Osec Short Analysis: Korea Joins 1 Trillion USD Trade Club

© Krzysztof Czuba - Fotolia.com

The USA was the first to reach the trade milestone in 1992, followed by Germany in 1998, China and Japan in 2004, France and UK in 2006, and the Netherlands and Italy in 2007. This year only five countries were in the club, the US, Germany, China, Japan, and France. And now an extremely proud Korea.

For the Korean government, good news is no reason to relax. The new Minister for Knowledge Economy declared immediately: «Now, it’s time for Korea to reach a 2 trillion USD trade target by exploring new growth engines and setting  a new trade vision and strategy».

Korea is all about speed. In the last decades, the growth in trade has been breathtaking. In 1967 trade volume stood at meager 1.3 billion USD, 1973 at 11.3 billion USD, and then it took off at an incredible speed: 1988 112.5 billion USD, 2005 545.7 billion USD and after 6 more years 1 trillion USD.

The economy has seen last year an excellent year with 6.1% growth of GDP. Even though Korea’s growth forecast for this year had to be reduced and stands at about 3.8%, economic growth is still sound. Korea has in many sectors a highly-developed economy, making this growth the more remarkable.

Korea is also fast catching up with the conclusion of FTAs. 2010 saw the conclusion of FTAs with two economic giants, the EU and the USA, It is generally assumed that those big FTAs will boost the Korean economy even further. Korea also shows interest to conclude FTAs with the two neighboring giants, China and Japan, and/or to aim at  a three-way FTA between Korea, China and Japan.

Switzerland was fast to conclude an FTA with Korea. It’s FTA as part of the EFTA-Republic of Korea FTA entered into force already in 2006. It was the third FTA of Korea at that time, after the ones with Chile and Singapore. In the last five years, many Swiss companies enjoyed tariff advantages as compared to their EU competitors. Remarkably, the Swiss companies in Korea remain highly confident to keep their competitiveness and even gain by the EU-Korea FTA due to the new Korean interest for Europe and European products. This was also one of the main results of recent survey conducted by the Swiss Embassy and the newly established Swiss Business Hub in Seoul.

The big Swiss companies are present in Korea, but Swiss SMEs are still very rare and it seems that many SMEs did not discover the potential of Korea and the Korean market yet (not unlike German SMEs). The potential is high, especially through the combination of Swiss innovation and precision and Korean speed and industrial capacity. A few Swiss pioneers have discovered this potential, more should follow.

Korea’s economy is not without challenges. It still depends too much on huge conglomerates, leaving little room for Korean SMEs. It needs to develop the whole service sector (an opportunity also for Swiss players). The record-high household debts, the elevated level of consumer price inflation and the rapidly ageing population are further worries.

But, Korea can look to the future with confidence. The country has gained excellent coping mechanisms with economic and financial crises. Korea got very high marks of how it reacted to the 2008 crisis and managed its economy. The results are there, and can also be seen more and more on Swiss streets, in Swiss houses and in our daily life everywhere.