Experts discuss economic cooperation between Russia and South Korea

On November 17, 2020 Russian International Affairs Council (RIAC) held a round table “Russia — South Korea: Ways to Develop Cooperation”, dedicated to the 30th anniversary of the establishment of the diplomatic relations between Moscow and Seoul.

Gleb Ivashentsov, RIAC Vice President, Ambassador Extraordinary and Plenipotentiary of Russia, delivered opening remarks.

A new RIAC Policy Brief, “Russia — South Korea: Ways to Develop Economic Partnership”, presented by the authors — Svetlana Suslina and Victoria Samsonova (both — Center for Korean Studies, RAS Institute of Far Eastern Studies) — was the highlight of the event. The presentation was followed by an expert discussion that concentrated on the challenges and achievements of the Russia — South Korea trade and investment relations. Apart from this, the participants touched upon such issues of the bilateral agenda as political trust and soft power, space and healthcare cooperation.

On November 17, 2020 Russian International Affairs Council (RIAC) held a round table “Russia — South Korea: Ways to Develop Cooperation”, dedicated to the 30th anniversary of the establishment of the diplomatic relations between Moscow and Seoul.

Gleb Ivashentsov, RIAC Vice President, Ambassador Extraordinary and Plenipotentiary of Russia, delivered opening remarks.

A new RIAC Policy Brief, “Russia — South Korea: Ways to Develop Economic Partnership”, presented by the authors — Svetlana Suslina and Victoria Samsonova (both — Center for Korean Studies, RAS Institute of Far Eastern Studies) — was the highlight of the event. The presentation was followed by an expert discussion that concentrated on the challenges and achievements of the Russia — South Korea trade and investment relations. Apart from this, the participants touched upon such issues of the bilateral agenda as political trust and soft power, space and healthcare cooperation.

Alexander Vorontsov, Head, of the Sector of Korea and the Department of Korea and Mongolia at the RAS Institute of Oriental Studies; Alexander Zhebin, Head of the Center for Korean Studies at the RAS Institute of Far Eastern Studies; Ilya Dyachkov, Associate Professor at the Department of Asian and African Studies and Leading Expert at the ASEAN Centre at MGIMO University; Anna Kireeva, Associate Professor at Department of Oriental Studies and Research Fellow at the Center for Comprehensive Chinese Studies and Regional Projects at MGIMO University; Irina Korgun, Senior Research Fellow at the Center for the Russian Strategy in Asia at the RAS Institute for Economic Studies; Luidmila Zakhrova, Senior Research Fellow at the Center for Korean Studies at the RAS Institute of Far Eastern Studies; Roman Lobov, Research Fellow at the Centre of Asia and Asia-Pacific Region of the Russian Institute for Strategic Studies were among the participants of the meeting.

Ksenia Kuzmina, RIAC Program Manager, moderated the discussion.

Key Points of Discussion

Gleb Ivashentsov

Our round table is timed to the 30th anniversary of the establishment of the diplomatic relations between the Russian Federation and the Republic of Korea. Seoul is Moscow’s close neighbor and the countries are united by extensive ties. Good neighborliness with the Republic of Korea is important for Russia primarily with regard to improving the situation on the Korean Peninsula. The Republic of Korea is a military ally of the United States and has significant military power of its own.

However, the task is not only to ensure security in Northeast Asia. The Republic of Korea is a highly developed state with considerable potential and is a valuable partner for Russia in the spheres of trade, economy, science, and technology.

Likewise, the interest of South Korea in Russia is based on political and economic spheres. Politically, and it’s not a secret, Seoul primarily aims to deprive Pyongyang of any support from Moscow. Secondly, Russia is important for South Korea in Northeast Asia as a counterbalance to China and Japan.

As for economy, South Korea, practically devoid of mineral and other raw materials, finds it extremely attractive to participate in the development of the natural resources of Siberia and the Russian Far East. At the same time, our country is a promising market for South Korean industrial products.

