UAE and South Korea Trade Relation
Introduction of the Project
This report highlights the trade relation between UAE and Korea. It tells about the two countries’ business dealings and agreements and their approach to accomplishing complete partnership chiefly in economy and investment. It presents how different elements like culture affect international business between these two nations. The report analyzes if these countries face any political or legal risks during their trade-related dealings. It also makes us known if there are any tariffs involved in doing trade, and further, it presents economic integration between UAE and Korea.
Historical Background
The major development in the trade ties of these two countries happened after His Highness Sheikh Khalifa Bin Zayed al Nahyan visited Korea in May 2010. An agreement to build four nuclear reactors in the UAE with the help of Korea was signed. The visit of Lee Myung-bak, then President of South Korea to UAE in 2011also, played a significant role in encouraging mutual relationships between these two nations. In his first visit in 2009, the two countries signed a number of contracts. Along with The President of UAE, Shaikh Khalifa bin Zayed Al Nahyan, the President of South Korea, patronized a contract worth AED 75 billion for designing and building four civil nuclear power plants. The contract was made between the Emirates Nuclear Energy Corporation (ENEC) and a group of South Korean and US companies that was led by Korea Electronic Power Corporation (KEPCO). Shaikh Mohammad mentioned that the deal worth AED 75 billion is the major transaction that has happened in the record of the two nations’ whole business relationship.
A polygonal contract was made between Khalifa University of Science, Technology and Research (KUSTAR) and Institute of Applied Technology and Korea and Korea Advanced Institute of Science and Technology, Korea Electric Power Corporation, Human Resources Development Service of Korea (HRD) and Korea Development Institute for education and human resources development (UAE- South Korea reflect development, partnership, 2011).
Many other contracts were also signed, including giving opportunities to qualified Korean production companies to take part in the development of one and other fields. Another major step for storing six million barrels of Abu Dhabi crude oil in Korea’s Strategic Petroleum Reserves (SPR) was also taken (South Korea-UAE Relations, 2015).
Current Situation Analysis
The trade relationship between the United Arab Emirates and South Korea has flourished in the past years. The major development in these two countries trade relationship has been observed. The opening of the UAE’s embassy in Seoul in 1984 has taken these two countries related to a better stage. At present, their relationship is turning into a strategic partnership, and this partnership can be seen in some important areas like education, training, oil, energy, construction and building sectors, healthcare, transport, IT, telecommunication, and shipbuilding. Their combined partnership has brought harmony in their visions for advanced developments of their nations by contributing to joint non-profitable projects (South Korea-UAE Relations, 2015).
The mutual relation of UAE and South Korea is bringing qualitative developments in all areas for these two nations. It has been possible by the visions of His Highness Sheikh Khalifa Bin Zayed al Nahyan, President of UAE, and the South Korean President, Park Geun-Hye. Their goal is to accomplish a complete partnership chiefly in economy and investment. Due to such efforts of these leaders, these countries have accomplished a lot and have made arrangements to strengthen security and economic developments for the people of these countries.
The UAE has become the largest trade partner to Korea by being the second-largest supplier of oil to it.
The South Korean Prime Minister Chung Un-chan and Shaikh Mohammad took part in a ceremonial that was organized to take the initiative for the UAE-South Korean Business Council. His Highness Shaikh Abdullah bin Zayed Al Nahyan was also present on that occasion. The South Korean PM appreciated the progress of UAE in different fields. He showed his readiness to support the UAE, particularly in the field of technology, medicine, healthcare, and education. He got agreed with the proposal of Al Mansouri, the UAE Economy Minister, to ask for the best students of UAE to South Korea to be present at specific training sessions. These sessions were related to education, technology, and medicine (UAE-South Korea reflect development, partnership, 2011).
International business ethics
The key elements during business relations are the policies and their impact on the economy and industrial sector of a country. Ethical issues are seldom discussed with respect to international business. There are normally two different ways of viewing ethics in trade relations. “Ethical systems are either utilitarian based or rights-based” It is important to assess both the choices in order to determine which one would be a better option for human prosperity (McGee, 2002).
Ethical standards are different for all, and every executive or corporate board has to face situations that may defy their ethical standards. A few decades ago, companies used to justify their acts of defying ethical standards of people with different ethical values in the name of the shareholders. However, the global business scenario has changed now. Developed and developing nations are now making efforts to stick to ethical standards and act as good businesses in the world.
The significance of business ethics in international business has made it an operational practice rather than merely an academic discipline. Ethics are increasingly accepted and incorporated in the corporate world for contributing to corporate operative profits or losses. Behaving ethically has become the demand of time with the prevalent notion that doing the right thing can also be gainful l (Mitchell, 2009).
