Corporate Governance A North American Perspective

It was discovered that the number of companies that really make use of the current FTAs in their particular operations was significantly less than the number of enterprises who acknowledge the contents of the FTAs. Although the poll revealed that the Korean businesses are aware of the current FTAs their government is pushing, just one out of the five companies surveyed are now using them. When asked, however, whether they intend to make use of the current FTAs, 54% of the companies said they do. Most of the 25 companies that responded—who are now using the current FTAs—were found to be in the textile and petrochemical sectors (five each), followed by the sundries sector (four). Industry classification helped to identify these companies. Historically, these sectors have been oriented toward export-driven development and have great reliance on exports. The three enterprises with low degrees of FTA awareness turned out to be using the present FTAs. The business operations of the SMEs help to explain the degrees of FTA utilization mentioned in this article. The Korea Small Business Institute (2007) claims that rather than directly exporting items or selling these in the domestic market, SMEs serve the large enterprises within the nation. As observed in Figure 9.24, the ratio of SMEs' exports to their total sales has been dropping in recent years while their supply of goods to the major businesses has been rather rising.

The demand of the large companies (34.8%) and the quest of stability

in corporate management (30.4%) are the reasons for the rise in the SMEs' supply of goods to the big companies. Regarding the SMEs' goods supply to the local businesses, 97.6% (plural responses) of them rely on the goods supply to the large corporations. This indicates that their reliance on large firms is rather strong. Out of all the products they provide, 85.2% are for internal use and 14.8% are for export. An average of 50.0% of the overall sales of the SMEs are related to their supplies to larger companies. The SMEs depend mostly on the large companies for exports, and their ratio of domestic consumption to overall production has been declining yearly. Of the 167 trillion won SMEs exported in 2007, 106 trillion were direct exports, or 63% of their overall exports; their indirect exports came to 61 trillion won. Table 13 shows how rising indirect exports by SMEs through large companies are. Their indirect exports in 2007 totaled 61 trillion won, up 22 trillion from 2001; during the same period, the indirect exports through SMEs dropped two trillion while the indirect exports through the large firms grew 25 trillion. According to KOTRA (2008), the Korean companies really value the Korea-Chile FTA. Chile had the highest level of the businesses' awareness of the nations where FTAs have started to show results. Chile (87.9%)

which concluded an FTA with Korea for the first time, followed by the ASEAN nations

(61%), such as Singapore, Malaysia, Indonesia, and Viet Nam, and the EFTA countries (37.4%), such Switzerland and Norway, have the highest degree of recognition of FTAs among the nations in which FTAs have become effective. While only roughly 20% of Korean companies use the present FTAs, more than half of the companies that were polled said they want to make use of them. Most of the companies making miscellaneous products, automotive parts, and cars are developing strategies to make use of the current FTAs. Conversely, the companies in the steel and petrochemical sectors revealed little intention to make use of such FTAs. Thus, it is important to find out why the companies of Korea, which depends mostly on exports, have limited use for the current FTAs and why only approximately half of the companies that were polled have future intentions to use such FTAs. First, most of the nations Korea has signed FTAs with have only small trading volume with Korea. Comprising an average yearly export growth of 61% for four years from its inception, the Korea-Chile FTA began operative in April 2004.

From 3.0% in 2003 to 3.1% in 2004, 3.6% in 2005, and 4.7% in 2006

the market share of Korean-made goods in Chile's import market exhibited positive development—a more favorable development in Korean exports than in the rival nations. Regarding the export performance of significant trade goods, the exports of vehicles, cellular phones, and color TVs, whose duties were eliminated right after the FTA came into force, grew significantly right after the agreement became effective. The reduced tariff in the third year of the agreement's implementation caused significant increases in the exports of steel sheets and gasoline, whose tariff abolition duration is 5–13 years. Only a tiny number of large companies have lately entered Chile due to their significant distance from each other and small domestic market. As such, Korea's numerous SMEs almost have no business prospects there. Moreover, in the next FTAs with Singapore and EFTA, it is difficult for the Korean businesses to find significant incentive to use the existing FTAs as the FTA preferential-tariff margin is thin since the other party's import market is small or its Most-Favored-Nation (MFN) tariff rate is low or almost zero. Implementing in June 2007, the FTA with the ASEAN finds itself in a similar predicament. Given that the ASEAN is not only geographically close to Korea but also the fifth- to sixth-largest trade partner for Korea, the export-import effects of the Korea-ASEAN FTA were projected to be rather strong. Since several ASEAN members effectuated FTAs with Korea only in June 2007, the Korea-ASEAN FTA has not yet generated significant commercial consequences. Singapore, Indonesia, Malaysia, Myanmar, and Viet Nam are among the nations that affectuated FTAs. Korea's regional FTA with the Philippines came into force just in January 2008; its FTAs with Brunei, Lao People's Democratic Republic, and Cambodia came into effect just in July, October, and November 2008, respectively. Thailand just signed the ASEAN-Korea FTA in February 2009.