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Jun 25, 2012

Myanmar to Korea Direct Flight Announced

Good news for Korea and Myanmar.  Myanmar is anticipated to be a major investment destination for Korean companies.  Korean Air, realizing this trend, has launched the first non-stop flight from Korean to Yangon, Myanmar.  The flight will commence in early September of this year.   The flight time will, thus, be reduced from 10 hours to 6 hours.

If the flight is well subscribed, expect Asiana Air to quickly follow suit. 
Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at:  IPG is engaged in projects for Korean and international clients in Myanmar and much of Southeast and East Asia.

Jun 24, 2012

Korea Fair Trade Commission Fines European Appliance Company

The Fair Trade Commission of Korea has fined Philips, a Dutch company, for price fixing.  The Fair Trade Commission fined Philips KRW 1.5billion (USD 1.3 million) for, inter alia, prohibiting online retailers from offering discounts and certain products to potential buyers.

Philips, according to the Korea's Fair Trade Commission is the top small appliance company in Korea with a 57% share of the electric toothbrush market, 61% share of the electric shaver market; 45% share of the iron market; and a 31% share of the coffee-maker market.

The Fair Trade Commission has contented that prices have not decreased after the implementation of the Korea-EU Free Trade Agreement, because of price fixing by manufacturers. 

Philips is the first EU company to be fined by the Fair Trade Commission.

Other articles on this issue and the Korea Fair Trade Commission:
Also, search via the labels to the right (Korean Antitrust Law).
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Jun 20, 2012

Minimizing your Tax Liability in China

China is and will continue to be one of the most attractive markets for consumer goods.  With a population of more than one and a half billion people and a middle class of more than 300 million, that is projected to grow to at least 700 million in the next 20 years.  Based upon our experience in China and having been a part of the tremendous growth, we have seen that this emerging middle class, which is already larger than the U.S. population, is spending money like crazy and is not saving like previous generations.

Given that China is one of the only places in the world that has had double digit growth in GDP (except for this year which is still 8%), it has a burgeoning and spend crazy middle class, a developing legal system and excellent infrastructure, everyone should want to bring their products and services into this market.  It’s not that easy.  For many products, and services there are taxes.  China does not have a national sales tax on retail items like other countries and so it imposes import duties, value added taxes and consumption taxes which the importer, wholesaler or retailer must add to the price the consumer pays.  It’s all hidden, but, believe me they can be quite steep.  For example, the total duty on imported wine, which is the only wine worth drinking in China, is between 41 and 50% which can make many products cost prohibitive when compared to quality – the value is just not there.
And people think China is cheap!

I would offer that in the major cities in China, cost of living is higher than most cities in the U.S. and Europe and inflation has not stopped in the 10 years that we have been advising clients in China.  China aint cheap anymore, but, the domestic market where they don’t mind paying higher prices on quality items (that aren’t fake) is enormous and growing.

So, until the central government decides to either scrap it’s antiquated and cumbersome Value Added Tax “V.A.T.” system, which we don’t see that happening for a long time as too many people would lose a lot of money, or they lower the import duties and consumption taxes on imported products – there might be other ways to import products that are in high demand in China.

China and Hong Kong operate under a one country two systems arrangement that has been in place since the turnover in 1999.  Despite obvious cultural differences and the fact that there is a border crossing, most of us who do business in South China consider the two as one.  In fact, there is a treaty between Hong Kong and China which many people don’t know about that allows for Hong Kong companies and professionals to operate in China and also a few other things such as the duty free import of Hong Kong made products.  Below is a summary of the CEPA rules pertaining to importation of Hong Kong products which could provide a solution to the high import duties in China.
In order to enjoy zero tariffs under the Closer Economic Partnership Agreement (CEPA), goods exported from Hong Kong to Mainland China must fulfill the rules of origin and show evidence of being “made in Hong Kong.”

