Invest KOREA

Trade Trends

As of the first half of 2017, Korea is the seventh largest export market for U.S. products and its sixth largest source of imports, ranking sixth place in overall trade volume, up one rung since the signing of the free trade agreement (FTA) between the two countries.

Korea’s trade surplus with the U.S. fell by 39.4 percent from the first half of 2016, as the value of exports to the U.S. declined due to the slowdown in automotive, auto parts and wireless communication device exports, coupled with the 22.7 percent increase in imports of U.S. products, mostly manufacturing equipment, general machinery, automobiles and agro-fishery products.

Impact of the Korea-U.S. FTA

Since the Korea-U.S. FTA was ratified in late 2011, Korea’s trade volume and balance with the U.S. showed an upward trend until 2014, but declined throughout 2015 and 2016. The total value of Korean exports to the U.S. increased by USD 10.3 billion from the USD 56.2 billion in 2011 to USD 66.5 billion in 2016, but the growth rate has recently started to decline at an increasingly faster pace, falling by 0.6 percent in 2015, and 4.8 percent in 2016.

Meanwhile, Korea’s imports of U.S. products, dropped at a rate lower than imports from other countries, and the drop seems to have been tempered by the FTA. Korea’s imports of all foreign products plunged from USD 524.4 billion in 2011 to USD 406.2 billion in 2016, but imports of U.S. products went down only slightly from the USD 44.6 billion in 2011 to USD 43.2 billion in 2016.

The U.S. has been seeing its trade surplus in services against Korea continuously grow from USD 11 billion in 2011 to USD 14.1 billion in 2015. In particular, its surplus of revenue from intellectual property rights appears to have nearly doubled from USD 3 billion prior to ratification, to USD 5.9 billion in 2015.

Both countries were found to have been benefiting from the FTA in terms of exports and imports, while the impact of the FTA was the greatest in the balance of trade for Korea, and in the services account balance for the U.S.

Of Korea’s ten major export items to the U.S., passenger cars, auto parts, semiconductor devices, and computer memories have been seeing growth. In the case of passenger cars and auto parts, exports continued to increase since the ratification, but has recently seen its numbers drop slightly in 2015 and 2016. As the tariff on auto parts were eliminated as soon as the FTA was ratified, Korea particularly benefited from the FTA through the surge in auto parts exports.

Investment Trends

Korean investment in the U.S. continues to grow. As Korean investment in the U.S. grew from USD 6.19 billion in the first half of 2016 to USD 8.44 billion in the same period of 2017, the annual total for 2017 is expected exceed the number for the previous year. The expansion of Korean investment in the U.S. was influenced by U.S. government incentives, such as tax deductions and establishment of production facilities encouraged by the expansion of protectionism.

On June 2017, an economic delegation of 52 large companies, including Samsung Electronics, LG Electronics, SK, Doosan Group, CJ Group, LS Group and GS Group, as well as middle-standing companies and SMEs, visited the U.S. and announced that it will be investing a total of KRW 12.8 billion in the U.S. for the next five years.

In the first half of 2017, Korea attracted investments worth USD 2.45 billion from the U.S., a 35 percent increase from the same period the previous year. Despite the announcement of the tax reform plan for revitalizing investment (April 2017), and interest rate hikes, Korea has managed to overturn the downward trend of the first quarter (-33.5%) and witness a surge in investment from the U.S. in the second quarter (64.7%) of 2017.

By industry, manufacturing (36.2%) and services (4.1%) both saw steady growth, while the manufacturing industry in particular, thanks to the positive numbers in chemical engineering (136%) and automotive (3.4%) sectors, exceeded USD 1 billion for the first time in history during the first half of a year.

Major Cooperation Areas and Opportunities for Korean Companies

As the Trump administration plans to invest USD 1 trillion in infrastructure across the next ten years to foster economic growth and expand employment, a maximum USD 3 trillion market expected to be formed in the U.S. Demand is expected to rise for services such as architectural design, construction, maintenance/repair, transportation machinery and parts, heavy equipment, construction materials and equipment/materials such as electric wires and cables.

