Globalization & Trade Blog: South Korea -- Doing business in a region of instability

A great e-newsletter on international trade is published by FITA (The Federation of International Trade Associations) at http://www.fita.org/. Their current issue discusses the opportunities of doing business in stable countries amidst a region of instability. My previous blog discussed Turkey in the Middle East as one such example. Another example on the opposite of the world is South Korea.

South Korea map
(c) GraphicMaps.com

In December, 2010 the United States signed a Free Trade Agreement with South Korea. The agreement would give United States' companies more opportunities to export products to South Korea at a time where the South Korean economy continues to grow at unprecedented rates. While we continue to wait on Congress to ratify the agreement, on February 17 the European Parliament approved their FTA with South Korea, giving EU countries a competitive edge on doing business in South Korea.

Our Congress needs to ratify the US-South Korea FTA as soon as possible. Here's why. The US-South Korea free trade agreement would lower tariff rates on 95% of all U.S. consumer and industrial products, improve transparency and intellectual property rights, as well as address standards and regulation.

Today, South Korea is the 13th largest economy in the world and the 8th largest US trading partner. That, despite the fact that most South Korean companies suffered dearly during the 1997 Asian financial crisis. Since then, South Korea has seen spectacular growth emerging as one of the strongest economies in the world.

For example, annual per capita income was $100 in 1963; compared to almost $20,000 today, creating a growing middle-class of consumers looking with unprecedented levels of disposable income. With a population of 48 million, South Korea boasts a greater percentage of Internet users (78%) than the United States (70%) and has become a significant consumer of U.S. high technology products. Over one-third of all bilateral trade can be categorized as “advanced technology products.” Over the past decade, U.S. exports have supported product development in South Korea, setting the stage for long-term relationships with Korean partners in such high market potential sectors such as energy, medicine, transportation, and telecommunications.

Korean consumers are turning increasingly to foreign products and have demonstrated a willingness to pay for quality goods. The FTA is predicted to create many new business prospects for both American and South Korean businesses.

Another large potential market is for U.S. automobiles. For example, existing tariffs on U.S. automobiles have created a trade imbalance. During FTA negotiations, Korea agreed to immediately eliminate the 8% tariff on U.S. passenger vehicles, 10% tariff on U.S. trucks, and 3 to 10% tariff on almost all U.S. auto parts. These changes, if ratified by Congress, will give U.S. automobile and auto parts manufacturers a price advantage in the Korean market.

Korea’s resiliency is major factor to consider during our recent times of economic uncertainty and passage of the US-South Korean FTA would enable US companies to further capitalize on this dynamic market. While total trade between Korea and the United States surpassed $82 billion in 2008, it was only 20% of South Korea's total imports of $435 billion.

Foreign Trade Indicators	2005	2006	2007	2008	2009
Imports of Goods (million USD)	261,238	309,383	356,846	435,275	323,085
Exports of Goods (million USD)	284,419	325,465	371,489	422,007	363,534
Imports of Services (million USD)	58,055	68,023	82,108	92,915	74,978
Exports of Services (million USD)	43,711	48,382	61,729	75,973	57,304