South Korea’s participation

in international trade

Dr. Kristiina Korhonen

Center for Markets in Transition (CEMAT)

Kristiina Korhonen - 04/04/21

2

Industrialisation strategies

1.

local processing of indigenous raw materials

2.

import-substituting industrialisation (ISI)

3.

export-oriented industrialization (EOI)

Kristiina Korhonen - 04/04/21

3

ISI vs. EOI strategies

ISI strategy

•

protection of domestic
consumer goods
industries to stimulate
local production

•

requires large
domestic market

•

dependence on import
of intermediate and
capital goods

EOI strategy

•

emphasis on foreign
trade, technology
transfer, and foreign
direct investment

•

state interventions

•

devaluation

•

Special economic
zones (SEZs)

Kristiina Korhonen - 04/04/21

4

Industrialisation in South Korea

Stage of industrialisation

in South Korea

Development of new

product lines in South

Korean conglomerates

1950

s

Industrialisation based on

import substitution and

economic aid from USA

Low-tech products: wigs and

textiles

1960

s

Export-oriented

industrialisation based on

labour-intensive light industry

with selective import

substitution

Labour-intensive products:

textiles, black-and-white TVs

and radios

1970

s

Export-oriented

industrialisation based on

heavy industries together with

selective import substitution

Heavy, defence and chemical

industries: steel, ships,

chemicals and cement

1980

s

Export-oriented

industrialisation based on

capital goods,

internationalisation

Capital goods: electronics,

machinery, vehicles

1990

s

knowledge-intensive high-tech

industries, globalisation

Electronics and high-tech

industries: semiconductors

Kristiina Korhonen - 04/04/21

5

Korea’s international trade before the
colonial era

•

trade was dominated by China

•

external trade was not important for China

•

political trade in forms of tributes paid by
South Korea to China (by weaker to
stronger)

•

merchant trade in borders and capitals

•

traditional trade links were cut due to the
colonialism and the World Wars

Kristiina Korhonen - 04/04/21

6

Current trade patterns in East Asia

•

growth of the share of Asia in world trade
(about 25 %)

•

USA still accounts about half of trade of
Asian countries, but its role has been
decreasing

•

relative decline of Japan in trade of Asian
countries

•

increasing intraregional trade

Kristiina Korhonen - 04/04/21

7

Role of South Korea among the East
Asia’s giant economies: Korean
perspective

Kristiina Korhonen - 04/04/21

8

Development of South Korea’s
export and import

Kristiina Korhonen - 04/04/21

9

Merchant state South Korea

•

12

th

largest exporter: USD 325 billion (2006)

•

14

th

largest importer: USD 310 billion (2006)

•

major export destination: earlier United States,
nowadays China

•

major import source: Japan

•

increasing intra-regional trade

•

increasing trade with China since 1992

Kristiina Korhonen - 04/04/21

10

Major trading partners of South Korea

Kristiina Korhonen - 04/04/21

11

Korea’s trade composition

Exports

Imports

Electric and electronics

products machines

35 % Electric and

electronics machines

24 %

Passenger cars

8 % Fuel

21 %

Machinery and

precision equipment

8 % Crude oil

13 %

Chemicals and

chemicals products

7 % Machinery and

precision equipment

12 %

Ships and boats

7 % Semiconductors

11 %

Iron and steel products

6 % Chemicals and

chemicals products

8 %

Kristiina Korhonen - 04/04/21

12

Korea’s top industries

•

ships (no 1 in the world)

•

petrochemicals (no 4)

•

automobiles (no 5)

•

home refrigerators (no 4)

•

washing machines (no 5)

Kristiina Korhonen - 04/04/21

13

WTO regime

•

World Trade Organisation (WTO) has
encouraged trade between member nations by
global trade agreements since 1995

•

WTO was preceded by the General Agreement
on Tariffs and Trade (GATT) that set the basic
rules for international trade

Kristiina Korhonen - 04/04/21

14

Trade liberalisation in South Korea

•

average tariffs were reduced from 24 % in
1982 to 10 % in 1990

•

in the 1990s, tariffs were reduced to less than
10 % and quantitative restrictions abolished
across virtually all sectors

•

in 1998, the Korean government committed
itself to continue liberalisation

•

consistent implementation without significant
slippages

•

dualistic protection: low manufacturing
protection in contrast to high protection in
agriculture

Kristiina Korhonen - 04/04/21

15

Tariffs

•

main trade policy instrument

•

adjusted to accord with WTO binding
commitments

•

average tariff for industrial products was 6.7
% in 2004

•

significant tariff peaks, such as 52,2 % for
agricultural products in average

Kristiina Korhonen - 04/04/21

16

Non-tariff barriers

•

more problematic than the gradually falling
tariffs

•

examples:

–

licensing and prohibitions for health, safety or
security reasons

–

inspections and testing, acceptance procedures
of overseas results

–

quarantine arrangements

–

many kinds of special laws that allow ministries
to control imports

•

attitude against free trade

Kristiina Korhonen - 04/04/21

17

Agriculture – the most distorted sector

•

average support for agriculture in South
Korea was 60 % in 2003 (equivalent to
additional farm incomes of KRW 20,2
trillion)

•

support was highest for rice (74 %) and
oilseeds (89 %)

•

as a result, Korean consumers pay three
times higher price over world level for rice

Kristiina Korhonen - 04/04/21

18

Free Trade Agreement (FTA) strategy

•

pursuing FTAs simultaneously

•

pursuing FTAs with large economic blocks

•

Korea’s first FTA with Chile in 2004

•

the most significant FTA with the United States
in 2007