To revitalize infrastructure projects, U.S. state governments are competitively attracting public-private partnership (P3) projects in which foreign investors and companies may participate. There is an urgent need to secure comprehensive competence in scale, technology and funding through an advanced consortium of finance (government-run banks), construction companies, IT firms, manufacturing companies, and service providers. As such, Korean companies can win state-government projects through localization strategies, such as by forming partnerships with local construction SMEs or by pursuing M&As.

The U.S. president has signed an executive order to strengthen cybersecurity infrastructure and execution capacity. The U.S. has the world’s biggest cybersecurity market, which is expected to grow by an annual rate of 7.8 percent and form a USD 34.6 billion market by 2021.The federal government is the biggest investor in the U.S. cybersecurity market, as well as its biggest consumer, and injects about USD 14 billion of related budgets each year, which amounts to 60 percent of the entire market.

Thus, Korea can promote industrial and technological cooperation with the U.S. by proposing to cooperate on early warnings and jointly respond to frequent cyberattacks by the North. Korea should also seek cooperation with government procurement companies (cybersecurity solutions providers) that does business with the federal government, and create opportunities to export human resources with specialized skills.

As of 2015, the U.S. biopharmaceutical market amounts to USD 374 billion, a 13 percent surge from the year before, and accounts for 40 percent of the global market. To complete its round of health care reform, the Trump administration is pushing forward with policies that lower drug prices, and to that end has proposed to accelerate biopharmaceutical approval procedures, and expand biosimilar imports. As U.S. and European biopharmaceutical patents started to expire one after the other since 2015, the advanced biosimilar market is expected to grow by over 170 percent over the next decade. Although still lukewarm, if the U.S. set out to approve biosimilars on a full scale, related markets are expected to undergo rapid growth.

Korea’s finished biopharmaceutical product exports to the U.S. started to rise steeply since 2013, led by immune serums (vaccines), antibiotics and insulins. It is necessary for Korean companies that lack technological prowess and local experience to strengthen their competence in the U.S. by forming partnerships with local drug makers and outsourcing through specialized firms. Through open cooperation models such as technology transfers (licensing), joint ventures, and M&As, they need to supplement their capacities in R&D, clinical trials, production, marketing and distribution.

The U.S. is expanding its energy resource exports by easing and abolishing various regulations related to fossil fuel development, accelerating business approval procedures and securing infrastructure of all types. In addition to the Keystone XL pipeline construction receiving approval after being delayed for environmental reasons, investment is expected to expand in various forms of energy-related infrastructure such as oil pipelines and LNG plants.

As a result of the U.S. expansion of energy infrastructure, demand in exports and investments is expected to rise for machinery and equipment involved in generating electricity as well as in fossil energy drilling and development. By expanding crude oil and shale gas imports from the U.S., it is possible to meet U.S. demands to ease its trade deficit, and also strategically diversify Korea’s import sources.

The U.S. federal government’s investment in R&D is USD 130 billion, accounting for 27 percent of its total investments, and plays a key role in the development and commercialization of basic technologies in the U.S. The U.S. supplies a colossal amount of research funding to the six major R&D institutes (DARPHA, NIH, DOE Office of Science, NSF, NASA, NIST) and supports joint international R&D development projects.

Korea should, therefore, sign MoUs with the six major government institutes and raise the accessibility to U.S. technologies, human resources and R&D infrastructure. To utilize the federal government’s R&D support system, Korea needs to look for opportunities in establishing joint ventures with local companies, conducting joint R&D with local institutes and acquiring technology licenses.

The U.S., which invests USD 580 billion (2016) in startups annually, has built by far the largest startup ecosystem in the world. The Trump administration’s anti-regulatory policies are expected to partially contribute to the growth of startups involved in education, health care, and financial services. Accelerators, which also provide mentoring services on business planning, starting a business and developing technology, and also connects startups with opportunities to attract investment, act as midwives for the U.S. startup industry.

Korea should develop joint projects through technological exchange, joint ventures, etc., with local technology startups. Opportunities should also be sought to commercialize U.S. technologies and attract investment by utilizing local accelerators. Furthermore, Korea should vitalize a government-operated fund matching system for foreign venture (angel) investments.

"U.S. Market Entry Strategies 2018"
Nov. 2017, KOTRA New York