South Koreas participation in international trade

1
South Koreas participation in international
trade

• Dr. Kristiina Korhonen
• Center for Markets in Transition (CEMAT)

2
Industrialisation strategies

• local processing of indigenous raw materials
• import-substituting industrialisation (ISI)
• export-oriented industrialization (EOI)

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)

4
Industrialisation in South Korea
5
Koreas 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

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

7
Role of South Korea among the East Asias giant
economies Korean perspective
8
Development of South Koreas export and import
9
Merchant state South Korea

• 12th largest exporter USD 325 billion (2006)
• 14th 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

10
Major trading partners of South Korea
11
Koreas trade composition
12
Koreas top industries

• ships (no 1 in the world)
• petrochemicals (no 4)
• automobiles (no 5)
• home refrigerators (no 4)
• washing machines (no 5)

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

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

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

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

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

18
Free Trade Agreement (FTA) strategy

• pursuing FTAs simultaneously
• pursuing FTAs with large economic blocks
• Koreas first FTA with Chile in 2004
• the most significant FTA with the United States
  in 2007