[Pinoy voices] Benefits from Korea and Asean trade

The Jeju Island summit on June 2, 2009 saw the completion of a Free Trade Agreement between the Association of Southeast Asian Nations and Korea. On the same occasion, leaders signed the Asean-ROK Investment Agreement.

Aside from commitments to a regional free trade zone, both Korea and Asean members are enmeshed in a “naengmyeon,” a mixed noodle web of bilateral and multilateral free trade agreements with Europe, the United States, Australia and other countries.

Why do nations trade? Economic partnership agreements became major foreign policy instruments for many countries. Mutual benefit is the dream which guides the business of exports and imports between nations. The benefits of trade still rely heavily on the classical theory of comparative advantage. Variations in resources - capital, natural resources, labor - as well as product and factor price differentials are supposed to give each trading partner the incentive that benefit both suppliers and buyers.

Yet, the pattern of global trade indicates that the developed countries - with higher per capita incomes, but short on raw materials and people - tend to have surpluses in trade relations with less-developed countries that have low per capita incomes, but are rich in resources and workers.

Trade between Korea and Asean is no exception, according to recent trade data from the Asean?Korea Centre in Seoul. There is an abundance of alternative theories to explain this reality.

Total trade between Asean and Korea reached around $90 billion in 2008, and is growing rapidly. Asean exports to Korea had a total value of $49 billion, while imports amounted to $41 billion. Asean is the third-largest trading bloc for Korea, after the U.S. and China. Korea is the fifth largest trading partner of Asean, after Japan, the European Union, China and the U.S. Asean’s trade with Korea is 4.4 percent of its total. In contrast, Korea’s trade with Asean is 10.5 percent of its total trade. Trade volume increased by 135 percent between 2000 and 2008.

Korea’s top three Asean trading partners are: Singapore, at $24 billion, Indonesia at $19 billion and Malaysia at $15 billion.

Korea’s trade with Asean increased by 135 percent from 2000 to 2008. Trade between Korea and Asean has grown tremendously, by 772 percent compared to 1990, when total trade was only $10.3 billion. Compared to trade levels in 2000, the Asean countries with the highest growth in trade with Korea are Vietnam at 390 percent, Brunei Darussalam at 253 percent and Cambodia at 214 percent. Laos is still the lowest in terms of amount of trade with Korea ($106 million), but growth was tremendous compared to the 2000 level. Myanmar’s trade with Korea has the lowest growth, only by 15 percent since 2000.

Asean and Korea leaders are committed to increase bilateral trade to $150 billion by 2015. Korea’s investments in Asean increased by $5.7 billion between 2006 to 2008, and ranks fourth after the European Union, Japan and the U.S.

There are both bright and dark spots in trade between Korea and specific countries in Asean, such as the Philippines. Korea maintained a surplus in its trade with the Philippines, with exports registering higher growth rates than imports. However, the surplus margin narrowed, due to a great jump in imports.

Trade between Korea and the Philippines increased from $6.1 billion in 2006 to $8.1 billion in 2008, registering an average annual growth of 115.2 percent. During the same period, exports rose 122.7 percent a year on average from $3.9 billion to $5 billion. Imports from the Philippines expanded by annual average of 119 percent from $2.2 billion in 2006 to $3.1 billion in 2008. The 2008 figure represented 27.1 percent growth compared with the previous year.

Electronic integrated circuits were the leading sector of Korean exports to the Philippines in 2008, valued at $1.2 billion. In the second spot were petroleum products and oils obtained from bituminous minerals, the export volume of which reached $889.37 million.

Other top 10 Korean exports to the Philippines included telephone sets, flat-rolled iron products and printed circuits.

Exports of telephone sets in 2007 reached $185.82 million, recording a phenomenal increase of 13,545.7 percent from 2006. These products merit attention with regard to their potential for export growth.

Electrical and electronic items were the leading products imported by Korea from the Philippines in 2008. These imports were worth $1.5 billion, which accounted for 49 percent of total imports from the nation. However, compared with 2007, this sector represented a decrease of about $8 million in value, and 13.6 percent in terms of the share in total imports.

Electronic integrated circuits ranked first among the goods imported from the Philippines, with their import volume reaching $903.7 million in 2008. They were followed by refined copper and copper alloys whose imports amounted to $630 million.

In 2008, banana and tobacco imports totaled $153.8 million and $58.6 million, respectively. Although small in their import volume, bananas accounted for 99.8 percent of the Korean import market, and tobacco held an impressive share of 75.6 percent.

Behind these trade statistics are theories of success or failure of policies, their leaders and champions.

Trade relations between Korea and Asean illustrate the potentials as well as limits of regional economic integration. Both Asean and Korea face domestic constraints and pressures as well as demands of the global economy to use trade to promote economic growth and social development.

Foreign exchange, improvements in trade regulations, economies of scale in production and diversity in consumption behavior may also determine the positive or negative features of existing patterns of trade between Korea and Asean.

*The writer is a professor of business at Hanyang University and a member of the PhilRPG.

By Maragtas S.V. Amante