Project Title - South Korea’s International Trade
Table of Contents
Economic Landscape ..................................................................................... 1
Key Industries .................................................................................................... 2
Key Partners ..................................................................................................... 6
Trade Policy .................................................................................................... 12
Influence on World Trade .............................................................................. 14
References ...................................................................................................... 15
Economic Landscape
South Korea, officially known as the Republic of Korea, is an East Asian country with high
development and technological advancement. Since the end of the Korean War, the country has
experienced tremendous economic growth and development, transforming itself from a wartorn and struggling nation to a high-income and industrialised nation in only a few decades.
The country's economy is mixed, with a strong industrial base, advanced technology, and a
highly skilled labour force.
South Korean consumers spend the most on "Food and non-alcoholic beverages".
South Korea is currently ranked as the 13th largest country by nominal GDP. Since the
pandemic, South Korea’s economic growth has been relatively slow, recording 4.15 per cent
growth in 2021 and 2.59 per cent in 2022.
South Korea's top exports are integrated circuits ($116 billion), cars ($44.7 billion), refined
petroleum ($36.4 billion), motor vehicles; parts and accessories ($19.3 billion), and office
machine parts ($18 billion), with the majority going to China ($158 billion), the United States
($95.9 billion), Vietnam ($56.5 billion), Hong Kong ($38.2 billion), and Japan ($30.1 billion).
In 2021, South Korea was the world's largest exporter of Passenger and Cargo Ships ($17.7
billion), Blank Audio Media ($10.8 billion), Cyclic Hydrocarbons ($8.62 billion), Special
Purpose Ships ($4.92 billion), and Styrene Polymers ($4.65 billion).
South Korea's top imports are crude petroleum ($60.6 billion), integrated circuits ($47.4
billion), petroleum gas ($24.5 billion), refined petroleum ($24.3 billion), and photo lab
equipment ($16.6 billion), with the majority of imports coming from China ($140 billion), the
United States ($66.4 billion), Japan ($51.1 billion), Australia ($29.4 billion), and Vietnam
($22.6 billion).
In 2021, South Korea was the world's largest importer of inorganic salts ($1.06 billion), nitrile
compounds ($793 million), molybdenum ore ($743 million), starch residue ($562 million), and
furskin apparel ($287 million).
(Source: https://oec.world/en/profile/country/kor?subnationalTimeSelector=timeYear)
Concerning India, some key facts of India - South Korean trade are,
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Bilateral trade between India and Korea increased by 40% to $23.7 billion in 2021, the
highest figure ever recorded between the two countries.
In 2020, the two countries' bilateral trade value was $16.9 billion.
Bilateral trade between India and Korea totalled US$ 14.2 billion in the first half of
2022, the highest volume ever recorded.
Between April 2000 and September 2022, the Republic of Korea was India's 13th
largest FDI investor. The top investment sectors include metallurgy, automobiles,
electronics, prime movers, machine tools, hospitals, and diagnostic centres.
As India's economic ties with South Korea grow, bilateral trade is expected to reach
$50 billion by 2030. It was worth $23.7 billion in 2021.
(Source: https://www.ibef.org/indian-exports/india-korea-trade)
South Korea's economic landscape is defined by the dominance of the services and industrial
sectors, which account for more than 90% of GDP and employment.
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Some interesting facts about the South Korean economy are,
In South Korea, FDI outflow is frequently greater than FDI inflow.
The labour force is expected to decrease to 28.31 million in 2021.
In 2021, the estimated unemployment rate was 3.68% and is expected to remain at
3.60% in 2027.
Samsung Electronics Co., Ltd. reported the highest revenue in South Korea.
In South Korea, house prices have risen significantly faster than rents.
South Korea's stock market experienced significant growth between 2010 and 2022.
Key Industries
The key industries are electronics, automobiles, telecommunications, shipbuilding, chemicals,
and steel. South Korea is the world's largest manufacturer of semiconductors, smartphones, and
displays and a major exporter of cars, ships, and petrochemicals. In addition, the country is a
global leader in innovation and technology, with the Bloomberg Innovation Index ranking first
in 2021. The government invests heavily in R&D and has a large workforce that is highly
skilled and educated.
 Technology & Electronics: South Korea's rise to economic popularity is directly related
to its technology and electronics industries. The country is home to industry giants such
as Samsung, LG, and SK Hynix, and it dominates the global market for smartphones,
semiconductors, and display technologies. The constant search for innovation and
cutting-edge research and development have pushed South Korea to the leading edge
of technological advancement.
