Turkey and India Raising Trade Barriers against South Korea

Hyundai Motor manufacturing plant in Izmit, Turkey

Emerging countries are raising their trade barriers with the spread of COVID-19 reducing their foreign exchange reserves. For example, Turkey is trying to block the outflow of funds based on its free trade agreements with its manufacturing and tourism sectors paralyzed.

The South Korean government is closely watching the moves of Turkey and India in particular. According to the government, Turkey is attempting to withdraw from its FTA with South Korea due to trade deficits amid the increasing possibility of sovereign default. India’s discontent with its FTA with South Korea is substantial, too. For India, South Korea is a country causing a massive trade deficit second only to its trade deficit with China.

Their complaints about the bilateral FTAs are something unexpected in that both countries have benefited from the agreements. According to the Korea Institute for International Economic Policy, South Korea’s imports from Turkey increased by an annual average of US$174 million in 2013 to 2017 as compared with 2008 to 2012 after their FTA took effect in 2013. Although both Turkey and India are making an issue of chronic trade deficits, this is somewhat excessive given that the FTAs have led to more local investments and intermediate goods exports based on more South Korean companies in those countries. South Korea’s direct investment in Turkey more than doubled from US$130 million to US$270 million through the implementation of the FTA.

Turkey is currently undergoing a decrease in forex reserves and increasing forex risks attributable to the tourism sector as well as a recession caused by COVID-19. Many Turkish companies in need of foreign currencies for intermediate goods trade and so on are becoming inoperable one after another.

Hyundai Motor’s plant in Chennai of India

India, in the meantime, is currently expanding its countervailing duties while making an issue of the FTA. This is because a domestic breakthrough has been hard to find. Also hard to find is South Korea’s solution. “Although India is mentioning the trade deficit, most of it is because South Korean companies such as Hyundai Motor Group entered the Indian market at the request of the Indian government,” the institute explained, adding, “If South Korea increases its investment in India to soothe it, more intermediate goods will be shipped to South Korean companies’ manufacturing facilities in the country, which means even more trade deficits.”