Evaluation of Korea-Russia/EAEU Economic Cooperation: Mid- to Longterm Vision

_ KIEP – RFTA. Seoul – Moscow, 2018.

Since the establishment of Korea-Russia diplomatic relations in September 1990, economic cooperation between the two countries has progressed rapidly. The fact that Russia’s industrial heartland is far away from Korea constituted an additional challenge in building close economic relations between the two nations. Despite the difficulties, Korea and Russia became “near top ten” trading partners. However, the fact still remains that the potential for economic cooperation of the two economies has not been fully realized.

Trade and economic cooperation between the Russia and Korea is strategic in nature. The Russian market is of great interest to Korean companies, as Russia can provide all the necessary types of industrial and agricultural raw materials in addition to energy. The Russian market remains attractive for many of Korea’s products, and vice versa Korean market is of great interest to Russia’s products and resources. Korea can also contribute to Russia’s economic modernization and its regional development, particularly in the Far East and Eastern Siberia.

The Korean and Russian government acknowledged the need for systematic economic cooperation mid- and long-term, and decided to draw up mid- and long-term roadmaps for bilateral economic cooperation. KIEP and RFTA, representative institutes of Korea and Russia respectively, launched the joint research project, aimed at discovering cooperation issues and providing specific measures for implementation. This study evaluates the priority fields with greatest potential for tangible results and develops policy recommendations, focusing on cooperation in the three sectors of trade, investment and regional development.

For its part, Korea-Russia trade cooperation has been relatively vibrant. However, the trade structure is biased. The structure in which Korea exports manufacturing goods to Russia and Russia exports energy goods to Korea should be looked at as a starting point in order to maximize the trade potential. Decreasing Russia’s bias in exports of energy and increasing its trade of high-tech products can improve the trade structure, intra-industry trade should also be facilitated.

Russia aims at strengthening industrial competitiveness. For this, value chains between Russia and Korea need to be formed. This will be realized more effectively through collaboration of the two countries in determining industries that show promise, and implementing joint projects. Second, customs procedures need to be improved and non-tariff barriers such as TBT and SPS measures need to be eased or lifted. Russia’s customs procedures can be improved by expanded technological cooperation with Korea. An E-customs system will be a significant step in increasing transparency. Third, Korea and Russia could intensify collaboration of competition policy. Lastly, the two countries need to begin talks on Korea-EAEU FTA negotiations, in order to deal with all abovementioned points and seek ways for comprehensive and effective economic cooperation.

Significant Korean investment into Russia commenced in the late 2000s and reciprocal investment by Russia is minimal. Korea invests mostly in the manufacturing sector of Russia’s central regions, mainly Moscow and St. Petersburg. Due to economic situation in Russia, a number of Korean companies experienced sharp declines in sales profits. Providing financial support programs for Korean businesses and expanding Russian companies’ investment are currently important parts for facilitating investment and trade cooperation. Establishing a Korea-Russia investment fund or increasing the availability of the Korean-Russian investment platform formed in 2013 could present good options. Second, setting a long-term joint plan for investment in promising industries and projects is necessary. There are only a few examples of Korea’s successful investment in Russia and vice versa. Investment risk needs to be lessened and a more systematic plan should be thought out through close cooperation. Third, investment in Korea should be promoted among enterprises of Russia and EAEU members in order to raise the quality of investment cooperation. Russian companies can expand direct investment to Korean enterprises for import substitution purposes. Moreover, holding investment forums in Russian regions involving KOTRA’s Invest Korea, Korea-Russia Business Association, Chamber of Commerce and Industry of the Russian Federation, Moscow Business Association, etc. will be useful in attracting investment to Korea and Russia. Fourth, a joint investment portal needs to be created in order for investment information to be easily accessible. When entering the Russian market, Korean businesses tend to obtain information on investment from Korean companies that are already operating there. As a result, businesses with ties or affiliations in Russia can easily obtain needed information whereas enterprises without such links have difficulties in securing adequate information. The portal will provide sufficient information to any company from the two countries interested in the partner country.

Korea’s ‘Eurasia Initiative’ and Russia’s Far East development policy, cooperation in the Russian Far East are also studied in this report. Recent development policy for the Far East attempts to connect the Far East’s economy with the APEC’s value chains and strengthen transportation and logistics network between the regions. In order to increase efficacy regarding execution of the policy, the Ministry for Development of the Russian Far East was created and the special Deputy Prime Minister was appointed for this task. All relevant organizations for development of the Far East – funds, investment agencies and human resources management, were newly established. Besides, new policy instruments such as tax incentives, the advanced development territories and related laws were adopted for its continuity. Based on these, the following suggestions are proposed. First, Russia-South Korea-North Korea trilateral projects in transportation, logistics, energy network sectors must move forward. Second, it is desirable for Korean businesses to participate in the Advanced Development Territory in the Far East and the joint special industrial zones to be created in the territory over the long run. Cooperation can be fostered in the engineering sector as Russia can gain a new growth engine for economic development and Korea can obtain a new space for growth in the northern region.

Third, it is needed to establish a “Far East Development Committee” within the Korean Government. The committee can support Korean companies to invest in the Far East and coordinate all relevant joint projects between Korea and Russia.

Source: KIEP – RFTA.

Leave a Reply

Your email address will not be published. Required fields are marked *