Mar 29, 2012

Will FTA's Lower Consumer Prices in Korea?

As booze and babies illustrate in today’s newspapers, the consumer price impacts by the EU & US FTAs may have been blown way out of proportions by both proponents and opponents of these trade treaties.

The big price inflators are, normally, not duties but distribution costs and sometimes excise taxes. In time, some of the new import price savings resulting from tariff reductions may be passed on to consumers as more importers and distributors provide Korean consumers with foreign goods. But that will happen only so long as the marketplace is competitive, free of price fixing. In the main part, however, probably the greatest consumption boosts may be found to be more psychologically than financially based.

That is, consumers come to expect foreign goods to now be cheaper and more affordable — and consequently begin shopping, often for the very first time. Those consumers already familiar with foreign products are likely to be disappointed in the lack of any significant price drops. But in time, experienced shopper, too, will be rewarded.

As the Korean consumer herd begins to start buying more foreign goods, a greater variety is more likely to be commonly found. As foreign goods move away from being considered essentially luxury items to more common commodities, more import/distribution channels will being created. That in turn creates retail competition, which will drive down upstream pricing as middlemen compete more on the high volume, low margin model rather than the low volume, high margin one.

We first saw this happen with the overall wine consumption market exploding, thanks largely to the Korea-Chile FTA in which cheap – but not necessarily cheaper – wines stimulated consumer interest and thereby created increased demand for wine.

In other words, the trigger is for naive consumers to believe they can now afford once-considered exotic or luxury goods and their increased mass purchasing eventually brings down prices – actually more than tariff reductions. On the other hand, without highly publicized free trade agreement support and opposition, the common consumer would not likely pay as much consideration to start purchasing imported goods.
Below are two articles that illustrate shortly after major free trade agreement implementations how imported goods can maintain or even increase prices regardless of the expected FTA benefits.

The baby buggy example may shows price fixing maintaining artificially high prices. But without the FTA implementations, I doubt this practice would have been highlighted by journalists. This is likely to also be the case with whiskey and other imports’ pricing in today’s and future media reports. And in turn this kind of exposure may eventually lead to lower prices. (Sean Note:  The Korean Fair Trade Commission has also been aggressive in finding tools to lower consumer prices - lawsuits and fines)
by Tom Coyner.  Senior Commercial Advisor for IPG.  
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SeanHayes@ipglegal.com
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. www.ipglegal.com

Mar 27, 2012

Korea's Carbon Credit Inititative: Korea Fastest Growing Producer of Carbon in Developed World

Bloomberg posted an article today on the possibility of Korea passing a carbon trading bill.

The Bloomberg articles notes that:
We believe the bill will be passed” as long as lawmakers schedule a vote after the elections, Young Soo Gil, chairman of the Presidential Committee on Green Growth, told reporters today in Seoul.

Lawmakers unexpectedly delayed voting on the bill on Feb. 27, even after Asia’s fourth-largest economy agreed to push back the program’s start by two years to 2015 as the largest companies said it will hurt competitiveness. The government is working to reschedule the vote, with a target of April or May, Nam Kwang Hee, director general of the Presidential Committee on Green Growth, said March 19.

A multiparty panel of the assembly agreed last month on the need to create a market to help reduce carbon-dioxide discharges. The bill has to go to the nation’s Legislation and Judiciary Committee and then to the assembly’s plenary session, the last step for the law.

If the session isn’t held by the end of May, pending bills will expire when the new national assembly is formed in June, Young told reporters.

“As ruling and opposition parties agreed on the need of the legislation, the bill is likely to be passed at the assembly’s plenary session without big changes,” Young said.

The complete article may be found at: S. Korea Sees Carbon Legislation Possible After April Elections.

Will a carbon credit/trading law open up new opportunities for businesses in Korea?

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SeanHayes@ipglegal.com
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. www.ipglegal.com

Mar 25, 2012

Why are so Many Koreans Opposed to Free Trade Agreements?

We keep reading about the bizarre politics swirling around the ratification of the Korea-U.S. free trade agreement. Last week, I suggested that it all came down to an alienated public taking out its rage on the Grand National Party and, by extension, the FTA.

But there is more.