The global economy still is governed by the national laws and the national legal authorities of the country of incorporation. In the absence of a sufficient consensus among the national governments with respect to business ethics, any mandatory hard laws could not be formulated in this area. However, as an alternative, various soft laws regarding international trade ethics were created to facilitate international commerce (Kline, 2010).
“Business ethics are based on broad principles of integrity and fairness that tend to focus on shareholder and stakeholder issues such as product quality, customer satisfaction, employee wages, and benefits as well as local community and environmental responsibilities issues that a company can actually influence” (Mitchell, 2009, p.9).
They work as directives for the company policies and decisions and also involve their adherence to internal codes of practice and legal standards. Business ethics, till a few years ago, were mainly the compliance-based rules and regulations that set guidelines for the employees with respect to their behavior in the matters that included clash of interest and mismanagement of the company’s assets.
Today, companies are becoming more aware of the significance of a value-based established an international ethical program to enable their employees to make decisions while facing new challenges. Besides this, business ethics involve matters related to companies’ relations with stakeholders like the customers, shareholders, and even future generations (Mitchell, 2009).
Political/ Legal risks
Global investment decisions are not only affected by the economy of countries but also by the political situations of those countries. For example, Iran’s recently passed legislation complicating the process of foreign investment in the telecom sector of the country, the politically instigated trial of business magnate Mikhail Khodorkovsky by Kremlin leaving a drastic impact on the Russian oil market, and Brazil’s intended perseverance on the agencies and the people to embrace open-source software to beat Microsoft and other technology firms severely, are the examples of political risks in global trading. Issues responsible for stabilizing or disrupting a country such as the passage of decrees, the faults of leaders, and the upsurge of popular movements are the determinants of political risks.
Therefore, it is important to be very attentive about the political issues while evaluating economies of the emerging markets and planning scenarios with respect to the businesses active in the developed economies. Political risk analysis requires a more refined perception about the distinctions of society and foibles of personality along with the general and visible trends of the society while establishing international trade relations (Bremmer, 2005).
The international markets are getting closer now, “Tremors following a market shock in Argentina are quickly felt in Brazil and Venezuela, but they also rumble through Thailand, capital flight from Southeast Asia roiled markets around the world; therefore, it is important to collect information about the political developments before expanding businesses in the foreign markets” (Bremmer, 2005, Para7).
Likewise, any turmoil in the Chinese economy will impact different markets of the world, including India, Russia, and the U.S., as China’s political decisions will definitely impact its markets for a long period.
America has deliberately turned the world into a more unpredictable place by showing the unprecedented capability of the U.S. military in countering the international shocks-or generating them. Further, increasing offshoring trends have called for an evaluation of political risks while trading between countries. For example, India is an established offshoring destination but is prone to political unrest more than the developed countries. Besides these, the growing dependence of the world for energy resources on the Middle Eastern countries (that are under significant political risk) can cause tremors all over the world in case of their internal political instability (Bremmer, 2005. Para10).
South Korea and the UAE are both keens on strengthening their trade relations with each other. The Middle East is an attractive destination for South Korea in view of business opportunities. However, Korean businesses may face challenges in cases of regional wars in the Middle East. Further, the regional interests of Seoul have to agree with that of the U.S., or else it will have to change its policy as happened in the case of Iran (Levkowitzpg, 2013).
However, South Korea has adopted political neutrality in its Middle East policy and has kept the economy and politics separate while focusing only on maximizing its economic interests in the region (Levkowitzpg, 2013).
Tariffs between the two countries
UAE is a member state of the Gulf Cooperation Council (GCC) and hence follows its regulations in terms of trade, tourism, and administration, etc. South Korea and GCC agreed on the requirement of Korea-GCC FTA in March 2007. The negotiations reached the third round and then stalled in 2009. Bilateral trade has constantly been increasing in recent years, calling for more efforts to sign a free trade deal. South Korea has signed a Free Trade Agreement (FTA) with nine regions and 48 countries, including all major regions and economies of the world, in its FTA network.
GCC is a significant supplier of energy for South Korea and offers attractive markets for Korean builders who have ample scope in the region. The increasing bilateral trade proves that FTA is highly required between both the countries, and it will have a positive impact on their business integration (Yoon & Hossain, 2014).
According to GCC Secretary-General Abdulrahman Hamad Al Attiyah, it is required that both sides “redouble efforts to strike a free trade deal, citing tariff concessions on automobiles, electronic goods, and other industrial goods as the stickiest ones in their free trade negotiations” (GCC Chief Says FTA Talks with South Korea Making Significant Progress, 2010).
UAE is looking forward to establishing free trade zones with Korea, along with many other countries of the world. Dubai is seen as an excellent destination for export and a functional hub to re-export to the rest of the world by the big economies. Dubai has the potential to expand foreign businesses and satisfying new and changing demands for new consumers. Free trade partnership with UAE can open an array of new opportunities with maximum efficiency at minimum cost (Free Trade Agreements, 2012).
