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Imports expert says Korea needs to give and take

Koima chairman says buying is as important as selling for economy
Apr 22,2019
이미지뷰
Hong Kwang-hee, chairman of the Korea Importers Association, explains the importance of imports on Korea’s economic development at the association’s headquarters in Bangbae-dong, southern Seoul, on April 15. [PARK SANG-MOON]
이미지뷰
Hong Kwang-hee, center, takes photo with foreign emissaries and members of the Korea Importers Association during his inauguration celebration held on March 15 at Westin Chosun Hotel, central Seoul. Some 300 people including foreign diplomats and CEOs of leading import companies attended the event. [KOREA IMPORTERS ASSOCIATION]
Hong Kwang-hee, chairman of the Korea Importers Association (Koima), stresses that exports and imports are not polar opposites, but rather economic factors that are strongly connected.

“Exports and imports are not some zero sum game where a reduction in imports would result in increasing exports to further expand the trade surplus,” Hong said. “When exports go down, so do imports.”

Hong said imports contribute largely to Korea’s exports as raw materials and parts imported contribute to creating added value to Korean goods that are sold abroad.

He said the role of importers is more important than people presume, especially in a time of growing protectionism in global trade. Importers can take the lead in opening up markets and lower trade barriers by improving relationships with trading partners.

Hong said there’s a misunderstanding in the global community that Korea is a country that is benefiting from a huge trade surplus due to its aggressive export policy.

This could be solved with a change in trade policy.

“Instead of focusing too strongly on an export-driven policy, I believe Korea needs to approach trade relations where exports are done quietly but in a sophisticated way, while imports are flamboyant but strategic,” Hong said, stressing that Korea is in fact a major global importer as it is the world’s ninth biggest buyer.

Hong, earlier this year, was appointed as the 21st chairman of Koima, a position that he will hold for the next three years. He has grand plans for the organization, especially as celebrates its 50th anniversary.

Here are excerpts of Hong’s interview with the Korea JoongAng Daily on April 15 at his office in Bangbae-dong in Seocho District, southern Seoul.



Q. Economic indicators, from investment and consumption to shrinking exports, are unfavorable today. What influence does the current economic climate have on imports?

A.
Roughly 85 percent of imports to Korea are raw materials and equipment needed in manufacturing, while consumer goods take up 15 percent. Since exports have been shrinking since December, imports have been falling at a faster rate.

Imports can be seen as a leading index in forecasting the economy because when exports shrink, companies focus on minimizing their raw material inventories and cut back on investing in new facilities. Such moves result in reduced imports.

Exports and imports are not some zero sum game where a reduction in imports would result in increasing exports to further expand the trade surplus. They are like two wheels on a cart - you can’t move forward with only one wheel.



But isn’t the local import industry shrinking since Korean companies are able to secure the necessary raw materials or necessary components themselves thanks to technological advances, like the internet and B2B platforms?

When growth was in double digits - or even around 7 or 8 percent - imports were growing in large numbers. But with the country now on the edge of being an advanced economy with annual growth below 3 percent and many components now available locally due to advances in technology, dependency on imports have gone down.

Just 20 or 30 years ago, collecting information wasn’t easy. But due to the vast improvement in technology and the wide variety of platforms, it has become easy to share information and leading Korean companies are now able to find direct purchase channels.

Imports as a sector has to reinvent itself. We cannot survive by simply selling products that are imported as we did in the past. Importers have to be more unique. Importers have to have their own know-how that has been build up for decades.

As many of our members travel abroad, we are the first to detect and find new technologies and materials.

Even global companies do not share all of their information.

But when new developments from research institutes are made, we are the first to catch them and then we introduce these technologies to local customers to see if the findings could be useful.

Today, 5G telecommunication is the hottest issue and all Korean mobile carriers have to set up a network infrastructure. But these companies won’t be able to secure all of the cable components, which are the nerves of 5G, only through suppliers in Korea.

There are leading technologies that have higher performances created by U.S. or European companies. Here is where importers come in and introduce these technologies and products.



So, imports have been supporting Korea’s economic development?

Korea is a country that lacks in natural resources. And before we became the global manufacturing powerhouse that we are today, we also fell behind in know-how and in facilities. While the government and leading Korean companies’ efforts have helped raise Korea to where it is today, importers that traveled across the world to find new materials and technologies has also contributed to economic development.

Even today, despite our advanced technologies and creating new materials, there are things that we still can’t make on our own, like natural rubber and crude oil.

Hyundai Oilbank and SK Energy are major exporters of refined crude. But this is only possible because the refiners add their own refining technologies to imported crude and sell them overseas.

This is just an example of how our export products are made. It is the combined efforts of good quality imported goods with added value after being processed through Korea’s own know-how and skills.



Korea is currently under pressure over its trade surplus. What are your thoughts?

Unlike when we were a developing economy, today many of our trade partners see Korea as a major exporter with a huge trade surplus.

Among the 240 countries Korea has trade relations with, Korea has a trade surplus with 150.

Out of the top 10 trading partners, Japan is the only country that Korea has a trade deficit with. Whenever there is a trade dispute, trading partners pressure Korea with the statistics that are available.

