Weekly Korea Economic Digest_Aug 2014

Weekly Korea Economic Digest

9 Aug – 15 Aug, 2014

Office of Commercial Affairs, Seoul

Korea’s beef self-sufficiency at 50.2%, increased after market opening

Economic report shows that last year`s domestic beef self-sufficiency increased a bit compared to 2001 when the beef market first opened. According to the Nonghyup Economic Research Institute’s report released on Sunday, Korea’s beef self-sufficiency rate was recorded at 50.2 percent last year, which a 7.4 percent increase from the year of 2001 (42.8 percent). The result is quite the opposite to concerns raised back in 2001 that the imported beef would take up the majority share of the domestic market.

This phenomenon can be credited to the fact that the domestic beef production base has been expanded and the domestic beef has been taking the upper hand over the import in terms of prices and production volume. Last year, domestic beef consumption reached 257,000 tons, increased by 56.3 percent from 164,382 tons in 2001. On the contrary, the imported beef consumption showed a mere increase of 16.1 percent from 219,672 tons in 2001 to 255,000 tons in 2013.

Korea to promote traditional food as key export items

Traditional processed food, including kimchi, samgyetang (chicken soup with ginseng), and hangwa (traditional Korean cookies) will be promoted as key export items. At the 6th trade-investment promotion meeting at the presidential office on Tuesday, the Agriculture, Food and Rural Affairs Ministry reported “current situation in the efforts to promote export of agro-fisheries products and plan to expand their export,” which includes these and other matters.

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The ministry will hold negotiations on China’s hygienic standard on kimchi with Beijing in September, and speedily conclude the process to export kimchi to the world’s most populous country. At the Korea-China summit held in July, the two countries agreed to revise China’s hygienic standards concerning import of kimchi.

Thus far, China has been banning customs clearance of Korean-made kimchi by applying the same hygienic standards as that applied to its traditional food paochai. Paochai is produced with using boiling water containing salt, Chinese pepper and red pepper, cooling it off, and adding vegetables before getting it fermented. Hence, strict hygienic standards can be applied to the food when it comes to bacterial content. Considering China’s kimchi market is worth 1.5 trillion won (1.46 billion U.S. dollars) per year, the Korean food and agriculture ministry plans to develop high value-added kimchi and differentiate this from low-cost locally produced kimchi in China.

The ministry also plans to expand export of traditional foodstuffs including hangwa, pastes such as red pepper paste, and makgeolli (rice wine). A source at the ministry said after the Chinese First Lady Peng Li Wian, the wife of Chinese President Xi Jinping, purchased hangwa at Dongdaemun shopping mall in Seoul during her visit to Korea the Korea-China summit in July, online shopping malls in China have seen hangwa sales increase.

Tax reassessment claim period to be extended from 3 years to 5 years

The eligibility period for demanding tax reimbursement for payment exceeding the legal requirements will be elongated from three years to five years.

The amount of taxpayers’ appeal for reassessment will be expanded, as the threshold will be lowered from three million won ($2,905) or more to one million won or more.

The revision to tax code for 2014 developed by the Ministry of Strategy and Finance contains a provision of extending the reassessment claim exercise period by two years, said the government Monday.

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“The right to claim reassessment is the most direct and effective tool to protect taxpayers’ rights,” said an official at the ministry. “We will prolong the period by two years in a bid to enhance the protection of taxpayers’ rights.”

The claim for reassessment is the taxpayers’ right to request a head of tax office in respective district to rectify tax payments or rebates when they deem they reported too much tax payments or they are given too little tax rebate.

The government intends to apply the modification from January 1 of next year.

The government’s decision for extension largely stemmed from the claim that the current reassessment claim period weakens fairness as it is short in comparison to the taxation officials’ authority to collect tax.