The execution of the rules of origin is detailed in the “Customs Provisions of the People’s Republic of China on Executing the Rules of Origin for Trade in Goods under the Mainland/Hong Kong Closer Economic Partnership Arrangement (haiguanshuling No.106, hereinafter refers as ‘Provisions’),” which was promulgated in December 2003 and came in effect from January 1, 2004. Under the Provisions, “Hong Kong” as the origin of goods shall be determined according to the following principles:

  1. Goods entirely obtained in Hong Kong; and 
  2. Goods “substantially manufactured” in Hong Kong if not entirely obtained in Hong Kong Goods entirely obtained in Hong Kong According to the Provisions, goods entirely obtained in Hong Kong include:
  • Minerals exploited or extracted in Hong Kong
  • Plants or related products collected in Hong Kong
  • Animals born and raised up in Hong Kong and their related products
  • Animals hunted in Hong Kong
  • Fish and other sea products caught by ships with Hong Kong licenses and regional flags and their related products
  • Waste disposal for recycling from and collected in Hong Kong
  • Waste and scrap for recycling resulting from manufacturing in Hong Kong
  • Products made out of waste disposal or waste and scrap mentioned above Substantial processing, transformation, or manufacturing The criteria of determining whether the products are “substantially manufactured, transformed, or processed” in Hong Kong should include the following:
Manufacturing or processing operations.  The goods should be endowed with essential characteristics after principal manufacturing or processing operations in Hong Kong.
Change of tariff number.  Change of tariff number refers to a change of the four-digit tariff numbers and taxation categories after the manufacturing or processing operation of non-Hong Kong materials in Hong Kong. Moreover, no further manufacturing or processing should happen outside Hong Kong.
Ad valorem percentage.  Ad valorem percentage is the ratio between the total value of raw materials, components, labor and product development that are fully acquired in Hong Kong, and the FOB value of the finished product for export.
  • Ad valorem percentage = (Value of raw materials + value of components + labor costs + product development costs) ÷ (FOB value of finished product for export) Products with an ad valorem percentage equal to or greater than 30 percent, and with the last manufacturing or processing procedures completed in Hong Kong, shall be regarded as “substantial processing.” The following stipulations apply:
    • Calculation of the above “ad valorem percentage” should be consistent with generally accepted accounting standards and with the “Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994.”
    • “Product development” refers to product development conducted in Hong Kong for the purposes of producing or processing the exporting goods. Incurred expenses for development shall be related to the exporting goods, including the costs for self-developing of the producers and processors, as well as the costs for the developing of consigned natural or legal person. The expenses also includes fees for purchasing designs, patents, patented technologies, trademarks or copyrights processed by a natural or legal person in Hong Kong. The concerned value should be clearly identifiable under generally accepted accounting standards and the provisions of “Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994.”
    • If raw materials or components originating from Mainland China are used and they constitute part of the export products in Hong Kong, when calculating the ad valorem percentage of the export product, the raw materials or components from Mainland China should be deemed to be originating from Hong Kong. The ad valorem percentage of the export product should be greater than or equal to 30 percent, and greater than or equal to 15 percent excluding the price of the raw materials or components from mainland. Other criteria The “other criteria” refer to other criteria agreed by authorities of both Mainland China and Hong Kong in determining the origin of the products, besides the three above-mentioned criteria.
Mixed criteria. The “mixed criteria” means that two or more of the above-mentioned criteria are used in determining the origin of the products. Manufacturing or processing for the purpose of transporting or storing the goods, facilitating the packaging of the goods, or better packaging and displaying the goods is not considered as “substantial processing, transformation, or manufacturing.”
Simple diluting, blending, packaging, bottling, desiccation, assembling, sorting or decorating will not be regarded as “substantial processing, transformation, or manufacturing.”

Package, packaging materials, containers and accessories, spare parts, tools and explanatory materials accompanying the goods should be ignored in determining the origin of the goods.

by Frank Caruso
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, Vietnam and the U.S.

Korean Fair Trade Commission vs. European Car Companies

The Korea Times has reported that the Korea Fair Trade Commission is considering investigating BMW, Mercedes Benz, Audi, and Volkswagen for price fixing.  The Korea FTC has aggressively investigated both foreign and domestic companies for allegations of price fixing and other unfair trade practices.

The Korea Times article, in part, notes that:  
After monitoring the prices of BMW, Mercedes Benz, Audi and Volkswagen vehicles, the country’s most popular imported auto brands in that order, officials at the Fair Trade Commission (FTC) said Wednesday there are reasons to allege that these companies have been involved in profiteering and collusion.

FTC didn’t say whether or not it will conduct a probe but on the basis of findings, it reserves the right to do so at its own discretion.