The often irrational opposition to the FTA is largely due to frustration of young people and their families over the lack of adequate employment opportunities for college graduates, who make up over 80 percent of the country’s younger population.

As I wrote last week, many people blame the ruling conservatives, the Grand National Party, for being more concerned about lining the pockets of their cronies and themselves than addressing the fundamental needs of the electorate when it comes to job creation.

While there is considerable corruption within the GNP, the problem is not significantly better or worse than when its opposition had been in power. And corruption, as destructive as it may be, is more of a red herring than the real cause for the current political problems and resulting unrest.

One may be tempted to blame the Ministry of Employment and Labor, but the problem is, at least superficially, the result of policies and programs coming out of the Ministry of Education, Science and Technology. To its credit, the Education Ministry is attempting, if belatedly, to address the imbalance of overly educated young Koreans by attempting to set up a meister program patterned after Germany’s trade schools.

The likely limitations of a Korean trade school program is that graduates will be stigmatized as being inferior to university graduates – even if many meister graduates later study in the evenings and complete their college educations.

Perhaps the Education Ministry will be able to better promote the virtues of the meister program and trade school graduates’ future contributions to society. But I can tell you, even if the government and schools manage to sell the meister program to some, most families will refuse to buy into the notion.
One can say that Korea, as the most Confucian of societies, wants as many of its children to get as good of an education as possible. That would be a good thing, but, in reality, many if not most Korean families could not care less about the actual quality of education. The purpose of a respected college degree is to get a good job that brings wealth, or in the very least, prestige, which may eventually lead to wealth.

What makes the situation almost pathetic is that many Korean families are not blatantly materialistic, but they constantly feel social pressure that if their children falter in educational advancement then the entire family will be left behind.

And ultimately, that is what is behind the opposition to the FTA. Widespread anxiety, in some cases bordering on quiet panic, is fomenting among families out of fear that they are being left behind as their college-educated children find themselves unable to find the expected career opportunities. At the same time, a small minority of recent college graduates, who get those few, treasured white-collar jobs, unintentionally rub society’s disparities in the faces of the majority.

Perhaps all of this is the result of a nation that has grown economically too fast. In the past, only a small percentage of families could send their brightest offspring to universities. That group made up a ruling oligarchy. Today, the masses have been suckered into believing that they have the same opportunities for their children via a college education.

The truth is that only the very brightest students are admitted to the very few universities that are seriously considered by prestigious employers. And only certain disciplines at the top universities have high, immediate post-graduate employment rates.

In short, many families feel they have been sold a bill of goods by a society that is represented by the government. Right now, the GNP is taking the hits and, by extension, so is the FTA. But when the GNP is replaced by another party, as is almost certain to happen 13 months from now, the overall situation will not improve. It can’t improve by a change in government. The problem is a social or spiritual one, which no political party can easily fix.

Where all of this is going is virtually impossible to predict, but ultimately, most of the ongoing and future political turmoil will continue to stem from desperate, overly competitive families that make up Korean society.

It is only human nature for the disadvantaged and frustrated to look for enemies and scapegoats. Some years ago, during another time of political turmoil, America’s comic strip cartoonist, Walt Kelly, had one of his characters famously declare, “We have met the enemy and he is us!”

Because of my inadequate Korean-language abilities, I have yet to discover a well-regarded Korean who has made a similar public observation. If such a person exists, he or she needs to be loudly and repeatedly quoted. If such an observation has yet to have been made in Korea, it is overdue for someone of note to stand up and make a similar declaration.

Otherwise, I cannot see how this overly competitive society will have a chance to heal itself.

by Tom Coyner.  Senior Advisor to IPG.
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SeanHayes@ipglegal.com
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. www.ipglegal.com

Mar 21, 2012

Korea Benefits from FTAs

Liberals, in Korea, have been claiming that Free Trade Agreements with the EU, Chile, ASEAN and the U.S. is hurting Korea.

However, the statistics show a vastly different reality.  The Chuson Ilbo posted a decent article analyzing trade statistics.  The article, however, fails to detail the effects of FTAs on consumer prices.  Invariably, FTAs, also, leads to a decrease in consumer prices, thus, a decrease in inflation.

The article notes, in part, that:
From July last year, when the Korea-EU FTA went into effect, until November, exports to the EU rose 14.8 percent compared to the same period a year earlier in terms of products that saw tariff reductions, the Korea International Trade Association says.

