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Avoiding collateral damage

Aug 22,2019
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After Japan took steps to restrict the export of materials vital for semiconductor production last month in retaliation for the Korean Supreme Court’s rulings on wartime forced labor, an employee at a convenient store pulls Japanese beer, cigarettes and foods from the shelves to join a national boycott campaign against Japanese products. [YONHAP]
Choi Ji-young
The author is the head of the industry team at JoongAng Ilbo.

The unprecedented trade spat between South Korea and Japan — touched off by Japan’s July 1 export restrictions on some key materials headed to Korea — is poised to enter its third month. In retrospect, the hardest-hit have not been Samsung Electronics or SK Hynix. The casualties were companies related to Japan or rumored to be selling products associated with Japan. The anti-Japanese movement triggered by the latest row is expected to turn into the biggest-ever consumer boycott in Korea.

Koreans have taken pains to differentiate their actions from state-led or violent boycotts as witnessed in China with the burning of Japanese cars. They vehemently oppose government involvement and vow to strictly select products of Japanese origin in the boycott. But unintended casualties and injuries have occurred in spite of carefully treading the line between “calm and passion.”

The troubles with Japan have dealt a double whammy for Lotte Group after it became the biggest casualty from the 2016-2017 trade conflict between Beijing and Seoul over the deployment of a U.S. antimissile system. The row costs the company 3 trillion won ($2.5 billion) as it was bombarded with sanctions by Beijing for Korea allowing the use of its territory to host the missile shield. Consumers have demanded the fifth largest conglomerate to identify as Korean or Japanese. In August 2015, amidst a heated power struggle with his older brother, who is entirely based in Japan, Chairman Shin Dong-bin clarified that Lotte was a genuine Korean enterprise, generating more than 95 percent of its revenue in Korea. At a parliamentary hearing the following month, he reiterated that Lotte is a Korean business group incorporated according to Korean Commercial Act subject to Korean taxes and employing Korean nationals.

Lotte paid 1.58 trillion won in corporate tax last year. Its sales reached 95 trillion won and it had 130,000 on its payroll as of last year. In Japan, it earned 5 trillion won and employed about 5,000.

Lotte founder Shin Kyuk-ho established the business in Korea from the money he had earned in Japan by selling chewing gum. The family endeavored to bring down the Japanese holding ownership in Lotte Hotel to less than 50 percent by making the company public on the Korean Exchange and legitimately act as the independent holding company for Lotte operations in Korea. The work has been put on hold since 2016 after the conglomerate came under multiple probes by the prosecution amid a bribery scandal associated with impeached President Park Geun-hye.

Coupang, Korea’s top ecommerce name, has also been labeled Japanese. The company drew $1 billion from Softbank Chairman Masayoshi Son — a third-generation Korean immigrant to Japan who adopted Japanese citizenship as an adult in 2015 — and another $2 billion from Softbank’s Vision Fund. Japan-based Softbank and its Vision Fund are projected to own a 30 percent stake of Coupang.

Coupang issued a statement to clarify that it is entirely a Korean company, with more than 99 percent of its operations and business done in Korea and paying 1 trillion won annually to a workforce of 25,000 in Korea. Although the Vision Fund is Softbank Son’s brainchild, the bulk of the capital comes from Saudi and United Arab Emirates sovereign funds. The origin of the start-up venture fund is blurry. Moreover, its creator Son is proud of his Korean heritage who overcame various obstacles to become one of the most influential billionaires and entrepreneurs.

Lotte Liquor and Bohae Brewery — both founded in Korea and producers of famous brands of distilled soju — had to issue a statement denying that it was sold to Japan and is largely owned by Japanese brewery Asahi Breweries.

Collateral damage refers to unintended injuries and deaths of civilians in military operations. We must watch closely to avoid undesired casualties amongst our own.

JoongAng Ilbo, Aug. 21, Page 27