The automakers have lowered the prices of their cars by an identical 1.4 percent after the Korea-EU free trade agreement (FTA) went into effect in July last year and reduced the Korean tariffs on their products by the same 2.4 percent. Tariffs will be cut by another 2.4 percent starting next month.

While drivers here had obviously hoped the price cuts to be more profound, the FTC appeared to be more interested in investigating the suspicions of price fixing.

``We collected information regarding the four carmakers to draw a broad picture of their sales and product circulation in the domestic market as well as evaluate the effect of the FTA,’’ said an FTC official.

``But we didn’t conduct on-site inspections or other investigative actions to confirm whether they breached the country’s fair trade law,’’ brushing away speculation that the watchdog is preparing a direct attack on the automakers’ pricing policies.

BMW’s popular 520d passenger car is currently being sold for 63.5 million won (about $55,200), although the shaving in tariffs suggests that the price tag could be 620,000 won lower than that, the FTC said.

The Mercedes Benz E200CGI is now available at 57.7 million won, although authorities prefer it to be 600,000 won cheaper.

Representatives of the European carmakers accused the Korean officials of oversimplifying the pricing logic, saying it’s unreasonable to request the carmakers to cut prices at the same rate of the reduction in tariffs.

``We have saved 2.4 percent of import prices under the FTA, but we have suffered increased domestic taxes and other extra costs for transportation and other sales activities. Considering this, our policy of selling a car at a price 1.4 percent lowered than before the FTA should be justifiable,’’ said one official.

In contrast to its European rivals, the U.S. automaker Ford has launched an aggressive promotion campaign in the domestic market and has lowered the prices at a sharper rate than the reduced tariffs under the Korea-U.S. FTA.

Some models are available at even 5.25 million won lower than prices set before the KORUS FTA, which carries the same effect of 9.8 percent of reduced tariffs.
The Korea Times article may be found at: European Car Makers May Face Probe for Price Fixing.
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Jun 19, 2012

Korea and Canada Resume Free Trade Talks

Korean vernaculars have reported that Canada and Korea will resume free trade talks.   Canadian Prime Minister Stephen Harper and Korean President Myung-bak LEE reached an agreement during a private meeting during the G-20 meetings in Los Cabos, Mexico.

Canada called off negotiations with Korea, because of the ban by Korea on the import of Canadian beef.  The ban has recently been lifted.   Trade between Canada and Korea amounted to nearly USD 12 billion last years.
_________ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, Vietnam and the U.S.

Jun 17, 2012

How IPG has Assisted the South China Yachting Industry

I like to write about my clients who try.  Now, they don’t always succeed and when they don’t it is usually because they were too early or the market factors weren’t what they expected and a few other reasons, as believe me, they were prepared legally to enter the fray here in the Jungle.  It turns out that the clients of mine that are entrepreneurial, using their own money and taking their own risk are my favorites and they turn out to be some of my best friends.  I wrote about Jame Guo and Ben Hart on my blog a few years ago when they launched the first sailboat that they built in their factory north of Shenzhen.  I was honored to be invited to the launching and when they put the beautiful 48′ foot cruising sailboat in the water I was also very proud of them because it is difficult – extremely difficult.

Now, more than two years has passed and 8 sailboats have been delivered and are comfortably sailing the seas.  I had the opportunity to go on an afternoon sail on their brand new 52′ Farnova Catamaran this past weekend and once again I was honored to be included and equally proud of my friends and clients.  Now, I prefer mono-hull sailboats because it just feels more like sailing, this new Catamaran was just about the most comfortable sailing yacht I have ever been on.

While it’s not easy to build a shipyard from scratch and begin making insurable and sea worthy vessels that people want to pay lots of money for – Ben and Jame at Farnova have pulled it off.  Not only are they making beautiful sailboats, but they recognize that the domestic market in China will continue to grow and the Chinese consumers will purchase more sailing yachts.  Congratulations to Farnova and we are happy to have you as a client.

By Frank Caruso, Chair of the China Practice Team at IPG.
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Jun 13, 2012

Korea-EU FTA Effect on Korea Cars Popularity in Europe? Little Effect According to Korean Car Lobby

The Korea Times has an interesting article on the effects of the Korea-European Union FTA on Korean car manufacturers.  A major Korean car lobby group has noted that the increase in exports of the last year is not attributable to the Korea-EU FTA.  An executive from a major local company, that I spoke to last week, has noted, candidly, to me that Korean cars, because of the FTA, are more noticeable to EU purchasers.  FYI: GM has Korean made cars, but the cars are not branded as Korean cars.
The Korea Automobile Manufacturers Association (KAMA) said the allegation is “misleading” on the positive effects of FTA and provides a “biased and distorted” view.