Though FTA negotiations have been stalled between South Korea and the UAE; an agreement is signed to provide mutual administrative support in problems related to customs to foster trade relations between the two countries in Mar 2015. Through this agreement, it is expected that trade barriers between the two countries will be resolved by mutual talks. Moreover, efforts will be made to ensure the skilled shipment and custom policies. Training on customs and inspection procedures is also included in the agreement (UAE, South Korea sign agreements and MoUs on joint cooperation, 2015).
International business-related Information
Since the nuclear energy station was established in Abu Dhabi, the trade relationship between UAE and Korea has become stronger. In 2010 UAE’s export to Korea was US Dollar 12.1 billion, and Korea’s export to UAE was US dollar 5.5 billion. UAE exports crude oil, aluminum, petroleum, and LNG to Korea and Korea exports iron, mobile phones, steel structures, textiles, automobiles, and electronic equipment to the UAE. Due to the growth in combined projects, the number of Korean companies has grown and reached up to 130.
According to Shady Shaher, an economist in Standard Chartered, “South Korean firms are now important participants in many key projects in the UAE, from nuclear power to infrastructure. UAE firms are increasing their role in Korea, entering partnerships that aim to ensure Korea’s energy security and running one of the country’s largest ports” (Augustine, 2012, Para 5).
To make the ties stronger, the UAE-Korean Economic Partnership forum has been supported by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai and Vice-President of the UAE. The forum was inaugurated by Abdullah bin Mohammad Ghobash who is UAE minister of state. Shaikh Sultan bin Ahmed Al Qassimi who is the chairman of the Sharjah Media Corporation and Abdulla Al Romaithi, who is UAE Ambassador to South Korea along with other ambassadors from GCC and local official representatives from South Korea were present there.
“The bilateral relations between the UAE and the Republic of South Korea witnessed remarkable development during the past few years. The President, His Highness Shaikh Khalifa bin Zayed Al Nahyan, and the South Korean President, Park Geun-Hye, are always keen to develop bilateral relations and attain a strong partnership, especially in the economic and investment fields. If we look at the history of bilateral relations between the two countries, we will find that the UAE and South Korea have signed a number of business agreements throughout the years, most of these agreements are related to trade and economy,” Ghobash said (UAE and South Korea seek stronger bilateral relations, 2013, Para 4).
Ghobash further mentioned that the UAE has a solid economy, and the country is growing under strong leadership. So they want to make stronger and develop their relationship with the dynamic economic entities of the world. A delegation from Sharjah was also present in the Seoul forum. Sharjah leaders were confident that Sharjah-South Korea economic and trade partnership would enhance the scope of the travel and tourism industry of Sharjah.
Your own observation on the situation analysis
The development of oilfields in the UAE with the support of South Korea is making the oil quality better for the Emirati. The oil reserve project, in which six million barrels of UAE oil is preserved in South Korea, is giving UAE a premeditated foundation to market its oil in north-east Asia. Both countries have a common vision to enhance knowledge, innovation, and economy in them. The mutual relation of UAE and South Korea is bringing qualitative developments in all areas for these two nations. By sharing technology and experience, these countries have become ideal partners for various businesses and which is good for their future growth.
Comparisons
The Middle East is considered to be a new axle of global economic development, and undoubtedly, UAE has set an example of this. The world is aware of this fact that though the whole world is facing economic difficulties, yet UAE’s efforts for its development will never stop. According to Park Won-soon, the mayor of Seoul, UAE and South Korea have many similarities in terms of locations as Dubai and Abu Dhabi are centralized in south-west Asia and Korea is in between Japan and China, still, Korea has much more to learn from the UAE in regards with its infrastructure and tourism, and at the same time, Seoul’s infrastructure policies for transportation should also be introduced to UAE (Gutcher, 2013).
Findings
South Korea and the UAE are growing business integration in various economic, political, and cultural fields. The government of both countries is keen on building a strong and steady strategic economic and investment partnership. UAE President His Highness Sheikh Khalifa bin Zayed Al Nahyan and South Korean President Geun-Hye both want to establish a strong business relationship that can benefit the people of these countries.
UAE- South Korea signed a series of bilateral agreements for joint cooperation in the field of nuclear energy and oil in the year2009. The agenda of the agreements comprises procedures for boosting economic partnerships to facilitate these bilateral ties. A group of Korean companies has been assigned the contract of building four nuclear power plants in the UAE. This is a huge opportunity for South Korea to establish itself as a competent contender in the international market. The contract has also strengthened trade exchange ties between both countries (UAE- Korea ties grow to new heights: Report, 2015).
The nuclear power project in the UAE will have huge implications for South Korea for business relations with other Middle Eastern states and improve trade relations between the two regions (Levkowitzpg, 2013).