Instead of focusing too strongly on an export-driven policy, I believe Korea needs to approach trade relations where exports are done quietly but sophisticatedly, while imports are flamboyant but strategic. Once we open the market with imports, then we can expand exports.

Especially such a strategy where we even slightly increase import goods from emerging countries like Uzbekistan, where we have $22 billion of trade [of which] $20 billion is exports, it will help to improve relationships.



How do you see the growing protectionism stemming from trade conflicts?

The trade dispute between the United States and China is a fight between the world’s biggest buying power and the world’s largest exporter. The United States is the biggest importer, while China is the biggest exporter. Currently, the importer has the advantage over the exporter.

With the United States controlling imports, global protectionism is getting intensified through secondary boycotts. The move toward protecting one’s own industry is gaining strength.

This is why at a time like this, exports have to be made more discreetly. In trade, reputation is very important.

In the past there was the Korea discount. Despite Korean companies making products that are as competitive as those of Japan, their price in the global market was 5 to 10 percent less than their Japanese counterparts.

When you look at a single product, that price drop may not seem big. But when you put it in the context of a country’s entire exports, the loss is quite substantial.

Today, made in Korea goods are not only considered as high quality as those of Japan, but are even considered better than other competitors and this translates to a Korean premium.

That reputation isn’t made from the product alone, but also by the image of the country from something as simple as food to wider cultural factors like entertainment.

Once there a country has a positive reputation, other trade partners will be more open to exported goods.



So you believe changes in trade strategy are important?

Importers are not trying to be in the spotlight. Our role is to open doors.

One of the reasons behind the intensifying trade conflict is because we’re trying to push our products overseas, but the strategy we need to take is to first approach trading partners by taking interest in their raw materials.

Korea is a major importer, as we rank ninth in the world.

Once importers move in on a market and open the market, exporters follow and enter or expand the market.

But still, Korea is more export driven. Many of the leading export companies travel abroad in the entourage of the president.

As much as we want to export our products, other countries are also interested in exporting their own goods. Only when imports and exports strategically work together will trade strategy become effective.



What are your concerns over the recent depreciation of the won against the U.S. dollar? Isn’t it a negative factor for importers?

It is not entirely bad news.

Yes, immediately it could raise the burden on importers, but when exporters benefit from the depreciation of the won, this in return also benefits importers.

The importers could face difficulties but there is no one-way impact. While it would take some time before that benefit falls onto importers, the improvement in exports will result in companies increasing their raw material purchases and buying additional manufacturing equipment.

Korea is the world’s sixth largest exporter. But it still needs to import raw material since we are a country that is insufficient in natural resources. For that same reason, Korea ranks ninth in imports.



One of the promises that you have made is to set up a database. How will it help?

Many ambassadors visit our organization to introduce products and technologies developed from their country’s companies.

We tell them that where there is even the slightest business opportunity there is nothing that can stop us. What I mean is that we provide the proper business partners [through the database].

Major Korean companies find the necessary raw materials or components that they need directly. But there are limits to finding all of the components that they need.

For example, let’s say 10,000 parts are needed to manufacture an automobile. The conglomerates could get the main components locally. But because of the huge number of parts, they would have to seek out other parts elsewhere.

Our members travel around the world to find new materials and technologies that contribute to improving Korean companies’ final products.



What are this year’s major events organized by Koima?

As the only organization that represents importers, we are holding the Import Goods Fair in June at Coex, [southern Seoul]. The event is held for three days starting June 27.

We started this exhibition 17 years ago not only to introduce good quality overseas technologies and products to Korean businesses, but also to improve the relationship with other countries as it allows local businesses to meet with foreign diplomats.

This year, we are having 180 booths and next year we are expanding that number to 250. We are not only displaying the products of other countries but also including the countries’ cultures and tourism as a package.

When we think of trade, people tend to think of products. But it is more than that. Think of the first foreign missionaries that came here.

Trading introduces not only the goods from a country but it also exposes a country’s politics, culture and education.



More and more consumers are purchasing goods directly through overseas platforms including Amazon instead of through local importers.

There’s been a negative view of imported consumer goods in Korea, especially luxury items. But I believe imports of consumer goods have actually contributed in not only improving the quality of life here but also inspired and raised the competitiveness of local industries.

Of course there have been some bad importers that have made unfair profits [by selling imported goods far beyond the prices sold abroad]. But major luxury brands like Chanel have given inspiration to local designers after being imported to Korea.

Also in the case of fruit - while today we are growing our own mangoes, we were able to learn about such tropical fruits through imports.

We have to continue to strategically imports goods that we don’t have.

Some people just see imports of consumer goods as bad and consider exports patriotic. I don’t agree.

Is protecting our own agricultural industry contributing to improving the life of farmers or fishermen?

What we need is, instead of focusing on simply protecting the agriculture and fishery industry by barricading imports, we need to add value to these industries by incorporating technology like that from Denmark or the Netherlands. This does not only apply to industries like farming, but to other industries as well.

We cannot protect basic industries as we will not be able to compete with other developing countries like Vietnam that has a larger workforce.

Instead, what we could do is add value to the products that we make through education and buildup of our own unique know-how.

There is no solution to be found from competing labor forces.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]