“The increase was not wholly owing to the Korea-EU FTA,” it said, adding that the export hike is attributable to combined reasons, such as new model releases, improved consumer confidence toward Korean cars, and enhanced marketing activities by the car makers among others.

After the Korea-EU FTA came into effect in July 2011, through March 2012 vehicle exports to Europe rose 67 percent to 335,320, according to the Korea Customs Office.

This statement came as European automakers have begun lobbying to revise the FTA, a move eventually aimed at modifying the agreed elimination of tariffs on cars by up to 10 percent in two steps.

The deepening financial crisis in Europe has left automakers there, including Fiat, Renault, and the European operations of Ford Motor and General Motors mired with excessive production capacity as well as losses or declining profits.

Several auto company executives met last month in Brussels to discuss the trade agreement with Korea and how they should respond to the import increase. “The meetings led to some positive developments on nontariff barriers in the automotive sector,” The Wall Street Journal quoted Helene Banner, an EU spokeswoman, as saying in a report released May 3. It was the inaugural annual gathering to review the agreement and try to make adjustments as needed.

The journal reported that Ford has been making private pleas to the leaders of different EU nations, including the new prime minister of Spain, Mariano Rajoy.

KAMA said the export increase coincided with the surge of new model launches in the EU by Korean car makers.

“It is noteworthy that the ratio of new car models exported to the EU accounts for 73 percent of total exports during July 2011 till March 2012, which is surely the major driving force for the increase,” it said. “It is a general view that such new model releases affect significantly consumers’ decisions on new car purchases.”

New car models exported to the EU include the Avante, Veloster and i40 from Hyundai; the Rio and Picanto from Kia; the Aveo, Spark, Orlando, Cruze and Malibu from GM Korea; and the Korando C from Ssangyong.

KAMA underscored several Korean car models winning awards in Europe thanks to quality improvement and enhanced consumer preferences, saying this is due to more confidence in the brands by European consumers. It added the effect of the FTA has generally been overstated.

Under the FTA, the EU’s 10 percent tariff on imported Korean cars was reduced by only 1.7 percentage points for cars with engines below 1,500cc and 3 percentage points for those over 1,500cc.

“It is too much to say that such a minor reduction in tariffs would have meaningful effects on exports,” the association said. “It seems more reasonable to look at back-to-back introduction of new models and improved customer recognition.”

KAMA is a non-profit organization representing Korean auto makers Hyundai Motor Company, Kia Motors Corporation, GM Korea Company, Renault Samsung Motors, and Ssangyong Motor Company.
Is the KAMA blowing hot air?   The complete article may be found at: Don't Blame FTA for Korean Cars' Popularity in EU
__________ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, the Philippines, Myanmar, Vietnam and the U.S.

Jun 4, 2012

Korea Purchase Power on Par with U.S. and E.U.?

Hyundai Research Institute has announced in its report "Nominal Income 20,000 (U.S.) Dollars, Standard of Living 30,000 Dollars," that “Korea’s per-capita GDP without considering price levels was 22,778 dollars last year, but its per-capita GDP based on purchasing power amounted to 31,714 dollars.” 

Thus, the report notes that because of the lower cost of living in Korea compared to other industrial nations, Korea standard of living is on par with the most developed nations in the world.   From my perspective, it seems like the report fails to adequately evaluate the cost of living in Korea.

For example, the report fails to adequately equate for the higher cost placed on families for education and  healthcare.   Additionally, some of the price comparisons seem to be based on peculiar data-sets.   For example, the report notes that clothing and shoes cost 10% less than the OECD average, however, a trip to a retail store may make you think that the report is not considering realities in the larger cities.  It is true, that if you ignore the wants of consumers for luxury brands, then, the report may come to valid conclusion, however, the reality seems far from the data. 

Is this one of the many reports in Korea that simply started with a conclusion?  What do you think? 
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, the Philippines, Myanmar, Vietnam and the U.S.