FTA a lifeline for troubled S.Korean SMEs

 

The free trade agreement (FTA) between China and South Korea is expected to be implemented in late 2015 or early 2016. The agreement is China’s largest FTA so far, and is expected to stimulate economic growth in both countries, benefiting small and medium-sized enterprises (SMEs) in South Korea and offering opportunities for China to upgrade its own industries.

South Korea’s economy is still growing, but the country is facing challenges. According to media reports, after several months of gloom in its export sector, South Korea’s central bank announced in April a cut in its forecast for the country’s 2015 economic growth from 3.4 percent to 3.1 percent.

One of the challenges facing South Korea’s economy is the operating difficulties for its SMEs. Compared with relatively good performance by its large companies, the country’s SMEs are struggling. However, the China-South Korea FTA is likely to help these companies gain ground in the Chinese market by removing or cutting import tariffs on goods they produce.

Large firms are able to move their production from South Korea to overseas consumer markets in order to evade import tariffs in those markets, but SMEs generally do not have this option, so the FTA is likely to be of particular importance for them.

Thanks to the cut in tariffs and large demand in the Chinese market, SMEs that focus on producing household electrical appliances, cosmetics and daily consumer goods may benefit the most. Shen Danyang, spokesman for China’s