South Korean companies look to Southeast Asia in bid to increase exports

March 2, 2018 - Major South Korean corporations involved in exporting are watching developments in Southeast Asia closely as a potential way of skirting a wave of US and Chinese regulations on South Korean imports. With the US Donald Trump administration ramping up tariffs through anti-dumping measures, safeguards, and the invocation of Section 232 of the Trade Expansion Act, and China adopting economic measures in retaliation for the THAAD anti-missile system's deployment, Southeast Asia has emerged as an alternative market. Thanks to the Moon Jae-in administration's "new southern trade policy" focus, trade levels with Southeast Asia have been burgeoning rapidly.

The US and China respectively accounted for 12.0% and 24.8% of South Korea's total 2017 exports of US$573.6 billion. The respective numbers were down 1.3 and 1.2 percentage points from 2015. With Trump's aggressive "American first" push, the focus of trade patterns with the US market has shifted: with more local factories are being built and operated, volumes of final goods passing through customs have dropped in favor of parts and intermediate goods for local factory use.

Meanwhile, the ten ASEAN markets - including Vietnam, Singapore, Malaysia, and the Philippines - accounted for 16.6% of South Korea's exports last year, a rise of 2.4 percentage points from two years earlier. This situation shows the emergence of a new export system in which ASEAN countries are now making up for most of the decline in the US and Chinese markets.

Recent global strategy meetings for the Southeast Asia region by the heads of major corporations involved in exports have also been drawing attention. On Feb. 22, SK chairman Chey Tae-won held a global strategy meeting in Kuala Lumpur with the presidents of Innovation, Telecom, and gas project affiliates.

"With the emerging economies of Southeast Asia recording annual growth rates over 5%, we were attempting to develop plans to locate different project opportunities for the same of medium- and long-term growth," an SK spokesman explained about the meeting.

SK also discussed establishment of a regional head office (RHO) to exclusively handle strategic Southeast Asian efforts with its own resources and capabilities rather than relying on the group's head office. Chey himself visited Vietnam and Singapore in Nov. 2017 for "global partnering" in the region. SK's 75.4 trillion won (US$69.4 billion) in exports last year accounted for a historically high 54.2% of its 139 trillion won (US$128 billion) in total group sales. Amid this rapid shift in the company's focus from domestic demand to exports, finding an escape route from the US and Chinese import regulation drive has emerged as a top priority.

Economic protectionism emerging as a trend in advanced markets

GS, a leading corporation for energy-related exports including petroleum products and power generation, has also been pursuing Southeast Asia as an alternative to the US and China. In Nov. 2017, GS chairman Huh Chang-soo held a group presidential board meeting in New Delhi - the capital city of the world's third-largest market in purchasing power terms.

"The departments in charge of export strategy planning for major corporations seem to recognize that Trump's trade pressure push is not just a one-time storm that will simply pass if they're patient, and that trade protectionism has emerged as a trend for the advanced markets since the 2008 financial crisis," an industry source said.

"There has been a trend - especially among groups that depend heavily on exports or are involved in projects often targeted for import regulations by the US or China - of shifting the focus of their exports to the emerging markets of Southeast Asia," the source added.

LG Hausys, Lotte Chemical, and Hyundai Electric have been making their own inroads on Southeast Asia's power, construction material, and chemical product markets since the second half of 2017, building new branches or expanding existing production facilities in Thailand, Vietnam, and Malaysia. Their efforts are reportedly not unrelated to the intensifying trade protectionism in the US, including its safeguards and anti-dumping measures.

South Korean trade officials implementing strategies to develop the Southeast Asian market

South Korean trade officials, who have faced trade pressures from the US and China ever since the administration took office in May 2017, are already planning and implementing a strategy to shift the focus of export bases southward. The so-called "new southern trade policy" involves reducing reliance on the US and China as export markets in favor of stronger export routes in ASEAN countries.

Efforts are currently under way to revise the current trade organization by creating a "new trade order strategy office" within the Office of the Minister for Trade to intensify trade partnerships with ASEAN countries and other south Asian economies. The South Korean government is also leading a push to reach a conclusion this year on the Regional Comprehensive Economic Partnership (RCEP), a "mega-FTA" involving 16 countries: the ten ASEAN nations, plus South Korea, China, Japan, Australia, New Zealand, and India.

"The RCEP is a highly important agreement in terms of trade and investment diversification as a base for our new south trade policy," a senior Ministry of Trade, Industry and Energy official said.

To be sure, the goal of the major exporting corporations' shift in focus to Southeast Asia is market diversification. But some observers also say it shows the dark side of South Korea's position as the top-ranked member of the G20 for export reliance, forced now to seek a safe harbor in a trade order where the power-based logic of major trade powers like the US and China holds utter sway.

While South Korea does have the option of complaining to the WTO about unfair trade retaliation against its products, a final decision would take years to emerge - and the reality of international trade is such that even if South Korea wins its case, the major powers may simply choose not to comply with the decision. The conclusion that the best response lies in Southeast Asia is seen as a bitter reflection of the current state of affairs.

Source: The Hankyoreh