Value context and insight. lkm@koreatimes.co.kr
Korea urged to diversify trading partners amid virus scare
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By Lee Kyung-min
By Lee Kyung-min
Korea should diversify trading partners to limit its vulnerabilities caused by the China-centered global value chain, according to economic think tank reports, Tuesday.
The renewed, collective recommendations adds to the growing concern that Asia's fourth-largest economy ― relying heavily on exports ― is structured to be the hardest hit by external uncertainties amid the fast-spreading new coronavirus, compounded by the drawn-out U.S.-China trade dispute.
Korea Institute of Finance (KIF) researcher Kim Chung-han said in a Feb. 22 report that Korea's manufacturing value chain should be reorganized in a way that reduces heavy dependence on China and Japan, a few countries that provide or produce parts and intermediate goods imported by Korea to make final export goods.
“The China-originated coronavirus has essentially led to a downright halt of the global economy effectuated by the value chain relying on the world's second-largest economy. This has emerged as a new risk factor for the global economy,” Kim said.
This is in line with an earlier recommendation made by KIEP which said in a Feb. 18 report that the global value chain could undergo a major change in the event that the virus spread continues longer than expected.
“Manufacturing bases should be diversified, and more flexibility is needed in the global supply chain,” the report said.
Yonsei University economist Sung Tae-yoon said diversification of trading partners as part of an effort to find an alternative to the precarious status quo will provide an impetus for growth of the country's major industries as well as many small- and medium-sized enterprises (SMEs).
“The government is spearheading initiatives to foster parts, materials and equipment industries after the trade feud with Japan. Given most of them are made by SMEs whose long-term, sustainable growth is premised on going beyond domestic sales, taking prompt measures is crucial,” he said.
The institutes' collective opinion is in addition to a similar recommendation made by the Korea Development Institute (KDI).
KDI researcher Song Yeong-kwan said in a Jan. 30 report that Korea should join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement among 11 countries in the trans-Pacific area to reduce its heavy reliance on China and foster the export of goods manufactured by SMEs.
The agreement, Song said, will recognize intermediate goods produced in designated countries as final goods, thereby making them eligible for tariff benefits.
Apart from gaining a competitive edge with Korea's cheaper, quality products in certain niche markets, the agreement will also help Korea lead the international discourse to better reflect the interests of the country by having a greater say in setting global standards in areas such as intellectual property within key legal frameworks yet to be established between developing economies.