South Korean exports are facing three kinds of difficulties. Small and medium-sized enterprises (SMEs) are suffering in the face of the yen’s decrease amid their trade dependence on certain nations such as China is increasingly growing. After the rapid export growth of automobiles and cell phones, which have driven the nation’s exports for two to three years, the nation is still exploring new growth engines other than semiconductors. This unstable status of the export environment is thus posing a threat to the Korean economy.

Korean exporters are on alert over fluctuations of foreign exchange rate, which determine their price competitiveness and profitability. As the yen is decelerating at a faster speed with the US’s end of quantitative easing programs, Korea’s exports to Japan during the January-September period recorded $23.5 billion, down 4.1 percent from the same period a year ago. The yen’s drop is leading the nation’s companies to risk losing their competitiveness in the United States and EU.

The devaluation of the yen is also serving as an obstacle to Korean exports to China. The decision to extend the Korea-China currency swap deal is part of efforts to offset the weaker yuan. Amid the stronger won and weaker yen in the first half of this year, the won-yuan exchange rate appreciated as much as 9.3 percent.

Against the expectations that conclusions of a series of promising free trade agreements would broaden the nation’s trade territory, trade dependency on specific areas is growing. The trade balance with the EU already exceeded a $6.5 deficit in September this year while the trade deficit with the EFTA is expected to reach $3.9 billion this year.

 
 
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Korean government is working to conclude further free trade agreements (FTA) with China, Vietnam, and New Zealand within this year in order to help domestic companies’ exports in the global market. The government is now under pressure to facilitate Korean companies’ exports to Vietnam while responding to China’s policy of growing its domestic market. Also, in a move to stay ahead of competitors, including Japan, the nation strategically already suggested a deal for an FTA with Vietnam.

A spokesperson responsible for the Korean government’s FTA policy noted “Conclusion of a Korea-China FTA within this year has great importance, given the fact that Chinese government is now swiftly changing its policy for economic growth from the export-based to local market-based. The conclusion of the FTA aims to secure early advantages in China’s domestic market.”

The Korean government estimates that once the Korea-China FTA is effectuated, Korea’s exports to China would increase from 5.4 percent to 5.5 percent and the nation’s gross domestic product (GDP) also should grow from 2.28 percent to 3.04 percent within 10 years after the effectuation, according to the level of trade concessions.

Between Korea and Vietnam, a trade agreement was concluded through the Korea-ASEAN FTA. But, Vietnam is a late participant in the FTA, so that the commodity group’s transition into a group in the tariff-free condition is scheduled to be carried out by 2020. And the percentage of the commodity group excluded from trade concessions is high. Now more than 3,300 Korean companies operate in Vietnam, and from the Vietnam side, elimination of tariffs between Korea and Vietnam is urgent as Korea comprises 30 percent of total exports.

The trade level between Korea and New Zealand is not so high, but it plays a big role for Korea not to lose its competitiveness in the area in a trade race between Korea and rival trade nations including China. China also enjoys nearly double increased exports ahead of effectuation after announcement of China-New Zealand FTA.

 
 
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