Total exports to the EU declined 8.5 percent over the same period, but that was due to a 30 percent drop in shipments of electronics products and ships in the wake of the European fiscal crisis. Electronics and ships were subject to zero tariffs even before the FTA between the two sides, "so the FTA played a key role in cushioning the shock as seen in the 50 percent increase in EU investment in Korea during the second half of last year," according to Myung Jin-ho at KITA.

The FTA with Chile was sealed in 2004, and bilateral trade surged from US$1.85 billion the year before to $7.17 billion in 2010. Exports to the South American country rose a whopping 462 percent, while imports from Chile grew 218 percent. Excluding copper, which accounts for around 70 percent of imports from the country, Seoul has achieved a trade surplus every year, rising from $200 million in 2003 to $1.7 billion in 2010.

The average tariff rate of Korean exports to Chile was 6 percent before the FTA but fell to 2.9 percent in the first year the deal went into effect and dropped even further to 0.5 percent last year.

According to a Foreign Ministry report last year on the concrete economic effects of FTAs, Korea's trade with Chile, Singapore, the EFTA, ASEAN and India in 2010 stood at $153.9 billion, leading to a trade surplus of $18.8 billion for Korea. That accounted for 17.3 percent of Korea's total trade volume and 39 percent of its overall trade surplus.

Compared to pre-FTA days, Korea's trade with those groups rose 60 percent, while the trade surplus increased 168 percent.  
The full article may be found at:  What are the Benefits of Korea's FTA?
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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines and the U.S.
www.ipglegal.com

Mar 20, 2012

Will Australia and Korea Sign an FTA?

Our Australian clients have noted that they hope that Australia and Korea can complete an FTA soon, since they are now at a stark disadvantage to lower cost and now lower tariff American products.

Australia has been benefited greatly by the Mad Cow Farce and it aggressive advertising in Asian markets, including Korea. Korea is, now, Australia's third-largest importing country of beef and a major importer of dairy, agricultural and wine products. Many of the beef cuts exported to Korea are high-margin cuts with low value in the West and in the Pacific, because of Korea's unique valuation of cuts.

The implementation of the KOR-US FTA has led to the reduction in the 40% tariff on beef by 2.5%. The tariff will be further reduced over the next five years.

What do you think - will Australia pen a FTA with Korea?

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SeanHayes@ipglegal.com

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. www.ipglegal.com

Mar 6, 2012

Importing and Selling Wine in Korea Just got a Little Easier

The Korea Times has posted an article about changes in the Korean wine market because of changes in Korea's distribution law and the implementation of free trade agreements with the United States and the European Union .

We have seen more interest from major wine producers in the Korean market and we expect to see a few of the major players in the market enter the market soon.

The Korea Times notes that:
Korea’s wine boom peaked in 2008 when $166.5 million worth was imported. However, since the economic downturn, the country’s imports fell by 32.5 percent the following year to $112.45 million. Imports improved moderately last year to $132 million.

Industry people here believe that the wine market is ripe for a rebound. The Italians, however, could prove to be the casualties of the renewed wine wars. Korea’s wine market has been dominated by products from France, Chile and Italy, but the United States could threaten to overtake Italy for third place in the sales hierarchy, market sources say.

“The strength of Italian wines has been based on sweet wines like Moscatos, but the popularity of Italian table wines in the 20,000-60,000 won price range has been poor. This lack of diversity is beginning to hurt Italian wines here,” said an official from one of the importers.

“The so-called new world wines from countries such as the United States, Chile and Australia continue to challenge old world wines made in Europe. France’s top spot continues to be undisputed and Chilean wines have been building a reputation for providing high quality at moderate prices, but it remains to be seen how American wines attack this status quo.” 
The complete Korea Times article may be found at: France, Chile, U.S. Wage Wine War in Korea.
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SeanHayes@ipglegal.com
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.
 www.ipglegal.com

Mar 4, 2012

Denuclearization of North Korea: Korea’s Red Herring by Tom Coyner (IPG's Senior Advisor))

During the past couple of weeks the North Koreans have once again pulled the red herring across the trail in an attempt to distract the rest of the world from the fundamental Korean issue. Dutifully, commentators and government officials have editorialized and issued statements about terms and conditions for yet another possible round of negotiations.

