Up to 70.4 percent of Korean trading companies are expecting that their exports to Iran will expand when the international community’s economic sanctions on Iran are relaxed, while 30 percent of them are anticipating that the increase will be more than 50 percent.

This was quoted from the on-site survey result of 300 participants who took part in the “Presentations on the Outcome of Nuclear Talks with Iran and Sanctions on Iran” which was jointly hosted by the Korea International Trade Association and the Korea Strategic Trade Institute.

The trading companies expressed their expectations about Iran, the largest car market in the Middle East and the 4th largest oil producer, by responding that they were interested in making inroads into the automobile (30.3%) and petrochemicals (29.2%) sectors when the sanctions against Iran are eased.

In addition, to the question regarding the recent trend of exports to Iran, 42.1 percent of the respondents said the export volume was declining and 34.7 percent of them pointed to the buyers’ payment difficulties due to currency problems in Iran as the cause of the decrease in exports. On the other hand, it appeared that the tentative deal on Iran’s nuclear issue agreed on April 2 has not led to immediate trade expansion since 71.2 percent of the respondents said there was no change in terms of Iranian buyers’ movements.

Meanwhile, Korean exporters expressed excitement and concerns about the Iranian market at the same time. Of the respondents, 32.5 percent said increasing competition would be a possible factor to hinder the trade after the elimination of sanctions. Another 32.5 percent of the respondents chose the possible reimposition of sanctions on Iran due to Iran’s failure to fulfill the nuclear agreement. The uncertainty of the future outlook of sanctions on Iran was selected as the biggest bottleneck in trade with Iran.

Kim Chun-sik, head of the Trade Promotion Group of KITA said “The nuclear deal agreed on April 2 is rather a draft for the final agreement. Therefore, Korean exporters to Iran are required to pay close attention to the outcome of the negotiations until June 30. KITA will try to promptly deliver the results of the talks and information on Iran’s market trends in association with the Ministry of Trade, Industry and Energy (MOTIE) and the Korea Strategic Trade Institute (KOSTI)”. Regarding the difficulties of issuing the Confirmation of Unprohibited Trade and Investment brought up by the exporters, an official at KOSTI said “We will try to minimize the difficulties by positively reviewing the feedback from the exporters.”

 
 
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South Korean economy is experiencing a vicious cycle with its wobbling exports, a last resort for the nation’s economy. Falling exports drive down the current account surplus, which, in turn, causes the won to depreciate, boosting export competitiveness and as a result leading to export volume growth.

However, the recent drop in exports in Korea, reflected in lagging corporate performance, resulted in slowing domestic consumption and the subsequent expansion of current account surplus. Then, the won climbed, which, in turn, hurt exports, and as a result shrank the economy further.

In response to the shrinking economy from worsening exports, the government intends to implement countermeasures by late June.

According to the Ministry of Strategy and Finance, the Ministry of Trade, Industry and Energy and Bank of Korea, current account surplus for this year is forecast to record $96 billion, setting a fresh high from last year’s $89.2 billion. However, ‘surplus during recession’ is becoming more apparent as the surplus is growing due to a sharper fall in imports than exports.

In actual fact, the current account surplus for March came to $10.3 billion, the third highest on a monthly basis. In April, exports slid twice faster than imports, with exports down 8.1 percent from the same period a year ago and imports by 17.8 percent.

 
 
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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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