Martial Arts: Only Half of Korean Import-Export Companies Respond to Russia-Ukraine Crisis... Concerns Over Trade Contraction and Currency Risk

Necessary Policy Support Includes Trade Insurance Support (25.4%) and Rapid Information Provision (21.3%)

[Asia Economy Reporter Park Sun-mi] It has been analyzed that if the Russia-Ukraine situation worsens, not only will trade with the affected regions be suspended, but there will also be damage such as increased manufacturing costs due to raw material supply shortages. Currently, only about half of the Korean import-export companies are actively responding to the Russia-Ukraine situation. Companies are most in need of expanded trade insurance support, fearing trade contraction and foreign exchange risks.

The Korea International Trade Association’s International Trade and Commerce Research Institute, in its report titled ‘Recent Status of the Russia-Ukraine Situation and Its Impact on Our Companies’ released on the 18th, predicted that if the Russia-Ukraine situation worsens into a full-scale war, significant damage to our import-export transactions is expected, similar to when Russia annexed the Crimean Peninsula in 2014, which caused a sharp decline in South Korea’s exports to Russia. At that time, South Korea’s export volume to Russia was $10.1 billion, but one year after the annexation in 2015, it plummeted by 53.7% compared to the previous year, recording $4.7 billion.

In particular, Russia is South Korea’s 10th largest trading partner, and if the Russia-Ukraine situation worsens, direct damage is expected mainly to sectors where many Korean export-import companies are concentrated, such as cosmetics (444 companies), other plastics (239 companies), and automobile parts (201 companies). Although Russia has been pursuing de-dollarization since 2014, the proportion of dollar-denominated payments still exceeds 50%, so if Russia is excluded from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment network due to the current situation, delays or suspension of payment settlements for Korean companies are inevitable.

On the import side, diversification of trading partners is necessary for some rare minerals imported from Ukraine. The trade volume between South Korea and Ukraine is only $900 million annually (ranked 68th among trading partners), but the import dependence on Ukraine for items such as neon, krypton, and xenon is relatively high at 23%, 30.7%, and 17.8%, respectively. Therefore, if the Russia-Ukraine situation worsens, disruptions in the supply of imported raw materials or increased import prices are expected, which will increase the import burden on domestic manufacturing companies.

However, items with import dependence exceeding 70% from Russia and Ukraine (based on HS 10-digit codes) number 43 from Russia and 4 from Ukraine, accounting for only 1.9% of the total 2,418 imported items from both countries, so the impact of import suspension is expected to be limited.

According to an urgent survey conducted by the Trade Association targeting 86 import-export companies in Eastern Europe, companies expressed the greatest concerns in the event of a worsening situation as ‘trade contraction’ (22.7%), ‘ruble foreign exchange risk’ (21%), and ‘logistics difficulties’ (20.2%).

In response, some companies are actively taking measures such as ‘diversifying supply sources’ (30.5%), ‘strengthening trade insurance’ (17.1%), and ‘entering into forward exchange contracts for payment settlements’ (6.1%), but one in four respondent companies (23.2%) are reportedly observing the situation without any special response. The most needed policy supports were identified as ‘trade insurance support’ (25.4%), ‘prompt information provision’ (21.3%), and ‘support for diversifying trading partners’ (17.2%).

Kim Kkot-byeol, senior researcher at the Trade Association, stated, “Although tensions eased somewhat as Russia withdrew some troops on the 16th, the differences in opinions between Russia and Western countries remain large, making immediate resolution difficult,” and emphasized, “Considering our companies’ awareness of the situation, the impact of economic sanctions, and raw material supply shortages, close government monitoring and support measures are necessary.”

Meanwhile, the association plans to hold an ‘Online Briefing on the Russia-Ukraine Situation’ at 4 p.m. on the 21st, explaining the impact on Korean companies, local trends, and company-specific response measures. Applications can be made through the Trade Association’s website.

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