Trade across Korea-Japan Strait

In spite of fluctuating exchange rates, exports from Kyushu to Korea are growing and experiencing a record high－673 billion yen in 2003. This represents a 12.8% increase over the rate in 2002. These exports in 2003 formed 17.7% of total exports for Kyushu. The ratio in 1995 was 12.1%. On the other hand, the imports from Korea to Kyushu have not grown since 1991. Instead, they are shrinking. The import in 2003 reached 330 billion yen, 24.7% less compared to the highest year in 1991. Imports from Korea represent 10.7% of total Kyushu imports in 2003. The ratio in 1991 was 19.2 percent.

The strength of the trade relation is measured by an index of combined intensity of exports and imports. The index of combined export intensity is calculated through adjusting export ratio with relative size of imports in the importing country. If the index is more than one, both countries have a relatively strong connection. According to NIRA research, Japan’s export indices combined with Korea are more than two and they have been increasing since the 1998 Asian currency crisis. The reason is because Korea intensified its efforts to strengthen its trade with Japan.²⁾

Similarly the combined export index between Korea and Kyushu indicate higher indices approaching seven, which is more than double the

2) Abe and Urata. “Development of FDI between Japan, China and Korea”. pp.8-9.

nationwide indices over the past few years. They are roughly twice the index for 1996－97. In other words, the combination between Kyushu and Korea in Kyushu’s exports is relatively stronger than all of Japan and has been becoming stronger in recent years.

Figure 2.1 Trade Trends between Kyushu and Korea

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

▲ 2,500

▲ 2,000

▲ 1,500

▲ 1,000

▲ 500 0 500 1,000 1,500 2,000 2,500 3,000 3,500

Export 1,936 2,066 2,145 2,345 2,301 2,733 2,218 1,985 2,193 3,050 4,038 4,310 2,886 3,641 5,474 5,213 5,965 6,731 Import 2,195 2,809 3,768 4,260 4,250 4,385 3,777 3,546 3,613 3,741 3,851 3,821 3,576 3,788 4,215 4,214 3,724 3,300 Balance of payment ▲ 259 ▲ 743 ▲ ▲ ▲ ▲ ▲ ▲ ▲ ▲ 691 187 489 ▲ 690 ▲ 147 1,259 999 2,241 3,431 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Export・Import

(1/10)bil・yen Balance of payment

Source: Moji Customs Office

Figure 2.2 Trade Links between Kyushu and Korea

0 5 10 15 20 25

0 1 2 3 4 5 6 7 8 9

Import rate from Korea 23.0 22.2 18.4 19.2 17.7 18.0 17.6 16.6 12.4 10.9 11.9 15.6 14.9 14.2 12.5 10.7 Export rate to Korea 14.7 13.7 12.5 13.9 10.6 9.7 9.7 12.0 10.5 10.1 6.8 12.2 16.3 16.7 16.6 17.7 Export index combined with Korea 8.2 6.9 6.3 6.0 4.9 4.3 4.1 4.5 3.7 3.9 4.0 5.9 6.7 7.5 7.2 7.7 1988 89 90 91 92 93 94 95 96 97 98 99 2000 01 02 03 export rate

import rate（％）

export index combined

Source: Moji Customs Office

2.2.1 Enlarged trade imbalance in the local-to-local relationship

Exports from Kyushu to Korea are growing gradually and imports from Korea are shrinking. In 2003, the amount of export was more than twice that of import. The imbalance of trade between Kyushu and Korea has changed dramatically since 2000. The surplus in the balance of payment has shifted from Korea to Kyushu. And Kyushu’s surplus in 2003 recorded the highest level of 343 billion yen.

Since 1998, the imbalance of trade between Japan and Korea has been growing and reached more than 1950 billion yen in 2003. This is one of the important problems for Korea. Kyushu’s portion in the trade imbalance between Japan and Korea accounted for 17.6% in 2003.

2.2.2 Exports by commodity items in Kyushu

Commodity composition of Kyushu’s export to Korea has changed since 2000. The growth in food, chemicals, iron and steel is not outstanding but stable. Although the import of fish and fish products is restricted by the import quota system in Japan, the export of foods from Kyushu climbed up.