 Automobiles and Shipbuilding: The automotive industry, led by Hyundai and Kia, has
contributed significantly to South Korea's economic growth. These companies have
established a strong domestic market presence and made major advances in the global
automotive industry. With companies such as Hyundai Heavy Industries and Daewoo
Shipbuilding & Marine Engineering, South Korea's shipbuilding expertise adds
significantly to its industrial might.
 Steel and Heavy Industries: South Korea's heavy industries rely heavily on POSCO, a
global leader in steel production. The steel sector, along with machinery and equipment
manufacturing, is a crucial part of the country's industrial base. South Korea's strong
heavy industries contribute to its reputation as a manufacturing hub.
 Chemicals and Petrochemicals: South Korea's chemical and petrochemical industries,
including LG Chem and Lotte Chemical, play a significant role in the economy. These
companies significantly contribute to domestic and international markets, from
petrochemicals to speciality chemicals.
 Finance and Services: The financial sector has evolved along with the economy.
Institutions such as Kookmin Bank and Shinhan Financial Group are not only
stabilising forces in the country but also significant players in the global financial arena.
The services sector, which includes IT services and tourism, is steadily expanding,
contributing to South Korea's economic diversification.
Trade Partners
South Korea is a dominant player in the global economy and relies heavily on international
trade. Regarding trade partners, it is dominated by a few key players, with some interesting
regional dynamics at work.
Exports:
China, the world's factory, imports roughly 26% of South Korean exports in 2022. This
includes electronics, semiconductors, cars, and petrochemicals, etc.
United States: Second place with around 16% of exports. Semiconductors, cars, and steel find
their way to American consumers.
Vietnam: A rapidly growing market, absorbing about 9.2% of South Korean exports.
Electronics, textiles, and machinery are popular.
Hong Kong: Often a re-exporting hub, Hong Kong takes in 6% of South Korean goods,
primarily electronics and machinery.
Japan: Despite historical tensions, Japan still receives 4.8% of South Korean exports, with
cars, electronics, and chemicals being essential items.
Imports:
China: Again, the leader, supplying 24% of South Korean imports. Raw materials, machinery,
and electronics are major categories.
United States: Second place with 13% of imports, mainly crude oil, aircraft parts, and
soybeans.
Japan: Provides 9.3% of imports, primarily machinery, chemicals, and textiles.
Australia: Makes up for 5.6% of the total imports of S. Korea, predominantly iron ore, coal,
and natural gas.
Saudi Arabia: Saudi Arabia makes up for 4.1% of imports of S. Korea, almost entirely in
crude oil.
Key trends:
Diversification: While China is dominant, South Korea actively seeks to diversify its trading
partners, mainly via free trade agreements with ASEAN countries and other regional players.
Focus on technology: Korea's export basket is concentrated in electronics and technology,
making it vulnerable to fluctuations in global demand. So, they are looking to diversify their
export basket.
Regional dynamics: East Asian trade is essential, with South Korea playing a significant role
in regional supply chains.
Declining trade balance of goods
The below statistic shows South Korea's trade balance of goods from 2012 to 2022(in billions
of U.S. dollars).
Trade balance in billion U.S.
dollars
The trade balance is the value of exported goods minus the value of imported goods. A
positive trade balance usually implies a trade surplus, while a negative value signifies a trade
deficit for the country. In 2022, South Korea's trade surplus amounted to around 47.78 billion
U.S. dollars. [Source- wto.org]
100
90
80
70
60
50
40
30
20
10
0
90,26 89,23
95,22
69,66
44,05 47,15
38,89
29,31
28,29
2012
47,78
44,87
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
FDI Trends:
The country still receives good FDI. However, there is a shift in the sectors with more FDI
inflows. Businesses in communications and information technologies, finance and insurance,
and real estate have received nearly 75% of service industry FDIs.
Regional Dynamics:
ASEAN's growing importance: While China is the single most prominent partner, ASEAN
plays a significant role and is a rapidly growing market for South Korean exports. Vietnam,
Thailand, and Indonesia are critical partners.
The Regional Comprehensive Economic Partnership (RCEP): This mega-trade agreement,
encompassing China, Japan, Korea, and several ASEAN nations, will further boost regional
trade flows and strengthen South Korea's position as a significant player.
Shifting geopolitical landscape: Tensions between China and the US can impact South
Korea's trade relationships. It has to navigate carefully to maintain a strong relationship with
both countries.
Sectoral Focus:
Beyond electronics: While electronics and semiconductors remain major export items,
Korean companies are investing in diversifying their export basket into pharmaceuticals,
medical devices and other green technologies.
