Business-friendly environment for foreign firms vital for trade: KITA

In order to improve Korea's suffering trade deficit, a Korean trade lobby group on Wednesday called for the government to ease regulations for foreign businesses.

“Korea's export industry, which is mainly composed of intermediate goods and semiconductors that are sensitive to economic fluctuations, is one cause of the sluggish exports. But fundamentally, the global export market share is the key problem,” KITA Vice Chairman Jeong Marn-ki said during a press conference held at Startup Branch at Coex in Samseong-dong, southern Seoul.

Jeong explained that the expansion of “Galapagos rules” -- regulations that exist either only in Korea or in just a handful of countries -- has led domestic companies to increase their overseas investment, while foreign companies reduced investments in Korea. He warned that if this situation persists, the country will not be able to improve its global export market share.

KITA's analysis of the trade market situation came after South Korea reached a record-high monthly trade deficit of $12.69 billion in January. While outbound shipments fell 16.6 percent on-year to $46.27 billion in January -- the largest drop in three years -- imports slipped 2.6 percent on-year to $58.96 billion.

It was the first time that the country saw a trade deficit for 11 consecutive months since 1997.

Since exports of semiconductors recorded $6 billion in January, down 44.5 percent on-year, it has been considered the core problem to record a high trade deficit.

However, KITA says that the real problem lies in sluggish global export market share.

The trade association says that the decreased export of semiconductors can eventually bounce back once the overall global economic situation improves, but it is hard to recover the drop in global export market share in a short period of time.

According to KITA, Korea's global export market share dropped from 3.2 percent to around 2.9 percent in 2019, and has not improved since.

Adding to that, the association sees that Korea should consider this problem more seriously because its trade performance is much worse than other countries.

As of the fourth quarter last year, Korea’s on-year export increase rate was minus 9.9 percent, while neighboring countries China and Japan had minus 6.9 percent and minus 4.6 percent, respectively.

“In particular, there are concerns that the situation will worsen as competitors such as the US, the EU, and China expand subsidies to foster their own industries.”

Jeong raised the US tax credit for the electric vehicle industry as an example.

“In the case of the US, they are providing up to 30 percent of the amount invested in an electric vehicle factory as a tax credit, but in Korea, we only provide a 1 percent tax credit, they say that it will be 3 percent in 2023. But the difference is still big and we cannot compete.”

Meanwhile, according to KITA, the number of bills for new regulations proposed by lawmakers increased threefold from 1,313 in 2017 to 3,950 in 2021.

As of 2020, the number of new and strengthened regulations also increased by 55 percent on-year to 1,510.

“We suggest applying Donald Trump’s ‘one in, two out’ rule that abolishes two existing regulations when a new regulation is introduced or applying the UK’s similar ‘one in, two or three out’ rule,” Jeong said.

He added that Korea should also review various corporate regulations that have been hastily introduced over the past five years.