Monday, August 07, 2006

US ROK FTA - Anti-import bias

Christmas 1971 Hotel fire, Seoul Korea
Originally uploaded by harmolodic.

One of the more difficult issues all US reports on Korean trade complain about is "anti-import bias". It is difficult to document, since most of it is anecdotal in nature (that foreign car owner who's paint job was "keyed"). Further it is difficult to do anything about it since a good part of it is consumer, not governmental, based. However to illustrate the problem in Korea, consider the following article:

High-Priced Starbucks Coffees Trigger Debate on Lavish Spending

Waking in the morning, she washes her hair with the shampoo used by top models in a TV commercial. Due to greater concern over her makeup application she skips breakfast. For diet reasons, she orders a black coffee without sugar at the Starbucks in front of her school. Looking out the window, she feels as if she has become a New Yorker...

This is part of an account of a usual day of a "toenjang-nyo,'' an Internet-born neologism for a female university student who wallows in luxurious products and thinks it is "trendy'' and "fashionable'' to have Starbucks coffee everyday...

"Toenjang'' is the soy bean paste that is one of the essential elements of Korean cuisine, and "nyo'' is the female suffix. However, the true origin of the term, it seems, comes from the similarly sounding exclamation "jyenjang'' which is roughly translated as "damn!,'' hence expressing derision over such women...

According to Internet debate communities, the term was created amid debate over Starbucks coffee in Korea that is relatively more expensive than other countries, hence pointing out that it is the vanity and consumerism of young women that contribute to the hike. Toenjang-nyo's daily spending at Starbucks exceeds that of some regular students' food expenditures in a week, they say.

What I cannot quite understand is how consumption of Starbucks coffee (a key point of the stereotype) seen as "expensive" and "luxurious". Many of Starbuck's competitors in Korea offer similarly priced beverages. Further anyone can walk into a local "traditional" Korean coffee/tea shop in the neighborhood any pay about 5,000 won for instant coffee (more than a large fresh brewed cup of starbucks).

Further if you look at the quote from the article, the charges make little sense. I usually buy a medium black coffee at Starbucks, it costs me about 3,500 won. You gotta be kidding me if that "exceeds that of some regular students' food expenditures in a week". Even if you take the more expensive large Starbucks concoctions you only get close to 1000 won a day for the student. You gotta be kidding me if a "regular" college kid eats less than 1000 won of food in a day.

Therefore price in my opinion is really a cop-out for something else. What is really being complained about here I think is not consumption of a product (coffee) but a foreign brand (Starbucks). While all coffee is imported to Korea, the country has a history bias against obviously foreign coffee. Note the picture above, this is of a hotel fire in Seoul in 1971. Note the sign below it which in Korea implores the local populace "Let's eradicate smuggled coffee and prevent the outflow of foreign currency!" (HT Antti). Further Korea currently taxes imports of prepared coffee (roasted beans and instant coffee) at a 8% tariff, while green beans (which will have to be processed in Korea) are taxed at 2%. This deals a blow to companies wanting to export a "foreign" coffee product directly. (USDA GAIN Report circa 2003, note PDF).

If you read the Korea Times article above in full you can see this is a pretty clear example of some "anti-import bias". What is clearly being attacked here is not the consumption of "luxury coffee" but the consumption of a US brand which has some animosity against it held by the Korean populace. Further the reporter/internet posters in the article intimates that consumption of foreign brands is a negitive personality trait (family resturants, imported cars, etc.).

The problem is this is a social barrier to trade, not a legal one. I am sure this is one US trade concern that will be met with a shrug from Korea's side.


At August 07, 2006 7:38 AM, Blogger Mod_Mephisto said...

I don't think it's anti-American sentiment or anti-foreign so much as it's a measure to discourage domestic consumption in general, unless the beneficiary is a Korean company. This might sound like calling the same thing, but encouraging domestic consumption is actually harder than supporting foreign brands. My wife and her parents are "old-school", but my wife epeatedly tells me that no self-respecting Korean wife should let her family eat out even one night a week. That's a waste of family income. New gen'rs have changed their opinions, but quality and availability is lacking. Starbuck's enters the market with huge advantages--well-deservedly. It can persuade cheapskates to forego the sacrifice. Korean companies are stuck with their well-deserved tattered reps. Discouraging finished consumption goods gives Korean companies a chance to compete and learn from the Starbuck's of their sectors. But, like movie quotas, when is it time to drop the tariff? I think it has a place, but not if it's permanent or badly implemented, which is probably the case. It will be hard to convince Korean nationalists to eschew mercantilism when they literally are amssing currency both for unification and to buttress the US budget deficit

At August 07, 2006 9:38 AM, Blogger Dram Man said...

MM> First thanks for your comment.

I did not mean to say this was "anti-american", but to say as I refer to and you point out "anti-import". The only reason to interject the US was to point it was an import and relate it back to the FTA.

As an aside, one could make a very strong case that Starbucks in Korea is far from a US show. The franchinsee is Shinsaegae and two of the major componets of a price of a cup is rent and labor (local expenses). However these are things most people do not know or talk about.

At August 07, 2006 2:38 PM, Anonymous Antti Leppänen said...

Cleaver of you to connect contemporary trade concerns with the old propaganda sign from the Park Chung-hee era of foreign currency earning when the development of the national wealth was measured by how much exports and GNP measured in US dollars.
Funny that in one sense much of this discussion around "lavish consumption", FTA, etc uses the models of thought provided by the national enrichment project of president Park...

And Dram Man, you're correct that in terms of value for price, the outrageous instant coffee prices in cafés are real lavish consumption (albeit not in Korean terms).

At August 07, 2006 2:57 PM, Blogger Dram Man said...

Antti> First thanks for your response and moreover your translation. It was a classic I knew I was going to use at some place and time. I was surprised that it fit in so neatly.

Actually I find Park’s manifestations are only the natural extension of Korea’s historic isolationalism. The roots of such are a lot deeper than 50 years or so I think. It is interesting to see cases, such as these, that show the manifestations of such isolationist and/or mercantilist attitudes. My recent Korea tourism article is another prime example. Overseas travel by Koreans is seen as “luxurious”, yet compared to some popular vacations in Korea they are actually very competitive.


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