S. Korea economic outlook darkens on bleak US economic prospects

Concerns are mounting over the Korean economy, as it heavily relies on the US economy that is feared to be in doldrums for a prolonged period of time. These concerns are backed by the idea that the sputtering US economy could throw cold water on the nation’s exports, which have so far buttressed the economy, at a time when private consumption has sharply shrunk in the aftermath of the Sewol ferry disaster in April.

Hyundai Research Institute presented an analysis that showed that a one percentage point adjustment in US economic growth forecast may affect the Korean economic growth by 0.4 percentage points. The US economic recovery impacts the Korean economy in diverse ways, including direct exports to the US, indirect exports of intermediary goods to the US and global economic recovery.

In the economic forecast released last month, the Bank of Korea (BOK) expected the economy to grow 3.8 percent this year. Even in the face of protracted weakness in private consumption, the BOK projected the high-three percent range growth on the assumption that the global economy, driven largely by advanced markets, pick up.

However, slow US economic recovery coupled with China’s slowing economy, will inevitably deal a blow to the Korean economy. Yim Hui-jung, a senior researcher at

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Hyundai Research Institute, noted, “exports’ contribution to growth is dwindling and the global economy is still limping along, standing in the way of the nation’s economy.”

S. Korea-Japan ties turning sour in economy

South Korea and Japan have been becoming distant even in the economic front. The chill in Korea-Japan political relations triggered by historical issues is spilling into economic relations. Bilateral trade is increasingly shrinking while anti-sentiment against goods from each other is worsening. As the two, whose economies are closely interconnected in terms of regions and industries, are witnessing declining economic exchanges, concerns are mounting that this could wreak a havoc on the nation’s economy.

Bilateral trade, which combined exports and imports, stood at $42.9 billion in the first half this year, down 9.8 percent from the same period a year ago, according to the Ministry of Trade, Industry and Energy and Korea International Trade Association Wednesday. The figure is the lowest unseen since $31.9 billion of 2009, representing only 45 percent of last year’s $94.6 billion. As a result, bilateral trade will likely retreat for three consecutive years since 2011.

The nation’s exports to Japan slid 5.4 percent, imports as much as 12.2 percent. Exports declined largely because Japan’s Abenomics propelled the yen’s slide, making the Korean exporters less competitive. The decline in imports partly came as Korea’s manufacturing industry, which heavily relied on Japan for components, are opting for localization.

Aside from economic reasons, sour political relations fanned anti-sentiment against products from each other, contributing to distant economic ties as well.

Chinese tourists’ economic contributions to S. Korea up

$4bn

Chinese tourists generated over 13 trillion won ($12.7 billion) worth of economic benefits for South Korea. Economic contributions made by Chinese tourist grew four trillion won in a year from nine trillion won in 2012. Per capital spending of Chinese tourist exceeded an average of $2,200. However, the service industry

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that caters the needs of the Chinese visitors still has a long way to go, the report noted.

According to the Korea Institute for Industrial Economics & Trade report ‘rising number of Chinese tourists and its impact on Korean industry’ released Friday, Chinese tourists made contributions worth 13.3 trillion won for the nation’s industry.

The figure accounts for 49.1 percent of economic benefits generated by a total number of foreign tourists. Economic contributions made by Chinese tourists grew around four trillion won last year after surpassing nine trillion won in 2012.

When asked intention to purchase beauty products including cosmetics, 61.8 percent of those who travelled to Korea gave positive answers. However, 45.9 percent offered negative response over the intention to experience beauty service again.

In addition, Chinese tourists who visited Korea showed less revisit intention than those who plan to travel to Korea. For example, of Chinese tourists who plan to visit Korea, 34.7 percent expressed willingness to purchase dental service. However, the figure for Chinese travelers who visited Korea before stood at only 20.3 percent.

The number of Chinese tourists to Korea is sharply rising every year. The figure recorded 106,800 in 2007, representing 16.6 percent of the total overseas tourists. However, it soared to 432,600 last year, taking up 35.5 percent of the total.