South Koreans are also eager to cooperate with Russia in the areas where Russian technology remains at a high international level, in particular, in space exploration and nuclear energy sectors. This can be illustrated by the involvement of Roscosmos in the construction of Naro Space Center in South Korea; the joint flight of Russian and South Korean astronauts on a Russian spacecraft in April, 2008; the launch of the Russian-South Korean KSLV-1 rocket in February 2013; the import of Russian uranium for nuclear power plants in South Korea, which meets more than one third of the country's needs; as well as the purchase of Russian helicopters and certain types of weapons and military equipment.

At the same time, as regards Russia-South Korea strategic partnership that South Koreans often refer to, it should not only be about cooperation on the Korean Peninsula or bilateral commercial contracts, but also about practical cooperation in regional and global affairs. However, if we take, for example, the voting records on several dozen recent UN Security Council resolutions, North Korea remained in full solidarity with Russia on almost half of them, while South Korea only on two or three. It turns out that Russia and South Korea have different positions on most important international issues.

A lot of long-term prospects have been created over the thirty years of diplomatic relations in cooperation between Russia and the Republic of Korea. But there are still many untapped opportunities. I am sure that the participants of today's round table – and this round table have gathered major Russian experts on Korea – will be able to give concrete and valuable recommendations on further development of the bilateral cooperation.

Svetlana Suslina

• The official assessment of the 30-year cooperation between Russia and South Korea was presented in Sergey Lavrov’s interview with Yonhap News Agency (South Korea) on September 29, 2020. According to the Minister, the countries, having started almost from scratch, have accumulated substantial experience in productive cooperation in politics, trade, economy, science, technology, humanitarian sphere and other areas. Today Seoul is indeed one of Moscow’s key partners. More than 50 agreements have been signed over the years of cooperation, and Korean enterprises have begun operating in Russia.

• Nevertheless, there is a certain decrease in the quantitative indicators of cooperation. Due to the COVID-19 pandemic ROK dropped from 6th to 8th position among Russia's trading partners in the first half of 2020, and one can hardly expect an increase in the volume of trade to the projected $30 billion by the end of the year.

• Since 2014 the decline in trade has been influenced not only by the sanctions, but also by the fall in energy prices, as well as by the general reduction in the purchasing power of the Russian population. The problem today is, however, not even the current situation, but the fact that over 30 years no qualitative leap has been made.

• The dynamics of investment cooperation is also low. Over 30 years, Russian economy has managed to attract only $3.5 billion of South Korean investments. Low intensity of interaction on projects in the Far East is also a trait of the period. These factors have caused considerable South Korean capital outflow from Russian regions, despite preferential investment conditions created by the Russian side within various Priority Development Areas and the Free Port of Vladivostok, where foreign investors have some of the most favorable conditions in Asia Pacific.

• In order to build a model of the economic cooperation between Russia and the Republic of Korea, as well as to assess its efficiency, it is necessary to answer several questions: Why is it not possible to fulfill the potential of the bilateral relations? Which areas of economic cooperation are developing and which are not? Why is this happening? Are there similar challenges in Russia's economic relations with other states? And, if yes, how are they resolved? Perhaps, the answer are traditional Russian problems, for example, outdated and inadequate structure of trade. However, there is also a broader problem of insufficient investment attractiveness of Russia’s business climate and limited scientific cooperation with South Korean partners.

• It seems that economic factors play a subordinate role in the decision-making process of the South Korean leadership, while political expediency is of decisive importance. Denis Manturov, Minister of Trade and Industry of the Russian Federation, in his speech at the 13th Eurasian Economic Forum on October 22, 2020, said that today Russia is ready to interact with various partners in order to globally reformat supply chains and cooperation ties, develop the export of goods with high added value. It seems that this vector is promising in relation to cooperation with the Republic of Korea as well.

• The positive trends include the relatively new cooperation in the field of medicine, in particular, the agreement on the production of the Russian COVID-19 vaccine by the South Korean company GL Rapha. Generally, it is a promising development, since South Korea is interested in Russian fundamental research in this area.

Viktoria Samsonova

• COVID-19 today is affecting not only foreign trade, but also internal situation in both Russia and South Korea. Negative GDP growth has been recorded in the Republic of Korea for the first time in 20 years; the production of the country's main export positions, like semiconductors, cars, and shipbuilding products, is also dropping.

• Due to restrictions, all business contacts moved online, which does not seem to be optimal for business. The signing of contracts and holding meetings or forums had to be postponed indefinitely.

