ROK-steady

Despite a year of slowing global demand and heightened geopolitical uncertainties, Asia-Pacific remains an important engine of global growth. In its most recent projections, the International Monetary Fund (IMF) expects the region to help power the global economy, with growth of 4.6% this year and 4.2% in 2024. But within this fast-growing corner of the world, there’s a US$1.7 trillion economy that stands as a crucial foundation to the region’s economic architecture, and a key market for growing Canadian trade opportunities. Welcome to the Republic of Korea (ROK)!

While driven in great part by its giant tech conglomerates, this economic powerhouse and high-tech leader is defined by dynamism in such sectors as electronics, telecommunications, auto production, chemicals, shipbuilding, and steel. Ranking as Canada’s seventh-largest merchandise trade partner, two-way trade with Korea stood at C$19.6 billion in 2022, a solid increase from slightly less than C$9.2 billion in 2013.

For exporters that are new to the region, Korea offers a safe business climate, marked by strong institutions, a stable banking sector and  low levels of public sector indebtedness. The government has also made progress on its complex regulatory environment. Fostering ongoing innovation is a priority for the government, underscored by Korea’s Top 5 ranking in the 2021 edition of the World Intellectual Property Organization Global Innovation Index.

Seoul has pledged billions towards R&D across several sectors, including semiconductors, advanced manufacturing, and next generation nuclear energies. Emerging technologies remain a strategic focus, given concerns over economic security and meeting the country’s twin demographic challenges of an aging and shrinking population. In May, Canada and Korea launched a high-level economic security dialogue, highlighting opportunities for strengthening co-operation to promote economic security and safeguard value chains in areas such as critical minerals, artificial intelligence and batteries, among others.

As headquarters to three of the world’s largest electric vehicle battery manufacturers, Korea is also keen to pursue advanced battery technologies. The government recently announced a joint public-private  investment of more than US$15 billion in this area, creating trade opportunities in the broader battery value chain. An expected increase in Korea’s lithium demand should also support growing opportunities for Canadian firms in the context of Canada’s critical minerals strategy. There are also clear and strong synergies in helping to support Korea’s clean energy transition, with Seoul targeting net zero by 2050, driven in part by large investments in offshore solar and wind energy projects.

There are, of course, challenges to be aware of when doing business with Korea. Being a highly export-oriented economy can leave the country vulnerable to swings in external demand. Case-in-point, recent weakness in China has led to lower-than-expected exports, which have also been hit by the global tech sector slowdown. As such, gross domestic product (GDP) growth is expected to come in around 1% this year, before slowly rebounding in 2024, as the cyclical tech downturn fades.

While Canadian trade with Korea is noteworthy, it remains highly concentrated in certain areas, particularly canola oil and wheat, where Canada is among the country’s top suppliers. However, given that Korea is a net agri-food and seafood importer, and has among the lowest food self-sufficiency ratios in the Organisation for Economic Co-operation and Development (OECD), this remains a key area of opportunity for Canada. Additionally, the 2015 Canada-Korea Free Trade Agreement (CKFTA) will further increase opportunities for Canadian exporters, particularly for a range of agricultural products, where many tariffs have already been eliminated or are set for removal by 2032.

The CKFTA also offers opportunities to broaden market access for other Canadian sectors, including industrial goods, such as chemicals and plastics, information technologies, aerospace and forestry products. The agreement also affords Canadian companies the opportunity to gain a foothold in the Indo-Pacific region, and grow their market-share across a number of fast-growing Asian markets. Export Development Canada (EDC) has recently opened an office in Seoul.

The bottom line?

Korea is a competitive, dynamic and innovation-driven economy that offers up strong synergies across various sectors for Canadian exporters and investors, while also providing a strategic base from which to expand trade opportunities across the region. While trade relations are already strong, there’s still significant room to grow. Ongoing and timely market intelligence alongside a focused approach to the sectors seeing the fastest growth will support deeper ties between Canada and Korea and help further expand Canada’s international footprint.

This week, a very special thanks to Susanna Campagna, principal at EDC Economics.

As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.