Hankyung Research Institute: "Korea-Russia and EAEU FTA Agreement Would Greatly Increase Exports and Improve Korea's Trade Balance"

Korea-Russia/EAEU FTA, Annual Trade Balance Improvement Effect of 2.1 Billion USD

[Asia Economy Reporter Ki-min Lee] It has been argued that if the Korea-Russia/Eurasian Economic Union (EAEU) Free Trade Agreement (FTA) is successfully concluded, exports will increase significantly, potentially improving Korea's trade balance.

The Korea Economic Research Institute under the Federation of Korean Industries made this claim on the 26th through a report titled "Economic Effects Analysis of the New Northern Policy: Korea-Russia/EAEU FTA." The EAEU is a customs union consisting of five member countries: Russia, Kazakhstan, Belarus, Kyrgyzstan, and Armenia. While bilateral negotiations with individual EAEU member countries are possible in the service and investment sectors, the EAEU, which holds external negotiation authority, conducts negotiations on behalf of the union for the goods sector FTA.

Earlier this month, the government announced plans to actively pursue service and investment FTA negotiations with Russia, aiming for a conclusion next year to mark the 30th anniversary of Korea-Russia diplomatic relations, and also revealed plans to promote a Korea-EAEU FTA.

The Korea Economic Research Institute explained in the report that it analyzed the various ripple effects of the ongoing Korea-Russia service and investment FTA negotiations and the expanded Korea-EAEU FTA including goods, using a global Computable General Equilibrium (CGE) model. The CGE model is designed to calculate the effects of policy changes or specific events in a situation where domestic economic sectors such as production, consumption, investment, and government expenditure, as well as external sectors like exports and imports, respond interdependently.

The Korea Economic Research Institute forecasted through the report that the Korea-Russia/EAEU FTA could greatly help improve Korea's trade balance. It explained that since the Korea-Russia service and investment FTA, which the government is primarily pursuing, is limited to the service and investment sectors, the export increase and trade balance improvement effects are expected to be limited. However, if the Korea-EAEU FTA, expanded to include the goods sector, is concluded, exports from Russia and other EAEU countries are expected to increase by 40% and 56%, respectively, and Korea's trade balance is projected to improve by approximately 2.1 billion USD annually.

The Korea Economic Research Institute also analyzed that the total trade volume, combining exports and imports with Russia and other EAEU countries, would significantly increase by 25% and 46%, respectively. It explained that this would induce diversification of Korea's exports and trade, expanding the export share to Russia and EAEU countries from 2.4% to 3.4%, and the total trade share from 2.8% to 3.5%. Furthermore, the institute asserted that depending on the expansion of FTAs and strengthened economic cooperation with other Commonwealth of Independent States (CIS) countries such as Uzbekistan, the New Northern Policy's achievements could improve Korea's trade structure.

On the other hand, the effects vary by industry. The Korea Economic Research Institute anticipated that the trade balance in various goods sectors might slightly decrease upon the Korea-EAEU FTA's enforcement, but the automobile transportation sector is expected to be the biggest beneficiary, showing a trade balance improvement effect of about 3 billion USD. It explained that exports in the automobile transportation sector to Russia and other EAEU countries would significantly increase by 54% and 114%, respectively. Accordingly, the institute pointed out that strategic industry-specific support and development policies would be necessary depending on the progress of the New Northern Policy.

Researcher Jaewon Jung of the Korea Economic Research Institute stated, "The New Northern target countries centered on Russia are based on abundant natural resources," adding, "Given Korea's high energy demand and developed industries, the economic structures are highly complementary, making the success of the New Northern Policy an important momentum for Korea's economic growth."

Researcher Jung also said, "The success of the New Northern Policy will be a politically and economically important foothold for the future success of inter-Korean economic cooperation," adding, "It is necessary to promptly conclude the ongoing Korea-Russia service and investment FTA negotiations, expand them to include the goods sector FTA, and broadly discuss economic cooperation plans based on each other's comparative advantages."

This content was produced with the assistance of AI translation services.