• It should be noted that the trade turnover between Russia and the Republic of Korea had been declining even before the pandemic, for example, in 2014-2015 there was a sharp decrease in indicators due to political reasons: although Seoul did not officially join the sanctions against Moscow, it had to listen to its political allies.

• Since 2008, negotiations have been underway to establish a free trade zone (FTZ). Negative trends had been observed up until 2013 due to internal issues of the Russian economy. The potential benefits for the Russian Federation from participating in a FTZ are controversial. It is important to note that officially the FTZ agreement today can only be signed in the EAEU–South Korea format, because there exists a single economic space established within the Union.

• 2014 was a turning point for bilateral trade, but its sharp decline is associated not only with political factors, but also with the end of the Sochi Olympics. Prior to that, purchases for the construction of the Olympic venues, including those from South Korea, had contributed to building up economic cooperation.

• Another reason why South Korea’s interest in cooperation with Russia is not growing is that Russian taxes for business, the cost of rent and labor resources are assessed as high.

• The participation of South Korean financial institutions in extending ties with Russia is also insufficient: lending to Russian companies in South Korean banks is sporadic.

• New promising areas of cooperation have opened during the pandemic, in particular, pharmaceuticals, medicine, and production of the related equipment.

• Another positive aspect is that South Korean companies are not leaving the Russian domestic market, as amidst the general drop in sales abroad, the demand on the Russian market remains high. The food industry has even increased quarantine sales. Such companies as Lotte, Hyundai, etc. are expanding in Russia too.

• Korean cosmetic companies are actively developing on the Russian market, but the level of competition is so high that it is difficult for new players to enter this market today.

Alexander Zhebin

• In recent years, the leadership of the Republic of Korea has been trying to convince Russia that it is the DPRK that is an obstacle to the development of economic relations. However, if we compare this situation with the unification of Germany, followed by the subsequent strengthening of the U.S. influence, as we are witnessing today in regard with the Nord Stream 2, we can assume that the same might happen with the united Korea. The country can be tied to the American market, including in the energy sector through the supply of liquefied natural gas.

Alexander Vorontsov

• While analyzing Russia-South Korea interaction, it is necessary to pay attention to successful examples of cooperation. In order to strengthen ties, it is important to spread the so-called success stories.

Irina Korgun

• Today the approach to assessing realities of economic cooperation between Russia and South Korea has somewhat changed. In the 2000s there was a certain euphoria regarding future investments that is being replaced now with a more realistic attitude, confirming the presence of challenges on both sides.

• When analyzing ROK's investments in Russia, it is necessary to take into account the broader factor of the global strategy of Korean companies. It seems that the area of interest of the state is determined by the interests of big enterprises, which leads, for example, to FTZ negotiations. This idea can be illustrated by the cases of China, Vietnam, and cooperation with Russia during the preparation for the Olympic Games in Sochi.

• It’s important to keep in mind that economic relations are a two-way street. Investments increase when they are mutually beneficial. The peak of Russian investments in South Korea was in 2008-2009 and amounted to $8 million. In contrast, Korean investments in Russia in the same period amounted to $420 million. A more detailed analysis of the strategies of Russian business in South Korea has to be carried out.

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Liudmila Zakharova

There is certain imbalance between the aspirations of the center and the regions in Russia. Despite the fact that Moscow declares its interest in the development of the Far East through, among other things, South Korean investments, local authorities are not always ready to provide the necessary conditions for that. This applies both to the provision of land and the conclusion of the actual investment agreements.

Ilya Dyachkov

• Russia has always emphasized the friendly nature of political relations with the Republic of Korea, but it cannot be denied that they depend on external factors. This is especially true as far as the U.S. policy is concerned, which is unlikely to change under Joe Biden. At the same time, in South Korea, while the center-left political forces declare interest in cooperation with Russia, the conservatives tend to adhere to traditional alliances. The current leader of the Republic of Korea, Moon Jae-In, said that he was determined to make a breakthrough in relations with Russia, but so far it all has been limited to protocol statements.

• Soft power is still being implemented on a unilateral basis: Korean mass culture has gained popularity in Russia, so it makes sense to ask what products we can supply in return. Children's animation could be a potentially promising area.