Please, would someone give us a break? Could someone in any concerned government service come out and state what’s really going on?

Allow me to call out the emperors are not wearing any clothes. The problem that is at the core of the six party talks is not North Korea’s atomic weapons. The real issue is that the North cannot bring itself to recognize the legitimacy of another government on the Korean Peninsula.

Everything else has been cascading down from this sticking point since the end of World War II, up to and including the North Korea-related issues of this week. Meanwhile, remarkable time and effort have been devoted to secondary issues with totally unrealistic expectations that by solving these lesser issues, the overall tensions on the Korean Peninsula may somehow be resolved.

Beyond any controversy, the smartest thing Pyongyang has done has been to develop an atomic weapons program as a way to repeatedly get the world’s (read: America’s) attention and to distract diplomatic focus from the core issue, which is the North’s refusal to recognize the Republic of Korea as a legitimate government.

Within the North’s ideology, there is but one government, which in turn necessitated the Korean War. Given the absence of victory, the North has had no choice but to continue to find schemes to bring the U.S. back to the negotiating table on one pretext or another. The masterpiece alibi has been the nuclear weapons issue. With the ongoing turnover of “Korea hands” in Washington, it has been relatively easy for Pyongyang to force American-Korea desk officers to focus on the pending and immediate nuclear threat from North Korea.

In the process of one North Korean-manufactured mini crisis after another, Pyongyang has been able to achieve three objectives. First, the North Koreans have made sure that North Korea matters in spite of its political, diplomatic and economic bankruptcy. Second, by playing Washington and its allies like a yo-yo of promises and provocations, the North has been able to extract foreign aid from its sworn enemies. Third, by achieving the first two goals, the key issue of Pyongyang’s refusal to recognize Seoul is never adequately addressed.

When one looks at Seoul’s repeated demands for Pyongyang to apologize for last year’s military episodes that resulted in the needless deaths of islanders and sailors, it is readily apparent why North Korea refuses to do so - when viewed from the North’s perspective. To apologize would in effect recognize the legitimacy of the Seoul government having intrinsic rights and responsibilities as a sovereign state - as opposed to being a puppet government that can be cajoled into coughing up cash and aid whenever it suits Pyongyang’s purposes.

At the risk of making too fine a point, just what in blazes does the U.S. have to offer in negotiating a “denuclearization of Korea?” Decades ago, the U.S. withdrew tactical atomic weapons from Korea. What’s more to be demanded from Pyongyang? Is the North suggesting the removal of the U.S. Navy from Yokosuka with its potential nuclear capacity? A no-go zone for American submarines in the east Pacific? America’s removal of ICBMs from North Dakota? Or, does anyone genuinely expect the U.S. to build nuclear reactors in North Korea?

It’s all nonsense. The North knows it, and many American government officials know it. And yet there is a good deal of resources being expended towards a possible next round of denuclearization talks. It may be cynically said that all another round of talks may produce are opportunities for American government officials to upgrade their CVs as having represented or supported American diplomacy “to reduce nuclear tensions in NE Asia.”

So, given all of this, what may be the alternative?

As an American business professional, here is my suggestion from my years of negotiating business deals with Koreans and others. First, change the game. Inform North Korea that the U.S. is no longer interested in a continued discussion on a dead topic. We will not recognize North Korea as a nuclear power for two reasons: One, to do so would be a bad precedence for other dictatorships; and two, to do so would to recognize the overriding legitimacy of the issue. In other words, denuclearization is a non-negotiable issue as it is not a matter of possible discussion with the United States.

At the same time, what is the first and foremost concern to the United States and its allies is the formal recognition of South Korea by the North. If this cannot be achieved, after all these decades, there is essentially nothing more to be expected from the United States and the rest of the world. All other matters are off the negotiating table until Pyongyang formally recognizes the legitimacy of Seoul as the government. Only after that has been achieved to the mutual satisfaction of Seoul and Pyongyang will Washington enter into serious peace talks with Pyongyang.

After a half a century and more, with South Korea achieving its political, economic and diplomatic overwhelming dominance, the North must be forced to come to grips with reality. Otherwise, it is total nonsense for Washington to play along with Pyongyang’s fantasies, which includes providing humanitarian and other assistance, as unintended tribute to a delusional regime.

