How to deal with worsening export conditions
By Yu Byoung-gyu
Korea’s exports are decreasing rapidly this year. As a result during the January-Octorber period, Korea’s cumulative exports increased only 0.4 percent from the same period last year. Exports will continue to shrink due to the deteriorating trade environment. Exporters will further struggle due to foreign governments’ protectionist approach, which is feared to delay Korea’s economic recovery and bring down its economic growth rate.
There are many reasons for the decreasing outbound shipments. Firstly, the slowdown of global trade is one of the foremost reasons, which has been caused by the continuing economic recession after the European debt crisis. Countries are making moves to strengthen protectionism as the growth rate of trade plunged because of decreasing demand, for which the global economic recession of 2012 is responsible.
Secondly, Korea is being held in check by many competing countries. The number of items Korea has the largest global market share of plummeted from 490 in 2002 to 131 in 2010. Particularly, as Korea’s flagship corporations such as Samsung, LG, and Hyundai expanded their global market share, this prompted global rivals to check them in world markets.
Thirdly, foreign governments are raising non-tariff barriers by applying stricter anti-dumping investigations and customs clearance procedures to protect their domestic industries, which are vulnerable to the rapidly expanding trend of free trade agreements.
Fourthly, as the competition for international patent application is increasingly fierce, enterprises of major countries in direct competition with Korea tend to file more patent-related conflicts and disputes against Korean companies. With the gloomy prospect of the global economic recovery, protectionism appears to be prevailing for the time being. With high dependency on exports, the Korean economy will suffer for the following reasons.
First and foremost, the export business is feared to shrink as the trading climate is set to continue worsening. A mounting number of restrictive trade measures by foreign governments have already caused a decline in export revenue by $3 billion and legal fees for patent-related litigation will cost Korean exporters $1.91 billion, totaling $4.91 billion. Secondly, Korean exporters’ profitability is set to drop as foreign governments are practicing protectionism even more tightly against Korean exporters. With intellectual property rights and patent-related litigation increasing, Korean exporters’ profit margins have also dropped, seriously affecting the employment and investment sentiment of businesses. Thirdly, if export slows and the profitability of Korean export businesses deteriorates, the recovery of the Korean economy is bound to be delayed.
To overcome growing protectionism, the Korean government is required to set up strategic countermeasures to cope with different types of protective policies taken or to be taken by foreign governments and upgrade the monitoring system on export items that might be subject to regulation, while strengthening international collaboration to fight protectionism by establishing a regional arbitration organization to deal with trade-related disputes. Meanwhile, businesses should set up tailor-made strategies to counter each protective action taken by foreign governments, and recruit more experts on trade issues, while sharing information with export-related organizations.