By Lee Hyo-sik
South Korea has posted a $175-billion imbalance in trade and other international transactions with Japan over the past decade.
Analysts here suggest that to reduce the deficit with the world's second largest economy, Korean firms should invest more to develop core technologies and increase their self-sufficiency in key industrial components.
According to the Bank of Korea (BOK) Friday, Korea's accumulative current account deficit with Japan from 1999 through 2008 reached $175 billion, with the size expanding nearly every year. In 2007, the shortfall reached $28.8 billion, up from $25.1 billion in 2006 and $17.1 billion in 2003.
Last year, the shortfall dropped to $25.4 billion because domestic companies imported fewer Japanese components and parts on plunging overseas sales as a result of the global credit crunch last October and the subsequent economic downturn.
Besides Japan, Korea has been incurring huge trade deficits with Middle Eastern economies for the past 10 years, totaling $287.4 billion, because of crude oil imports.
LG Economic Research Institute Managing Director Oh Moon-suk said the nation's huge trade shortfall with Japan has been a chronic problem as major exporters here are largely dependent on more advanced industrial components made by Japanese businesses.
"This is a structural issue. The more local firms ship goods overseas, the more they need to import core parts and materials from Japan, expanding the trade red ink with the neighboring country. Even though the degree of the dependence has eased to some extent over the years, we still have a long way to go before achieving self-sufficiency in industrial technologies and components," Oh said.
He suggested businesses and the government should put more money into developing essential technologies and materials.
Among subcategories of the current account, Korea posted a $177.8 billion trade account deficit with Japan in the past decade, while recording a $525 million surplus in its services account.
In 2008, the trade shortfall stood at $25.4 billion, down slightly from $25.5 billion in 2007. But the nation' service account shortfall shrank sharply to $173 million from $3.15 billion over the one-year period as more Japanese tourists came here on a stronger yen against the Korean won. In 2007, many Koreans visited the neighboring country on the back of the strengthened local currency.
In the first seven months of this year, Korea's current account deficit totaled $14.8 billion, down 26.6 percent from $20.2 billion during the same period last year as the weakened local currency increased exports to Japan and encouraged more Japanese to come here and spend money.
Overall, Korea's current account has been in the black since February with imports declining at a faster pace than exports. In June, it posted a $5.43 billion shortfall, the second largest monthly amount ever.