Tom Coyner is a Senior Advisor to IPG and the President of Softlanding Korea.
The article appeared in the Korea Joonang Daily in August of 2011.
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SeanHayes@ipglegal.com
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.
www.ipglegal.com

Mar 2, 2012

Constitutional Crisis in the Making in Korea

The following article appeared in the Korea Times on March 2, 2012.

Because of a critical flaw in the Korean Constitution, the National Assembly’s nine-month delay in nominating a justice to a vacant seat may cause an irreparable constitutional crisis.

This crisis has the potential to lead to the destruction of the power of the Constitutional Court and, thus, the destruction of a critical check on the National Assembly, president and the ordinary courts.

The Constitutional Court has been fiercely criticized by politicians, on both sides of the aisle, for being involved in questions that are inherently political in nature. During my six years working at the Court I was vocal in my opposition to this, obvious, tendency of the Court's justices and researchers.

These political tendencies are fostered by the Court because of a lack of consistently applied legal tests. This is caused by the lack of experience in interpreting the Constitution by the justices and their researchers and constitutional scholars at law schools who are more interested in politics than structured legal analysis.

For example, the capital relocation case had little to do with the interpretation of the Constitution and more to do with the “political” attitude of the justices toward the relocation of the nation’s capital as noted by many of the more mainstream legal commentators.

The criticism over this and like cases is warranted, but this criticism should not lead to politicians using the present impasse as a tool to destroy a needed check on politicians and the ordinary courts.

This potential crisis came to a head when the main liberal opposition party nominated an attorney who was considered by many as being overall political.

To the delight of most of the mainstream, the ruling Saenuri Party has rejected this nomination because of the attorney being considered too liberal-leaning and political, by many, because of his peculiar views on a variety of issues including the sinking of the Cheonan by the North Korean military. The law firm that the attorney works for is, also, considered by many attorneys as a liberal-leaning law firm.

The Saenuri Party may have acted appropriately in rejecting the candidate, but without a quick choice of a replacement, the National Assembly may create a precedent that can lead to the destruction of the power of the Constitutional Court.

Under the Constitution, three of the nine Constitutional Court justices may be designated by the National Assembly, three by the chief justice of the Supreme Court and three by the nation’s President. The nomination system is intended to allow the three branches of government to equally fill the nine seats at the court, thus, giving the power to nominate all branches of government.

A problem arises because of a poorly drafted super-majority rule based on an absolute number (six justices) and not an absolute percentage (i.e. two-thirds).

Article 113 (1) of the Constitution clearly declares that: “When the Constitutional Court makes a decision of the unconstitutionality of a law, a decision of impeachment, a decision of dissolution of a political party or an affirmative decision regarding the constitutional complaint, the concurrence of six justices or more shall be required.”

Therefore, in order for a law or action of the government to be declared unconstitutional or for the president or other high-ranking official to be impeached, the concurrence of six justices is necessary. This absolute numerical super-majority rule is obviously flawed when the court is absent justices. The drafters seemed not to consider a situation where less than nine justices were seated at the court.

It is possible that this precedence may lead to the three other branches of government not confirming nominations, thus, essentially protecting itself from the power of the Constitutional Court to declare laws passed by the National Assembly and signed into law by the president unconstitutional.

The situation is so grave that the chief justice of the court sent an unprecedented open letter to the National Assembly. The timing of the letter may have been less than advisable, since it may be perceived as a nod of support for the nixed candidate, but the letter shows the seriousness of the situation.

As the chief justice noted in his letter, the Assembly “should act immediately to resolve this problem. Choosing a justice is a constitutional obligation and responsibility for the parliament … The fact that there is a vacancy on the bench means a lot more than you imagine. It can change the court’s rulings.”

I hope for the good of an institution that has played a vital role in advancing democracy - that political branches do not use this constitutional flaw as a tool to destroy a necessary check on the National Assembly, president and ordinary courts.

New York attorney Sean Hayes worked for the Constitutional Court and as a professor of constitutional law. He is presently working for a leading international law firm. Contact him at SeanHayes@ipglegal.com.
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SeanHayes@ipglegal.com
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.
www.ipglegal.com