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Impact of Korea-China Free Trade Agreement (FTA) on Domestic Small and Medium Enterprises (SMEs)

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Abstract: Since the signing of the Korea-China Free Trade Agreement (FTA), China has become the biggest trade partner of Korea. With a transaction volume that is 2.5 times greater than the trade with the US, it is not an exaggeration to say that Korean economy is sustained by China. However, in 2013, only 15 of Korea’s total export is from the small and medium enterprises (SMEs). Approximately 85 of Korea’s total export was made by large and medium corporations. The FTA with China expanded the trade possibilities for large corporations but it made trade more difficult for SMEs. The FTA with China is anticipated to bring an economic growth of 1.7 to 2.1 and add 40.3 billion dollars to Korea’s GDP by the year 2025. Based on the result of the international input-output analysis, the most vulnerable industries of SMEs are electric and electronics, machinery, chemical, steel and metals, construction and transport equipment.

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