Gov’t tries to invigorate exportsTo try to turn around exports, which have been declining for a year and a half, the government announced it will be doubling the size of trade finance for small and midsize exporters to 14.3 trillion won ($12.5 billion).
The government also may restore tax cuts for general trading companies, which were ended in 2009.
The Ministry of Trade, Industry and Energy on Tuesday announced a series of measures to help exporters, who have been hit by the decelerating global market and heightened protectionism.
The government said that although Korea’s exports are unlikely to surge to levels of the past, some kind of turnaround is possible starting in August with signs of mild improvement.
“Positive signals are showing, and although they are still weak, we believe it is time to end the negative growth in our exports,” said Trade Minister Joo Hyung-hwan during a meeting Tuesday.
“It is difficult to predict whether our export growth will turn around in the second half as there still uncertainties including the continuing struggles in new markets as well as Brexit, and in July exports will decline further due to the shorter number of work days [because of summer vacations] as well as the strike in the automotive industry.”
August will be crucial if exports can be turned around to positive growth, he added.
One of the key strategies of the government is financial backup for small and midsize exporters that want to expand into new markets in Africa, the Middle East and in South Asia. Markets such as Egypt, Jordan, Iran, Mongolia, Bangladesh and Cuba have higher risks but also potential to expand.
The aid includes expanding loan guarantees for exporters up to 600 billion won as well as temporarily lowering export insurance premiums.
In the first half of the year, the government provided financial aid of that sort worth 5.7 trillion won.
The government will step up its support of Korean companies trying to land overseas procurement contracts. The target is $3 billion worth of overseas procurement business next year. This year the Korean trade ministry expects that business to be worth around $1 billion.
The biggest reversal is the government’s support for general trading companies. Those companies were fostered by the Park Jung Hee regime in 1975, when the government approved seven trading companies including Samsung C&T, LG International and Daewoo International. They received a lot of government support including tax breaks. They specialized in exporting overseas using their networks across the globe.
The prerequisites for a general trading company was capital of more than 1 billion won, annual exports exceeding $50 million, more than 10 overseas branches and exports to more than 10 countries. The trading companies started to struggle in the 1990s as many major clients such as Samsung Electronics and Hyundai Motor started shipping goods overseas on their own. In the aftermath of 1997 Asian financial crisis, the trading companies shrunk, and the rise of the internet shrunk them further. By 2009, the government scrapped the designation altogether along with various support offered.
The trade ministry said it will look into reviving support for general trading companies by reforming related laws. The idea was proposed by the Korea International Trade Association.
BY LEE HO-JEONG [email@example.com]