Tightrope-Walking Korean Companies... Business World Holds Breath Amid Unexpected Overseas Variables

US Moves to Sanction Russia... Inevitable Export Impact on Auto and Parts Industries
Negative Effects on Smartphone and Home Appliance Sectors, Raw Material Prices Could Surge if Tensions Persist
EU Pushes Immediate Retaliation Bill Against Trade Threats, Raising Concerns of Chain Reactions

Export cargo containers are piled up at Busan Port's Sinsundae and Gamman docks. [Image source=Yonhap News]

[Asia Economy Reporters Sunmi Park, Daeyeol Choi, Hyeyoung Lee] As tensions escalate between Russia and Ukraine, South Korean companies within the sphere of influence are on high alert as the United States and other Western countries are considering economic sanctions against Russia. On top of this, uncertainties are piling up with the European Union (EU) pushing legislation for retaliatory measures against trade threats and anti-China sentiment intensifying due to biased judgments at the Beijing Winter Olympics. Amid worsening domestic business conditions caused by various regulations originating from the political sphere, unexpected overseas variables that could negatively impact production and sales activities are emerging one after another, increasing anxiety within the business community.

◇ Rising Tensions... South Korean Companies on Edge= According to the business community on the 9th, industries that could be hit by the escalating tensions between Russia and Ukraine include automobiles, home appliances, smartphones, aviation and shipping, petrochemicals, and cement, among others.

The automobile industry faces inevitable damage if the U.S. takes the step of excluding Russia from SWIFT, the international financial messaging system, as part of its sanctions, given the large scale of export and import payments involved.

According to the Korea International Trade Association, last year South Korea exported $4.151 billion worth of automobiles and automobile parts to Russia, accounting for 42% of the total export value. Automobiles and automobile parts rank first and second among single export items, indicating their significant share. There is also a need to prepare for the possibility of trade disruptions. This is because not only finished products are traded, but production plants located locally could face operational difficulties.

An industry insider said, "As seen in the recent shortage of automotive semiconductors, the entire value chain is affected by just one or two key components," adding, "It is neither appropriate nor practically possible to stockpile important parts in advance."

If the U.S. uses semiconductor sanctions to block exports to Russia of products made using U.S. technology in third countries, not only will smartphone exports to Russia become difficult, but home appliance companies such as Samsung and LG, which have production plants locally, will also be affected. Moreover, since local home appliance factories focus on the domestic market, if the situation worsens to the point of war, sales in Russia and neighboring regions could be negatively impacted.

Russia is also a key import source for South Korea’s three main energy resources (crude oil, gas, and coal), which is another concern for Korean companies. Even if the conflict does not escalate to invasion, continued tension could further drive up already soaring international raw material prices. For crude oil, the largest import item, South Korea imported $4.27 billion worth from Russia last year, an increase of about 80% compared to the previous year.

Russia ranks sixth among South Korea’s natural gas import sources and second for coal. Kim Kkotbyeol, senior researcher at the Korea International Trade Association, assessed, "Companies hedge against rising raw material prices, but if tensions persist, it will be difficult to avoid damage from further price increases."

◇ EU Raising Trade Barriers... Accumulating Adverse Factors= The EU’s push for legislation that allows immediate retaliatory measures against trade threats from third countries to protect member states is another area South Korean companies need to prepare for. If the legislation is enacted, Korean companies with high export ratios could face a chain of impacts including supply chain disruptions.

According to a report from the Korea International Trade Association’s Brussels office, the ‘Trade Threat Response Regulation’ recently announced by the EU Commission includes broad countermeasures against countries that pose economic threats to the EU and its member states. The scope of sanctions covers virtually all sectors including goods and services, foreign direct investment, public procurement, and financial services.

In urgent situations, the Commission can implement retaliatory measures immediately without a separate approval process. The measures can be applied not only to third-country governments but also to related individuals and organizations, thus carrying the character of ‘economic sanctions.’

For Korean companies, the long-term impact would be unavoidable if this regulation is applied. If exports to the EU via third countries that exert economic pressure on the EU proceed, customs clearance could be denied, and overall business operations could face obstacles. Jo Bitna, head of the Korea International Trade Association’s Brussels office, said, "While the possibility of Korea facing retaliatory measures from the EU is low, given the tightly intertwined global supply chains, we cannot rule out the possibility that our export companies may be unexpectedly affected."

The deepening rift between South Korea and China during the Beijing Winter Olympics period, due to issues such as Hanbok and biased judgments, also poses a threat to Korean companies. There is a risk of isolation in the Chinese market, the world’s largest market. Particularly, sensitive items such as smartphones and automobiles are likely to be affected.

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