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To Overcome the Darkening Prospects of Declining Exports: "S. Korea Needs to Step Up Efforts to Expand Its Foothold In Promising New Markets Outside Major Destinations for Its Goods"
The country's exports reached a record high of US$605 billion in 2018, up 5.5% from a year earlier, according to data released by the Ministry of Trade, Industry and Energy (MOTIE) on the first day of the New Year. This achieve-ment has made South Korea the world's seventh economy to surpass the US$600 billion mark in outbound shipments, following the United States, Germany, China, Japan, the Netherlands and France.
The country's exports reached a record high of US$605 billion in 2018, up 5.5% from a year earlier, according to data released by the Ministry of Trade, Industry and Energy (MOTIE) on the first day of the New Year. This achieve-ment has made South Korea the world's seventh economy to surpass the US$600 billion mark in outbound shipments, following the United States, Germany, China, Japan, the Netherlands and France.
It was no small feat, and with almost all economic indicators pointing downward recently, President Moon Jae-in's economic team might have wanted to play it up. Looming larger, however, are concerns that the country's exports may be slumping sharply this year, rattling its slowing economy that is suffering from sluggish consumption and a simultaneous decline in production and investment.
The Korea Institute for Industrial Economics and Trade (KIIET), a state-run think tank, recently forecast the nation's exports would increase 3.7% on-year to US$633 billion in 2019. More cautious experts predict that the growth would slip into contraction territory as the weakening competitiveness of the country's key manufacturing industries is coupled with deteriorating external conditions.
In December, exports decreased 1.2% from a year earlier after the increase decelerated from 22.6% in October to 4.1% in November. Outbound shipments of 10 of the country's 13 major export items shrank last month. The on-year decrease reached 33.7% for wireless telecom equipment, 16.9% for computers, 11.7% for home appliances, 8% for textiles and 6.1% for petrochemical products.
Most worrisome was the fall in the shipments of semiconductors, which account for more than one-fifth of the country's total exports. Semiconductor exports fell 8.3% on-year in December, marking the first reduction in 27 months. The fall reinforces signals that the boom in global demand for memory chips is coming to an end.
A slump in exports, which account for 68% of the country's gross domestic product, could have a crippling effect on its faltering economy. Asia's fourth-largest economy is forecast to grow around 2.5% this year, down from the 2.7% estimated for last year.
Over the past year, the country has seen its factory activity drop to the weakest level in two decades, with facility investment shrinking for six consecutive months through August. The on-year increase in the number of employees remained around 100,000, far below the target of 320,000, pushing up the unemployment rate to the highest level in 18 years.
Regulatory reforms needed to forge new growth engines have been stalled as the Moon government has done little to overcome objections from many ruling party lawmakers as well as interest groups. There should be a sense of crisis that, under these worsening conditions, a possible slump in exports could push the economy over the cliff.
The Moon government should ditch its economic policy framework of putting tighter restrictions on businesses and seeking to boost growth with pro-labor measures supported by fiscal spending. But Moon and his aides still seem to be adhering to their misguided policies that have dampened corporate activities and aggravated the livelihoods of low-income households.
This stance would make it impossible to push for comprehensive and effective industrial policies needed to accelerate the restructuring of the manufacturing sector and the development of new industries.
To overcome the darkening prospects of declining exports, the country needs to step up efforts to expand its foothold in new promising markets outside major destinations for its goods. It is necessary to strengthen support to enable more small and medium-sized companies to ship more products abroad.
Policymakers should also stay alert to avoid the country being left behind in the global moves to realign multilateral trade blocs amid intensifying protectionism triggered by US President Donald Trump's administration.
South Korea is expanding its economic partnership with South and Central American countries, which involves co-development projects on maritime affairs in the logistics and tourism sectors. Earlier this year, Korea signed a free trade agreement with five Central American countries - Honduras, El Salvador, Nicaragua, Costa Rica and Panama - which made it the first Asian country to reach the deal with a Central American trade bloc.
And Guatemala is set to join the bloc after the bilateral pact takes effect, according to the Trade Ministry. In addition, free trade agreement negoti-ations between the nation and four South American republics - Brazil, Paraguay, Argentina and Uruguay - are already underway. According to the Ministry of Oceans and Fisheries, Korea has been involved in a series of talks with its Nicaraguan counterpart to improve harbor conditions to attract global cruise vessels.
Ports in Central America - both for the Caribbean Sea and Pacific Ocean sides - are among the top cruise tourist destinations.
However less-developed passenger terminals at some of them have made huge ships anchor off the harbors, meaning cruise tourists still have to use shuttle boats rather than walk ashore to reach the destinations.
One of the less-developed is San Juan del Sur, a southwestern cruise-oriented port in Nicaragua. Its beach and a 134-meter-high Jesus statue in the bay are popular among tourists.
The Oceans Ministry held detailed talks late November in Nicaraguan capital Managua. The Nicaraguan government has reported mapped out plans to modernize harbors and upgrade passenger terminals in coordination with FTA counterpart Korea.
The ministry is also pinning hopes on opening the scope of territory of talks to Honduras and Costa Rica for the west Caribbean coastline joint development. Simultaneously, ministry officials embarked on partnership negotiations with Brazil, which has beautiful beaches and harbors toward the southern Atlantic Ocean.
The South American powerhouse has been relatively conservative in attracting foreign capital in vitalizing harbor facilities, despite growing demand in the tourism and logistics industries.
Recently, turning from its earlier stance, Brazil has unveiled its position to further expand Santos, the largest container harbor in the South and Central Americas, by 2024, which is aimed at extended logistics capacity worth 230 million tons per annum. It is the world's fifth-largest country in terms of both land and population.
For the South American part, more and more cruise tourists focus on port cities such as Fortaleza, Porto Alegre, Montevideo and Buenos Aires, alongside traditionally popular destinations like Rio de Janeiro and Sao Paulo.
Meanwhile, the South Korea-Central America FTA outlines agreements on commodities, investments and intellectual property. Via ratification of respective legislative bodies, the mutual sides will eliminate tariffs on 95% of goods traded between them, in some cases effective immediately and others in phases.
Under the pact, Korea could import Central American coffee at lower costs. The counterpart's people could have cheaper access to Korean passenger cars. According to the Korea Institute for International Economic Policy, the Agreement is projected to bring the effect of pulling up Korea's gross domestic product by 0.02% for the coming decade.★