Korean firms fear Brexit fallout

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Korean firms fear Brexit fallout

With the beginning of the vote on the United Kingdom’s referendum on European Union membership on Thursday, businesses and financial authorities in Korea have scrambled to gauge the ramification of the two scenarios: remain or leave.

Amid mixed verdicts from a flurry of polls around the world, the state-run Korea Trade-Investment Promotion Agency (Kotra) surveyed 31 Korean companies doing business in the EU and 71 percent of them said that Brexit will have a negative impact on their performance. Twenty-nine percent of the respondents said the result will have zero impact. Not one said an exit would have a positive impact.

The respondents cited increases in tariff and aggravation of Korea’s export goods’ price competitiveness in U.K. as key reasons for their objection. If the U.K. leaves the EU, products traded between Korea and U.K. will no longer subject to the Korea-EU free trade agreement.

Hyundai Motor runs a factory in the Czech Republic and Kia Motors operates one in Slovakia. Their vehicles shipped to the U.K. will be slapped with tariff after a two-year probationary period. Respondents also pointed to the currency volatility, which would eventually result in the value of the pound falling further.

Under the “leave” scenario, Korean vehicle and vehicle parts producers “will have to keep their price competitiveness intact in the U.K. by discussing with authorities there to introduce custom-free measures” over the next two years, Kotra advised.

High-tech products such as semiconductors, smartphones and computers will see a minimal blow, given the World Trade Organization’s Information Technology Agreement stopped charging custom duties on trade for 201 different high-demand information technology products. Some white goods such as refrigerators and air conditioners may get a little more expensive should U.K. leave the EU.

Following Brexit, the trade volume between Korea and U.K. is highly likely to taper off amid shrinking demand in U.K. Exports to U.K. may shrink as much as $700 million per year by 2020, according to the LG Economic Research Institute. Bilateral trade volume hit a record high last year of $13.5 billion, according to the Korea International Trade Association. The United Kingdom is Korea’s 11th largest export partner, dealing in key items such as cars and semiconductors.

All major exporters - from Samsung to Hyundai, SK and LG - have been developing contingency plans with Brexit in mind.

If Britons decide to remain in the union, trade and investment between Korea and U.K. will undergo a meager change, according to Kotra. Only the speed of U.K.’s pace of economic recovery will have a long-term impact.

Korea’s financial authorities, including the Bank of Korea, have entered into emergency mode to prepare for the immediate impact of the result. The result of the referendum is scheduled to be announced at 3 p.m. today Korea time. Yoon In-koo, researcher at the state-run Korea Center for International Finance, expects the results will be obvious between 11 a.m. and 1 p.m., during the trading hours in Korea and Asia.

“It appears that financial markets forecast a higher chance of U.K. maintaining EU membership but it’s really hard to predict the result at this moment,” said an official of the Bank of Korea. “Given that the Bank of England and European Central Bank have already agreed to provide liquidity to each other if needed, immediate impact on the Korean financial market will be marginal. We are closely monitoring the foreign financial markets just in case.”

Global business giants that keep their offices or manufacturing facilities in Britain as a launch pad for their foray into Europe are also intensely watching the results. Toyota and Nissan, which produce vehicles in Britain and ship them to EU countries, publicly took negative stances against Brexit.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]

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