With the help of a high committee and various subcommittees, cooperation would be facilitated in the areas such as “peaceful nuclear energy, renewable energy, energy efficiency, and sustainability, information technology and communications, semiconductors, shipbuilding, and human resource development” (UAE- Korea ties grow to new heights: Report, 2015, Para 4).
Both the countries have sealed a Memorandum of Understanding (MoU) as a part of the three complementary agreements in the field of renewable energy. The UAE President Sheikh Khalifa, during the recent visit of South Korean President, said that “Our relationship with South Korea, which has sustained growth in recent years, has ushered in a new era of a strategic partnership which will serve the interest of the two countries” (UAE- Korea ties grow to new heights: Report, 2015, Para 5).
In view of the growing economic integration between the two countries, His Highness Sheikh Mohammad bin Zayed Al Nahyan, who is the Crown Prince of Abu Dhabi, had visited South Korea in 2010, on the invitation of Lee Myung-bak’s, the then President of South Korea.
His talks with the high-rank officials of Korea involved the advancement of bilateral ties in the areas of “economy, investment, industry, education, and energy besides various other issues of mutual interest. Besides this, Sheikh Mohammad also emphasized on UAE’s commitment to foster cooperation with South Korea relative to clean energy, technology, information technology, and SMEs” (UAE- Korea ties grow to new heights: Report, 2015, Para 4).
The present study finds that business integration between South Korea and the UAE is booming. Both nations have fair trade relations based on international business ethics. South Korea and UAE have a sustained trade partnership and are keen on strengthening their trade relations with each other in the future. The Middle East is an attractive destination for South Korea in view of business opportunities, and South Korea is a significant buyer of oil from the UAE. Korea is neutral in matters of politics and concentrates only on its economic relationship with the UAE. However, Korean economic policy with the UAE depends largely on the guidance of the U.S. Disagreeing with the U.S. policy may affect the trade relations between the two nations as happened in the case of Iran.
It is sure that the agreement of South Korea and GCC on the requirement of Korea-GCC FTA in March 2007 had opened new avenues for economic integration. However, the negotiations reached the third round and then stalled in 2009 due to some unresolved issues regarding tariff concessions on automobiles, industrial, and electronics products. The bilateral trade has constantly been increasing in recent years, calling for more efforts to sign a free trade deal.
UAE’s keenness in establishing free trade zones with Korea is justifiable as it can improve its standing in the world trade. Dubai is seen as an excellent destination for export and a functional hub to re-export to the rest of the world by the big economies. Dubai has the potential to expand foreign businesses and satisfying new and changing demands for new consumers. Free trade partnership with UAE can open an array of new opportunities with maximum efficiency at minimum cost.
Though, FTA negotiations have been stalled between South Korea and the UAE, and many MoUs are signed between the two countries to facilitate trade integration in the field of renewable energy, peaceful nuclear energy, information technology, and communication, etc. The nuclear power project in the UAE will have huge implications for South Korea for business relations with other Middle Eastern states and improve trade relations between the two regions. The agreement signed to deal with the tariff barriers will facilitate mutual administrative support in problems related to customs and foster trade relations between the two countries. Moreover, efforts will be made to ensure the skilled shipment and custom policies. Thus, the findings of this study show that the governments of UAE and South Korea are keen on sustaining a strong and steady economic and investment partnership, and both the countries share a strong economic integration.
Suggestions
South Korea and UAE have similar aspirations regarding their business integration, and both are interested in taking this integration to higher levels. However, there are certain matters that need to be taken into consideration in international business partnerships. South Korea should be aware of the political risks that may affect its business ventures in the UAE. Foreign businesses may face challenges in cases of regional wars in the Arab world. Moreover, FTA is necessary for flourishing the trade relations between UAE and South Korea.GCC is a significant supplier of energy for South Korea and offers attractive markets for Korean builders who have ample scope in the region. The increasing bilateral trade proves that FTA is highly required between both the countries, and it will have a positive impact on their business integration.
Summary and Conclusions
Both countries are showing their inclination towards growing trade relations with each other. UAE is a large (second largest) oil exporter to South Korea and offers a huge (second largest) market for Korean exports in the Middle East region. A joint cooperation agreement between the two countries is signed for strategically designing a long term budget coming under the scope of Abu Dhabi Economic Vision 2030 (UAE- Korea ties grow to new heights: Report, 2015).
UAE minister of economy, Sultan Bin Saeed Al Mansouri, expressed his confidence in the joint economic partnership of UAE and South Korea, in expanding the horizons for the UAE as an extensive knowledge-centered economy. He said during the third joint meeting of the economic committee of both the countries that both the government and the private sector in the UAE hope for a stronger partnership with South Korea in the coming years (UAE-South Korea joint commission calls for activation of bilateral agreements, 2012).
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