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Korea on alert over signs of rising global trade protectionism

Economic policymakers and business circles in Korea are on alert over signs that trade protectionism is rising across the globe.

A report released by the World Trade Organization last month showed that in the seven months leading up to mid-May 2016, G20 economies introduced 145 protectionist measures, the highest since 2009.

(123rf)
(123rf)

Some economists say this phenomenon may not necessarily prompt a grave worry as it remains within the boundaries of the existing mechanisms and relates partly to the steep fall in global commodity prices over the past few years, which has led to local producers raising more complaints against cheap imports.

But the tendency seems set to be amplified amid a slowing growth in global commerce and a mounting voice against free trade and immigration in widening parts of the world that are grappling with increasing unemployment and income inequality.

The surge in trade protectionism may well pose a severe risk to the Korean economy, which still relies heavily on exports for growth despite efforts to boost domestic demand in recent years.

The country’s overseas shipment fell for 18 straight months in June. Korean exporters worry that demand for their products will further decrease amid global economic uncertainties heightened by the U.K.’s recent vote to leave the European Union and a rising protectionist tide across the world.

According to data from the Korea International Trade Association, the number of import restrictions imposed on Korean goods rose from 175 in December last year to 179 in February, 180 in April, 182 in May and 185 in June. More than 60 percent of the cases were taken in the form of antidumping duties.

In a recent survey of 251 foreign branches of major Korean corporations, which was conducted by the Federation of Korean Industries, more than 25 percent said they have been facing tougher regulations this year, which they believe are connected with the strengthening tendency of protecting indigenous companies.

“Protectionism will not do any good to us,” said Finance Minister Yoo Il-ho during a meeting with members of the American Chamber of Commerce in Korea last week.

Yoo, who doubles as deputy prime minister for economic affairs, stated that Korea has developed its economy based on foreign trade and investment.

What seems the most worrisome for Korean trade officials is the possibility of the U.S. shifting to a protectionist policy following the presidential election in November.

In a speech last week, Donald Trump, the presumptive Republican presidential nominee, reaffirmed his extreme protectionist stance by pledging to review all of the free trade agreements that the U.S. has concluded with foreign countries and withdraw from the Trans-Pacific Partnership trade deal that was signed in February by 12 Pacific Rim countries after seven years of negotiations.

He called the 2012 bilateral pact between Seoul and Washington a “job-killing deal,” saying it “doubled our trade deficit with South Korea and destroyed nearly 100,000 American jobs.”

His rhetoric, which is popular among the U.S. working class, has prompted Hillary Clinton, the presumed Democratic presidential nominee, to move toward trade protectionism. Policy outlines drafted by the Democratic Party for the presidential election, which were unveiled Friday, included a promise to review existing free trade accords and revise the TPP before it comes into force.

In a thinly-veiled shot at Trump’s remarks which were critical of the Korea-U.S. free trade accord, Finance Minister Yoo said last week that the advantages from the bilateral deal far outweigh the disadvantages.

“Despite the fact that the KORUS FTA has brought enormous benefits to consumers and investors of the two countries, it is no secret that some criticize it based on the increased U.S. current account deficit,” said Yoo during the meeting with AMCHAM members.

Experts here note that, though there may be a limit to what it could do, Korea should make broader efforts to check against the trend of trade protectionism in multilateral settings such as G20 talks and the World Trade Organization.

“Korea should be active in reminding the world that the global economy has been able to grow further under the free trade system,” said Jang Sang-shik, a researcher at the KITA.

At the same time, the country needs to seek more balanced interests with key trading partners by increasing investments in them and forging a better environment for foreign firms to do business, experts say. Efforts to address concerns raised by its trading partners should be stepped up, given that Korea has recorded a trade surplus for 51 months in a row.

Jung Gyu-don, head of the Korea Center for International Finance, said the country should strengthen the weak links of its economy, such as the service industry, in the process of reducing remaining trade barriers and accelerating deregulation.

By Kim Kyung-ho (khkim@heraldcorp.com)
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