Korea considers importing Ebola drug from Japan

The government said Sunday it is considering importing a drug, which is believed to be a candidate for treating Ebola hemorrhagic fever, from Japan.

No Ebola cases have been reported in Korea; although over 1,700 cases have been confirmed in West Africa.

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"In order to prepare for a potential outbreak of Ebola in the country, we are mulling importing a drug from Fujifilm Holdings, which is likely to get the quickest approval from the U.S. Food and Drug Administration," said the Ministry of Food and Drug Safety in a statement.

The ministry said it may allow the Japanese company to officially sell the medication in Korea. The ministry may also give the nod to a limited supply of the medicine in emergency cases, it added.

The antivirus treatment, which is currently undergoing clinical trials, was first developed as an influenza cure.

A recent test involving laboratory mice showed that the drug was effective in curing Ebola.

A test result for infected monkeys is set to be released next month. The United States has said that it will proceed to authorize the treatment once animal tests are complete.

The ministry said it will continue to monitor the epidemic and the authorization of the Fujifilm treatment in the U.S. as well as European countries.

Korea has been stepping up measures against Ebola hemorrhagic fever by monitoring and tracking people who are returning from trips to West Africa and other affected areas.

As part of those efforts, the government also plans to hold mock training sessions in quarantine offices nationwide to prepare for the potential entry or transit of people suspected of having contracted the virus.

Businesses anticipate boost from ’s visit

With arriving in Korea today, businesses are looking forward to the so- called pope effect on the domestic economy, as more than 100,000 people from around the world including tourists, Catholics and foreign press will gather to see him.

Whatever cars and telecommunication devices the pope will use and the food he will eat will likely draw attention worldwide, and local companies are preparing to piggyback on the promotional effects.

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Last year, the pope’s election brought as much as 55 million ($73.4 million) to the economy of , where more than one million people flocked to catch a glimpse of the new pontiff, according to foreign media at the time.

Around Vatican City in Rome, restaurants and hotels were packed, which prompted an increase of about 10 percent in hotel hiring when the country’s unemployment rate was at its highest in 20 years.

“If the products that the pope uses and the places he visits lead to a boost in consumer sentiment, the recession-hit domestic economy could be revived,” said a researcher at an economic research institute.

About 95 percent of rooms at hotels around Gwanghwamun, central Seoul, where the beatification Mass will be held, were reserved in advance for Pope Francis’s five-day visit.

“Rooms with a view of Gwanghwamun Square were already fully booked for early August,” said a spokesman for the Plaza Hotel in Gwanghwamun.

Other nearby hotels such as the Westin Chosun Hotel and Lotte Hotel, which will be the press center for the pope’s visit, have few rooms available.

And stamps and that were released earlier this month to commemorate the pope’s visit are selling like hotcakes. According to the Korea Post, more than 740,000 stamps out of the 1.3 million that were printed have been sold as of early August.

In just two days of advanced sales, 25,000 commemorative coins issued by the financial authorities were sold.

Kia Motors’ compact crossover utility vehicle Soul, which the pope will ride in during his visit, will likely see benefits from the promotion. The Soul is classified as a small or semi- medium car and has a 1,600cc engine.

Although Kia declined to comment on how it will cash in on the pope’s visit or if it has plans for promotions regarding the pope, industry observers expect that the vehicle’s use as the will have a worldwide marketing impact.

Samsung Group chose “leadership of the pope” as the theme of its weekly CEO meeting held yesterday for the first time in two weeks since the executives took a two-week summer vacation. According to Samsung, Cha Dong-yeop, a Catholic priest and professor at the Catholic University of Incheon, gave a lecture to the CEOs.

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Retail companies are also taking advantage of Pope Francis’s trip. Lotte Liquor began selling a special package of Majuang, which is the official altar wine of Korean Catholics and was also used as the official altar wine when Pope John Paul II visited Korea in 1984.

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