While the export of fiber goods and non-iron metal is shrinking, the export of ordinary machinery, transport machinery, and precise machinery is growing conspicuously. Among them motors, metal-processing machines, cars, and ships and related products are growing rapidly. The export of electric machinery including heavy electric machinery and electronic parts has been stagnant because the level of Korean technology has reached that of Kyushu in those industries. All in all, the machinery products are the number one export item from Kyushu to Korea.

Table 2.1 Exports by Commodity Items from Kyushu to Korea

1990 1995 2000 2001 2002 2003 Total export 2,301 3,502 5,474 5,213 5,965 6,731

foods 19 24 153 165 185 171

fish & fish products 12 8 92 91 116 108

tobacco 0 0 46 57 51 41

materials & fuel 47 41 73 100 83 116

fiber goods 109 157 73 70 76 60

apparel 6 8 10 12 15 13

non metalic mineral products 48 83 34 39 33 50

chemicals 468 456 591 599 651 661

Metal products 310 426 649 525 731 660

iron & steel 164 214 426 325 507 493 non iron metal 122 187 204 182 207 144

machinery 1,153 1,660 3,547 3,406 3,876 4,671

ordinary machinery 335 690 1,371 995 1,186 1,748

motor 49 82 53 90 96 141

metal processing machine 34 41 189 124 173 287

others 252 567 1,128 782 918 1,320

electric machinery 728 896 1,654 1,728 1,710 1,687 electric semiconducters 343 497 1,025 1,089 1,103 1,041 Heavy electric machinery 94 60 45 35 46 49 transport machinery 41 23 50 100 215 221

car 19 1 25 64 144 141

car parts 6 5 16 25 54 26

ship & related 11 4 8 10 16 52 Precision machinery 49 51 472 582 763 1,015

others 147 205 354 309 330 342

Source: Moji Customs Office

2.2.3 Imports from Korea to Kyushu

In contrast, the commodity composition of import from Korea to Kyushu reveals the following characteristics. The import of food is decreasing mainly because of the rapid decline in fish and fish products imports. Also the imports of fruits and vegetables is decreasing but remains at a stable level at more than 20 billion yen. These are sensitive products for a FTA between Japan and Korea from Japan’s perspective. The import of raw materials, mineral fuel, chemicals, and metal products is somewhat stagnant.

The import of fiber products is declining drastically. This is especially so for

the import of garments, which reached 150 billion yen in 1989, dropping down to 15 billion yen in 2003. This is perhaps one of the main reasons for increasing trade imbalance between Kyushu and Korea. The drastic decrease in the import of garments from Korea to Kyushu is closely related to the relocation of garment production plants to low-cost countries like China. The import of footwear is also decreasing gradually. The same reason applies to this footwear sector. However, the import of machinery doubled compared to the rate in 1995. The growth in the import of semiconductor, electronic parts, and automobile parts is outstanding. But the heavy decrease has appeared in office machinery since 2000 because of the remarkable reduction of workstation and digital processing apparatus as well as CD-ROM and display apparatus in Kyushu.

Table 2.2 Commodity Composition of Imports to Kyushu from Korea

1990 1995 2000 2001 2002 2003 Total import 4,350 3,741 4,215 4,214 3,724 3,303

foods 1,192 922 891 839 704 651

meat & meat products 9 39 12 1 3 2 fish & fish products 866 622 597 554 453 394 fruit & vegetable 293 236 253 249 217 220

other products 4 7 11 17 14 18

raw materials 59 37 37 38 38 43

mineral fuel 106 93 275 235 276 210

chemicals 59 92 123 108 121 138

machinery 828 932 1,813 2,108 1,869 1,662

ordinary machinery 83 99 747 663 477 341 office machinery 40 36 578 440 250 97 electric machinery 698 790 1,007 1,383 1,318 1,237 electric

semiconducters

181 392 381 821 862 853

transport machinery 26 14 16 19 33 45

parts of car 1 6 7 12 28 40

precision machinery 21 39 44 42 44 39 fiber products 1,391 1,023 622 437 317 223

apparel 1,346 896 507 349 236 156

metal products 216 229 178 176 150 164

others 499 413 276 273 249 212

foot wear 129 95 63 63 48 23

Source: Moji Customs Office