Brexit provides new hope for Korean exports to EU

By Choi Sung-jin

In the aftermath of Brexit, Korea’s exports to Britain are expected to shrink but the nation’s shipments to the European Union could increase, a think tank said Tuesday.

Particularly, products that vie with British goods in European and global markets will likely enjoy relative benefits, the LG Economic Research Institute said in a report titled “Global and domestic economy in the wake of Brexit.”

“Even if Britain signs a free trade agreement with the EU and reduces losses resulting from tariff imposition, parts of demand for British products can be replaced by Korean goods if negative awareness about made-in-U.K. products spreads,” the report said.

Korea’s export similarity with Britain is 25th highest in the world. Excluding some European countries, such as Germany, France, Italy and Switzerland, which have high export similarity with Britain in the European market, Korea’s export competition index with Britain is fifth highest in the world after the United States, Japan, Canada and Mexico, and second highest in Asia.

Korea’s largest export item to the EU is automobiles, which represent 10.3 percent of the nation’s total foreign shipments to Europe. If shipbuilding and related parts are included, transportation machinery exports account for 40 percent of the total. Semiconductors and display panels are also major export products.

Britain’s auto exports to the EU account for 8.1 percent of its total shipments to the continent. Other major export items include textiles, smartphones and semiconductors.

“There is plenty of room for Korea to replace Britain in exports to the EU,” said Lee Chang-sun, senior fellow at the institute. “Considering all these aspects, Brexit may not exert lots of negative influence on Korea’s economy.”

But confusion in financial markets and psychological contraction of key players resulting from growing economic uncertainty are worrisome.

If Brexit does not end as just the weakening of the integration of Britain and the EU but serves as a catalyst for the regression of free trade and selfish trade protectionism, global investment and trade could slow, leading to a fall in commodity prices, it said.

There are some plus factors for Korea, such as low oil prices and low value of the won, but the possible contraction of global trade will keep the nation’s exports from recovering and reduce corporate capital spending and private consumption.

“Instead of showing undue uneasiness toward Brexit, Korean exporters need to use the opportunity to jump into advanced markets and increase their shares in them,” the researcher said. “Government officials should also make their policies in ways to enhance the nation’s long-term economic vigor rather than seek short-term stimulus.”