Importance of services: The service sector, especially business services and tourism, is
becoming increasingly important to Korea's trade balance.
Trade Agreements:
Extensive network: South Korea has signed free trade agreements (FTAs) with over 50
countries, covering almost 70% of the world economy. These agreements will help improve
market access and reduce trade barriers.
Focus on emerging markets: Recent FTAs with Latin American and Central Asian countries
indicate South Korea's interest in diversifying its trading partners beyond traditional markets.
Challenges and Opportunities:
Global economic slowdown: A probable global economic downturn will negatively impact
South Korean exports, particularly to China.
Technological disruption: Rapid technological changes can disrupt supply chains and create
new opportunities for South Korean companies.
Sustainability concerns: The growing importance of environmental sustainability will impact
South Korea's trade in some sectors and give opportunities for green technologies.
South Korea's dependence on China
Korea's dependence on China, its goliath neighbour, is both a blessing and a curse. China
provides a massive market for Korean exports, but because of its unilateral dependence,
Korea is vulnerable to the economic blows of the Chinese dragon. In particular, Korea seeks
to diversify its trade portfolio through regional agreements such as the FTA and RCEP with
ASEAN countries. These new partnerships offer promising growth while reducing the risk of
over-dependence on the single market. However, diversification has challenges. Building
strong business relationships with multiple countries requires navigating diverse regulations,
cultural nuances, and political environments. Language barriers and logistical hurdles can
further complicate the process. But the potential rewards are significant. Access to new
markets can stimulate economic growth, create new jobs and stimulate innovation.
Along with geographical diversification, Korea also focuses on diversifying its export
packages. While electronics and semiconductors are most important, investments in
biopharmaceuticals, clean energy, cultural industries, etc., offer exciting opportunities. These
changes will reduce our dependence on volatile technology markets and contribute to a more
stable economy. The future of Korea's trade relations is an exciting dance of dependence and
diversification. When entering a new field, balancing the benefits of China's vast market with
the need for broad partnerships will be a delicate task. However, Korea's farsighted vision
and entrepreneurial spirit show that the country is in an excellent position to navigate the
complex global trade environment and secure a prosperous economic future.
Central International Trade Body of Korea
Korea International Trade Association (KITA) is a private non-profit trade organisation
established in 1946 to advance the Korean economy through trade. It is the largest business
organisation in Korea, with more than 73,000 member companies.
As a leading business organisation, KITA assists SMEs in gaining overseas market entry and
has contributed immensely to Korea's recent achievement of 1 trillion dollars in trade
volume.
Right from its inception, KITA served its purpose of laying a solid foundation for economic
growth by setting up policy directions on international trade as well as developing the
country's infrastructure to facilitate trade. KITA primarily aims to contribute to South Korea's
economic growth as a private financial organisation by advocating for the Korean trade
industry's rights and interests, thereby facilitating global trade. Significant activities of KITA
include:
• Trade policy recommendations & consulting
• Trade diplomacy and private sector cooperation
• Overseas market and trade information services
• Buyer-seller matching assistance
• Specialist research and training programs
Trade Policy of South Korea
South Korea has a strong trade policy that's helped its economy grow. In 2023, they sold
more than 650 billion USD worth of stuff to other countries. South Korea is one of the top
economies globally because of its smart trade and economic plans. It's in the top 10 when it
comes to trading things with other countries.
Over time, South Korea changed its trade policy. They used to focus on making things at
home, but now they're more connected to the world. Since 2007-2008, they've worked hard to
be more global. They want things to be clear, work smoothly, and help their economy grow.
 Member Of Prominent International Trade Organisation and Free Trade Agreements
(FTAs): As a member of the World Trade Organization (WTO), South Korea actively
supports multilateral trade liberalisation and has entered numerous trade agreements.
South Korea has made deals called Free Trade Agreements (FTAs) to get better at
trading and make markets work more smoothly. South Korea has implemented 21
FTAs, covering regions such as ASEAN, Australia, China, the European Union, India,
the U.S., and many more.
Also, South Korea is an OECD member and part of TRIPs and the Government
Procurement Agreement.
South Korea -21 FTAs with 59 countries
Source: https://www.fta.go.kr//main/situation/kfta/ov/
 Exchange Rate Policies and Monetary Policy: South Korea follows a floating
exchange rate system. The Korean central bank has consistently adjusted policy rates
since 2016 to address external imbalances and maintain strong economic
fundamentals. The country retains ample foreign reserves, showing its commitment to
attracting foreign investment.
