This is the second of a two-part series on the growing fears of protectionist moves being taken by governments around the world to tide over the economic recession touched off by U.S. financial turmoil. --Ed.

Protectionist moves being taken by countries around the world will have a great impact on Korean exporters already suffering from the global economic slowdown, experts say.

"Due to its heavy reliance on exports, Asia's fourth-largest economy will feel greater pain if its trading partners start to raise trade barriers to help their domestic industries overcome the global recession," said Cho Byung-whee, director-general of the business information research department at the Korea Trade-Investment Promotion Agency. Korea's exports account for nearly 60 percent of its GDP.

According to the Korea Institute for International Economic Policy, Korean exports would decline about 3.6 percent if the growth rate of the global economy contracts by 1 percent.

The country's exports in January tumbled by a record 32.8 percent from a year ago as the widespread economic downturn led to a sharp drop in overseas demand for local goods, a government report showed last week.

Exports in January dropped by the most since the country started to measure exports and imports on a monthly basis in 1980.

The country's exports will drop further if foreign countries start to implement protectionist policies, experts warned.

"Countries will start raise duties on imported products and block cheap goods from entering their markets because it will make their locally made products less competitive in the markets," said Jeong Jae-hwa, director of WTO and FTA department of the Korea International Trade Association.

A report by KOTRA showed that in the last two month alone, countries around the world said they were considering or pushing ahead with a total of 40 new protectionist measures.

The Korean trade promotion agency said in another report that a total of 112 Korean products are being regulated by trade measures taken by the importing countries. There are also an increasing number of Korean companies being accused of dumping locally-made products in foreign markets, it added.

Steel companies are moving fast to deal with possible trade dispute as major countries are taking what seem to be obvious moves to protect their own steel industries.

"We don't feel the impact of protectionist measures yet, but are preparing for possible trade dispute this year," a steel industry insider said.

"The pressure has been already noticed from China which started to protect its local industry last year," he added.

Last month, China announced various tax incentives and subsidies for its auto industry as well as for steel. The Beijing government is also reportedly to present similar plans for eight other sectors, including textiles, petrochemicals and shipbuilding.

The U.S. House of Representatives passed a "Buy American" provision that calls for government-financed stimulus projects to prioritize the use of U.S. steel and iron. Critics worry that the Senate version of the provision could add "manufactured goods" to the list.

The problem is that there are not so much measures that can help companies to resolve trade disputes, experts said.

"The government, in fact, has little to do with those trade disputes because they are happening all over the world and they are transnational businesses matters," Jeong of KITA said.

Even with government help, some businesses give up on taking the issues to arbitration, worrying it would damage relationship with its existing trading partners, government officials say. Companies worry that such moves would have a negative impact on the market and related industries, they added.

"Even if Korean companies are falsely charged with anti-dumping measures or other trade dispute issues, they don't want to make it public considering its impact on the market," an official of the Ministry of Knowledge Economy said.

Officials also said there are many of small and medium-sized companies finding hard to pay for lawyers and additional expenses needed to confront trade disputes.

The government is trying to provide a rescue package for local export companies if they are engaged in tough trade disputes such as anti-dumping lawsuits. The government, in cooperation with Korea Export Insurance Corporation, will establish an insurance supporting system to help companies get financial help when they have to get lawyers and additional needs to resolve the trade issues, officials said.

Needs for structural changes

Experts say the country needs to go through a more wide-ranging structural change than the government's short-term rescue plan.

Korea, an export-driven country, needs to diversify its export market, in times of crisis. The country also has to seek more trade partners since it heavily relies exports on certain countries like China and the United States.

Last year, the country's exports to China reach 22 percent of total exports, while shipments to the U.S. accounted for a little more than 10 percent.

Experts urge businesses to take bold steps by making investment in R&D and to widen the technological gap between Korea and developing countries like China. They also called for intensive support and tax incentives from the government for the local industry to nurture high value-added businesses in near future.

"In a mid- and long-term plan, businesses need to develop and secure technologies that are less affected by the fluctuating global economy and focus intensively on nurturing high-value added products," Lee Hang-koo, director of machinery industry team of Korea Institute for Industrial Economics and Trade.