steadily rising imports will worsen the profitability of domestic steel firms next year as well.
Korea Ranks First in ICT Trade Surplus Among OECD Countries
According to the Institute for Information & Communications Technology Promotion (IITP), Korea’s ICT trade surplus widened to US$40.9 billion (48.16 trillion won) in the first half of this year, taking first place among the OECD countries. The figure is 6.3 times what the runner-up Germany recorded – US$6.42 billion (7.56 trillion won). In addition, the Netherlands had a gain of US$3.57 billion (4.2 trillion won), while Japan had a trade surplus of US$2.34 billion (2.76 trillion won). On the other hand, the U.S. marked a whopping US$101.13 billion (119.08 trillion won) deficit.
ICT exports of the OECD countries in the first half of this year fell 5.9 percent from the same period last year. All major OECD countries showed a degrowth – the U.S. with -1.1 percent, Japan with -6.7 percent and Germany with -10.9 percent. In contrast, the Korean figure slightly increased by 0.5 percent, showing a continuous growth. Accordingly, the country was able to record the best surplus performance.
When looking at countries other than the OECD members, however, conditions are not favorable. China is emerging as a new “IT power” and threatening Korea. China’s ICT trade surplus in the first half of this year amounted to US$127.66 billion (150.32 trillion won), almost tripled that of Korea.
Korea’s ICT exports dropped from US$16.6 (19.55 trillion won) in October to US$14.34 billion (16.89 trillion won) in November, and the figure also fell 7 percent from the same month a year earlier. Its imports grew 7.2 percent to US$8.04 billion (9.47 trillion won) and the trade surplus reached US$6.3 billion (7.42 trillion won), accounting for 60.8 percent of the overall trade surplus of industries. Despite such an ICT trade surplus, however, exports declined for two months in a row.
The fall in exports was largely due to the reduction in the global ICT market size and sluggish global demands of major items, including semiconductor and display panel. At least, the figure of exports stood at US$2.89 billion (3.4 trillion won), up 20.2 percent year-on-year, showing a double-digit export growth for four straight months.
Semiconductor exports went down as much as 10 percent from the same period last year due to the decline in unit costs of DRAM and NAND flash products and the changed export methods from system chips to cellphone components. Display exports dropped 19.7 percent to US$2.39 billion (2.81 trillion won) with structural causes, including the expansion of cell trading, decreasing global demands and falling unit prices. Exports of computers and peripherals recorded US$580 million (682.95 billion won), down 3.5 percent.
ICT imports went up 7.2 percent to US$8.04 billion (9.47 trillion won), seeing an increase for five months in a row. Imports of semiconductors increased 7.7 percent to US$3.34 billion (3.93 trillion won, while the figure of cellphones grew a whopping 49.5 percent to US$1.18 billion (1.39 trillion won).
However, the material and component industry is expected to open the era of US$100 billion (117.75 trillion won) of the trade surplus for two consecutive years this year. From January to November 2015, material and component exports totaled US$243.4 billion (286.6 trillion won) and its imports amounted to US$147.1 billion (173.21 trillion won), recording US$96.3 billion (113.39 trillion won) of the trade surplus. In addition, the share of material and component products in the total exports reached a record high of 50.2 percent.
The adverse balance of trade to Japan, which has long been considered the problem in the material and component sector, has improved. The trade deficit of material and component products to Japan stood at US$13.1 billion (15.43 trillion won). Its imports continuously dropped since 2011. Accordingly, the rate of dependence on imports stood at 16.5 percent, showing a record low.
As the material and component sector, which has been viewed as the weak point in Korea’s manufacturing industry, has raised the competitiveness, it is serving as the stout pillar. However, it can’t be so sure since the basic industries, such as smartphones and display panels, are undergoing big changes