Mu-hyup "Need to Reduce Semiconductor Export Dependence... Essential to Improve Regulations and Expand R&D Productivity"

As the proportion of semiconductors rapidly increased, there has been an evaluation that the domestic export industry base weakened due to neglecting other industries. It is also advised that transforming the domestic industrial structure by improving research and development (R&D) productivity and various regulations can directly guarantee the competitiveness of export companies.

The Korea International Trade Association (KITA) held a "Recent Export and Import Trend Evaluation and Response Direction Briefing" on the morning of the 25th at the Trade Tower in Gangnam-gu, Seoul. KITA Vice Chairman Jeong Manki and KITA International Trade and Commerce Institute Director Cho Sanghyun attended the briefing.

According to the export-import statistics announced by KITA, the cumulative export amount for this year, counted until April 20, is $183.9 billion. This is a 12.3% decrease compared to the same period last year. Imports decreased by 4.0% to $210.5 billion. As a result, the trade deficit recorded $26.6 billion.

KITA pointed out that the structural background for the continuous decline in domestic export amounts lies in the semiconductor illusion and the weakening of the export industry base. It explained that while responding to the rapidly growing semiconductor market and increasing dependence on related industries, other industries were neglected, resulting in a direct hit during the current semiconductor market downturn.

Jung Manki, Vice Chairman of the Korea International Trade Association / [Photo by Korea International Trade Association]

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Vice Chairman Jeong said, "Our country has a severe export structure concentration," and added, "In recent years, exports surged due to the semiconductor market boom, making it seem like total exports increased, but during that time, the export base of other industries weakened." He continued, "Although the proportion of semiconductors in total exports fell to 16.5% last year, it is still the highest among major exporting countries," and added, "In the case of China, the export proportion of mobile phones is the highest, but it is still relatively low at 6.6%."

Looking at 2015 and 2016, the proportion of semiconductors relative to domestic export amounts was relatively low at 11.9% and 12.6%, respectively. Nevertheless, the global export market share of domestic products was 3.18% and 3.09%. This was higher than the recent figures, which have remained in the 2% range since 2019.

From 2017, dependence on semiconductors intensified. While semiconductor investment steadily increased, other investments sharply declined, which is a primary example. In fact, the proportion of semiconductors in domestic manufacturing facility investment was 53.6% last year. This was thanks to the increase in investment scale from 37.7 trillion won in 2017 to 57.1 trillion won last year. Meanwhile, manufacturing facility investment excluding semiconductors decreased from 68.3 trillion won to 49.3 trillion won.

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Vice Chairman Jeong emphasized, "It cannot be said that an increase in the semiconductor proportion is inherently bad," but added, "Other items besides semiconductors must also rise together."

KITA also pointed out various regulations and low R&D productivity as factors negatively affecting domestic exports. In particular, it demanded bipartisan regulatory improvements from the National Assembly, stating that excessive regulations are a major cause hindering the growth of export companies. It also advised addressing the cause of low performance despite the domestic R&D proportion and research personnel ratio being among the highest in the world.

Vice Chairman Jeong said, "The effective average tax rate on domestic R&D investment is 24.04%, ranking 4th among 47 countries (NTIS Science and Technology Statistics), which is very high," and added, "Among the 37 OECD countries, the domestic R&D tax support rate ranks 37th for large corporations and 14th for small and medium enterprises, showing a significant gap." He further explained, "R&D support should be based on international competitiveness and how good the technology produced is, rather than distinguishing between large and small companies."

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