International Business / Executive Travel : S. Korea Market Tough to Crack
International trade lawyer Amanda DeBusk is accustomed to hearing tales of woe from the front lines of commerce. But the stories she heard recently from U.S. companies while researching the South Korean market were particularly shocking:
Midnight visits to the homes of foreign executives by unhappy South Korean officials. A U.S. negotiator in a business dispute thrown in jail. Lengthy delays on the docks while imported fresh produce and foodstuffs rot in their containers.
The message DeBusk and her colleagues on a trade advisory panel received was loud and clear: Unless the U.S. government moves quickly, it will have a Japan-sized headache in one of the region’s most prosperous economies.
“Of all the markets to get into, Korea seems to be one of the toughest to crack,” said DeBusk, a Washington attorney and member of the President’s Advisory Committee for Trade Policy and Negotiations. “It was amazing, just the outpouring of horror stories from our members.”
For too long, these companies argue, South Korea--now Asia’s third-largest economy--has hid in Japan’s shadow while pretending to be a developing country that can’t survive unprotected in the global marketplace.
South Korea came out of hiding Sept. 28, when its government reached an agreement with the Clinton Administration designed to remove barriers that had restricted the foreign share of the South Korean auto market to just 4,000 vehicles last year.
But U.S. companies say similar roadblocks exist elsewhere in the South Korean economy as a result of the government’s campaign to protect its domestic companies at home while they aggressively expand their business abroad.
“The Koreans have in the past made it a matter of patriotism to buy Korean, but we believe they’ve reached a level where they’re a worldwide player,” said Jeff Bobeck, a government affairs specialist for the American Automobile Manufacturers Assn.
South Korea’s somewhat reluctant position in the international spotlight is a mark of its economic success at home and abroad, where companies such as Hyundai, Samsung and Daewoo are aggressively expanding sales and investments.
More recently, in an effort to boost its international image and gain entrance to coveted organizations such as the Organization for Economic Cooperation and Development, the South Korean government has been reducing tariffs, easing restrictions on foreign exchange transactions and improving intellectual property protections.
But U.S. companies say the South Korean government still maintains an anti-foreign bias. They complain of unfair testing and certification requirements, unnecessary customs delays, and labeling rules that force importers to prominently display the country of origin on the front label of their products.
In a country where “Buy Korean” is still a popular refrain among government bureaucrats and the media, such requirements can be huge barriers to U.S. cosmetic firms and other exporters, according to the report prepared by DeBusk and other members of the trade advisory committee.
When Hirsch Pipe & Supply of Van Nuys sent a shipment of Whirlpool bathtubs to South Korea, the government refused to accept them on grounds they were “luxury goods.” Greg Mariscal, export manager for the plumbing and heating products company, said the shipment sat at the docks for months until the U.S. Embassy intervened. The bathtubs were eventually released after the importer paid an additional tariff.
“Obviously, that customer didn’t want to have anything to do with that product again,” Mariscal said.
There have been success stories.
Such U.S. firms as Procter & Gamble have succeeded by entering into joint ventures with major South Korean companies. P&G; is South Korea’s leading supplier of sanitary napkins and one of the nation’s largest suppliers of baby diapers, both of which are produced in South Korea.
Others have benefited from South Korea’s successful efforts to nurture home-grown industries. In just a few short years, Purcell Natural Jojoba, a U.S. producer of jojoba oil, has become a supplier to South Korea’s largest cosmetics manufacturers. The small Avila Beach, Calif., company now ships close to $250,000 worth of the natural plant oil a year to South Korea.
Shannon Hamilton, Purcell’s marketing director, said his experiences in South Korea have been much better than in other parts of the world, such as Europe.
“It was really a pleasant experience for us to go into Korea where there weren’t entrenched lines of distribution,” he said. “Our distribution channels are now several years old. We’re putting raw material in there and taking cash out. Everybody’s happy.”
But horror stories appear to be the rule.
A U.S. business negotiator was briefly jailed without explanation during a business dispute until other companies and the U.S. Embassy complained, according to Nick Van Nelson, director of the Washington-based U.S.-Korea Business Council. He would not elaborate.
A hard-fought cellular telephone licensing agreement is in trouble after the South Korean government required an international consortium--which includes three U.S. firms--to use inexperienced South Korean manufacturers. A spokeswoman for San Francisco-based AirTouch Cellular, the largest U.S. partner, said the demand has jeopardized the January, 1996, start-up date.
And earlier this year, under pressure, the South Korean government opened up its market to U.S. citrus fruit. But when the first shipment of oranges arrived, it sat for three weeks in the hot sun awaiting clearance, according to Jim Zion, a California agricultural official. When the containers were finally admitted, the South Korean government rejected the oranges as substandard and left the California exporter with a huge shipment of worthless fruit.
Because of such problems, disinvestment is widespread. The most prominent U.S. company to leave South Korea was Arco Chemical Co., which pulled out of a large, financially troubled propylene venture in the southern city of Ulsan in 1992. Other U.S. companies also have left the country or severely cutback operations citing a host of problems, including licensing delays, import restrictions and the exclusion of foreign law and accounting services.
Still, the apparent potential in prosperous South Korea continues to lure foreigners. Mariana Hwang, a trade consultant with the Los Angeles office of the Korea Trade Center, a government trade promotion agency, said she has noticed a sharp increase in queries from Californians.
The state’s rice growers are among them. As a signatory to the world trade agreement formerly known as GATT, South Korea has reluctantly agreed this year to begin opening its 5-million-ton-a-year rice market to foreign rice. This year’s imports will be relatively small, just 57,000 metric tons of brown rice, but will expand over time.
John Roberts, executive director of the Sacramento-based California Rice Industry Assn., said the entry of South Korea and Japan into the world rice market should push prices up for the high-quality rice California now exports largely to the Middle East.
“When you get that very discriminating, high value Korean and Japanese consumer allowing their taste preferences to influence the world market price for rice, that’s what counts,” he said.
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Hindrances to Trade
Highlights of a report on Korean trade barriers issued last month by the President’s Advisory Committee for Trade Policy and Negotiations:
* Excessive documentation, proprietary business information and unreasonable testing demanded for imported products.
* Delays for perishable products, arbitrary decisions by customs, such as a shipment rejected because it was stamped Made in the U.S. instead of Made in the U.S.A.
* Selective harassment by jailing foreign company heads on “exaggerated charges,” tax audits of citizens buying foreign cars, leaking names of foreign firms undergoing tax audits.
* Exorbitant taxes on targeted products that are almost exclusively imported, such as whiskey, brandy and automobiles with large engines.
