Nation`s Trade Balance Facing No. of Challenges

○ Trade surplus facing challenges

China has been Korea’s most profitable trade partner between 2003 and the first half this year.

The amount of Korea’s trade surplus with China peaked at 23.27 billion U.S. dollars in 2005, but fell to 20.9 billion dollars in 2006 and 18.96 billion dollars last year.

A researcher at the Korea International Trade Association said, “Korea’s trade surplus with China could decline further this year since China is highly likely to suffer an economic slowdown after the Olympic Games.”

China has claimed a bigger share of Korea`s combined trade surplus, from 20.1 percent in 1999 to 52.3 percent in 2001, 88.0 percent in 2003, 100.4 percent in 2005 and 129.5 percent last year.

Experts say Korea should not consider China a guarantee for trade surplus since the figure with China has decreased despite China`s growing importance in Korea’s trade surplus.

Several advanced economies have fallen from the ranks of Korea’s profitable trade partners.

Korea enjoyed its biggest trade surplus with the United States in 2001 and 2002, but the U.S. rank fell to third from 2003 to last year and further to fifth this year.

Britain fell from fifth in 1999 to 13th this year. Over the same period, Spain tumbled from 10th to 14th.

○ Newly emerging trade partners

Russia and Brazil were not among Korea’s top 20 most profitable trade partners in 1999, but are 16th and 17th, respectively, this year. The change was affected by Korean car exports to Russia, which rose 49.6 percent in the first half of the year, and those to Brazil jumped 271.7 percent.

Singapore, the hub for petroleum products, became Korea’s third most profitable trade partner in the first half this year, up from sixth in 1999. Korean oil refineries` export of petroleum products to Singapore has surged.

As Korea’s large corporations have made inroads into Vietnam, Poland and Slovakia, the three countries have become profitable trade partners for Korea.

Vietnam ranked sixth in the first half of this year, up from 11th in 1999. Over the same period, Poland moved up from 13th to seventh and Slovakia from 20th to 12th.

LG Electronics and Hyundai Motor Company have pushed into Poland, Kia Motors has established plants in Slovakia, and POSCO and Doosan Heavy Industries and Construction have built factories in Vietnam.

New factories in the three nations require parts produced in Korea to manufacture end products, and this, in turn, have raised Korea’s trade surplus with the three countries.

Unexpectedly, Panama (10th), the Marshall Islands (11th), the Bahamas (18th) and Liberia (19th) were also among Korea’s 20 most profitable trade partners in the first half. Experts say they became so since Europeans want to take ships to those nations, which are well known as tax shelters.

○ Snowballing trade deficit against Japan

On the other hand, Korea has long recorded a trade deficit with Japan and nations rich in natural resources such as Saudi Arabia.

Japan has always had a trade surplus with Korea since Seoul began collecting relevant data. This year was no exception. The trade deficit with Japan reached a whopping 17.36 billion dollars in the first half of the year, up 4.6 times from 3.72 billion dollars in 1999.

The main culprit is Korea`s weakness in the parts industry.

Among the top five countries having a trade surplus with Korea in the first half, Saudi Arabia was second, followed by the United Arab Emirates, Qatar and Kuwait. The top five in 1999 were Japan, Saudi Arabia, Australia, Indonesia and Kuwait.

abc@donga.com