November 26, 2024

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Korea's Vice Finance Minister Lee Eog-weon (left) poses with US Deputy Treasury Secretary Wally Adeyemo during their meeting to discuss matters involving Korea's financial sanctions on Russia in Washington, D.C. on Monday. (Yonhap)

SEJONG -- South Korea is struggling to avoid the current unfavorable situation, in which its tech-oriented companies should receive endorsement from the US before they export products to Russia.

Though Korea has dispatched senior officials to the US to overcome the situation, critics are saying it is too late.

The situation comes as the Korean government took a relatively passive stance in February compared to other countries in terms conducting economic and financial sanctions against Russia, which invaded Ukraine.

Though Korea had expressed its willingness toward participation in the global community-led sanctions, it failed to meet the required level: a sanction level should be independent and of a similar standard to that of the US not to face US-led barriers in trade with Russia.

As a result, Korea has been excluded from the nation list of exemption from the US’ application of the Foreign Direct Product Rule in trade with Russia, while 32 nations -- Japan, Australia, New Zealand, Canada, the UK and 27 members of the European Union -- have enjoyed exemption from the rule.

According to the FDPR, set by the US Commerce Department, items produced outside the US are also regarded as US products as long as the items are backed by US technology-integrated parts.

Under this rule application and exclusion from the exemption list, Korea’s tech exporters have been placed into a situation in which they are now obliged to wait for approval from the US whenever they seek to export US tech-integrated products to Russia.

Trade Minister Yeo Han-koo is scheduled to discuss the matter with his counterpart in Washington on Thursday in a bid to receive an exemption from application of the FDPR.

The minister’s visit to the US comes after Korea unveiled its policy on Monday to conduct financial sanctions -- involving plans to halt transactions with seven Russian banks -- and other independent sanctions, which would be comparable to US standards.

Korea added that it would immediately implement sanctions concerning worldwide interbank financial telecommunications once the EU publicized further sanctions against Russia over the SWIFT international payment system.

The western-led community decided to exclude Russia from the SWIFT network service in the wake its invasion of Ukraine.

According to the Ministry of Trade, Industry and Energy, director generals from the ministry launched working-level discussions with the US via the internet on Monday.

An exemption is significant given that Russia is the 10th-largest trade partner of Korea as of 2021. Cars, automobile parts and steel make up about half of Korean shipments to Russia.

Among the Korean companies which have made inroads into Russia are Samsung Electronics, Hyundai Motor, Kia Motors, LG Electronics, Posco and Amore Pacific.

By Kim Yon-se (kys@heraldcorp.com)