 Trade Barriers: As of the last published date in December 2023, South Korea faces
potential trade barriers, including regulations on Chemicals, Packaging Materials, and
Sanitary and Phytosanitary barriers. The country uses a tariff quota system to stabilise
domestic commodity markets, allowing adjustments within a specified range every six
months.
 Customs Valuation: South Korea applies a flat 10 per cent value-added tax (VAT) on
all imports and domestically manufactured goods. A special excise tax of 10-20 per
cent is levied on certain luxury items and durable consumer goods. They use the CostInsurance-Freight (CIF) method to determine how much tax to charge on imported
goods.
 Standards for Trade: The Korean standards development process aligns with
international organisations such as ISO, IEC, and the WTO Technical Barriers to
Trade Agreement. The KATS looks over the development of Korean Standards (KS).
South Korea's standardisation system is improving towards a more market-driven
approach.
 Trade and Structural Reforms: The review period saw South Korea implementing
trade-related structural reforms, including taxation, competition policy, corporate
governance, and labour market reforms. These reforms aimed at supporting income,
job creation, SMEs, startups, and innovation while enhancing social safety nets.
 Tariff Policy: Tariffs remained a key trade policy instrument, with the average applied
Most-Favoured-Nation. The tariff structure remained transparent but complex, with
various rates and categories. South Korea changed the rules and organisations related
to making trade easier, preventing unfair competition, and controlling the export of
goods.
 Support for SMEs and Innovation: South Korea prioritised developing small and
medium-sized enterprises (SMEs) and innovation. Regulatory reforms were
undertaken to reduce trade and investment barriers, and measures like regulatory
sandboxes were introduced. The country introduced new regulations by emphasising a
"cost-in, cost-out" approach.
 Financial Services Sector: The financial services sector experienced robust growth
during the review period, with legislative revisions focusing on deregulating certain
financial services, including those related to online investment, fintech, and electronic
financial transactions.
 Intellectual Property Rights: South Korea's intellectual property rights regime evolved
rapidly due to technological developments. Legislation was strengthened, penalties
increased, and measures were introduced to combat the online distribution of
counterfeit products.
 Economic Diversification: The economy of South Korea exhibited diversification,
with significant contributions from manufacturing, services, and the financial services
sector. South Korea worked on moving towards cleaner energy and reducing carbon
emissions, especially as part of the Green New Deal initiative.
 Challenges and Future Outlook: Based on International trade history, South Korea's
economy is vulnerable to external shocks, such as global trade fluctuations, rising
protectionism, and geopolitical tensions. For the economy to keep growing in the
future, the government needs to make important changes. This includes improving the
system, encouraging new ideas, ensuring growth is balanced, and cutting down on
unnecessary rules and regulations.
Korea's influence on world trade:
Several factors contribute to Korea's trade influence on the world stage:
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Exports and trade surpluses: Continued trade surpluses contribute to the accumulation
of foreign exchange reserves, which in turn strengthens South Korea's trading power
and global financial conditions
Global Supply Chains: South Korea is integral to many global supply chains,
especially in the electronics and automotive sectors. The success of Korean
companies has led to their products being integrated into various industries and
influencing the global manufacturing landscape.
Technological innovation: South Korea positions itself as a technology hub and
promotes innovation, research and development. Their success has led to a global
adoption of their products and standards.
Free Trade Agreements: Korea has actively concluded free trade agreements (FTAs)
with several countries and regions. For example, the Korea-US Free Trade Agreement
(KORUS) and the EU-Korea Free Trade Agreement expanded Korea's access to
international markets.
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Global Investment: Korean companies have invested in overseas markets and
established production facilities and subsidiaries worldwide. This will expand their
global reach and strengthen South Korea's economic ties with other countries.
Role in international organisations: Korea actively participates in international
economic organisations such as the World Trade Organization (WTO) and the
Organization for Economic Co-operation and Development (OECD). Their
involvement in these organisations shapes global trade policy.
Diplomatic and geopolitical influence: Economic relations often lead to diplomatic
influence. South Korea's solid economic power allows it to play a more influential
role in international affairs, contributing to its soft power.
Economic Resilience: South Korea's ability to weather economic crises, such as the
Asian Financial Crisis of the late 1990s and the Global Financial Crisis of 2008, has
attracted international attention. Its resilience contributes to global economic stability.
The success of the Korean industry and its integration into world markets has made
the country an essential player in the international economic landscape.
Source:
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https://www.wto.org/english/tratop_e/tpr_e/s414_rev1_e.
World Bank (2021)
Source: The Korean Ministry of Trade, Industry and Energy (MoTIE)
Source: IMF economic forecast published on January/31/2023
Source: KITA
o Source: Statista.com