The Marmot's Hole

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Category: Korean Economy (page 2 of 28)

The Philippines officially orders 12 F/A-50s

The Filipino air force is a joke.  The last jet fighters they had were the old F-5 Freedom Fighters that they retired in 2005.  Even their Defense Secretary teased, “Our Air Force… [is]… all air without force.”

China lays claim to much of the South China Sea (particularly the Spratly Islands) and have routinely violated the Philippines’ territorial claims with both military aircraft and ships.  As of now, the Filipinos have nothing to send in response, other than unintimidating prop planes, patrol boats and antiquated destroyers.  Although the Filipinos do not officially acknowledge they are seeking weapons to counter Chinese incursions, they are essentially trying to obtain specific weapons to counter Chinese incursions.

Yesterday, the Philippines and Korea signed a contract to provide 12 F/A-50 light fighter-bombers, within 38 months, for about $420 million.  As both a war capable plane and a trainer is it the be all and end all for what the Philippines needs to counter China?  No.  But, the Philippines is not a rich country and cannot afford to buy and maintain more capable planes such as Saab’s Gripen, the F-16C (Block 40 or better), the Sukhoi Su-27, etc.  Plus, they are nine years out of practice in flying jet fighters and probably couldn’t use top-of-the line planes to their fullest capabilities because they have no training infrastructure.  The Filipinos themselves acknowledge that the F/A-50 was the best they can do for now.

Manila buys fighter jets worth $520m

(Photo credit: Oman Daily Observer)

Predictably, the Chinese were not happy with this news.  Rumor has it (from the Chosun Ilbo via the Yomiuri Shimbun) that a “Chinese official” made a request to the Park administration to not sell the jets, which Korea reportedly ignored.

So, what could the Chinese hypothetically send against Filipino F/A-50s?  It would have to have long range, so probably Sukhoi Su-27s or Sukhoi Su-30MKK.  Head to head does an F/A-50 have a snowball’s chance in hell against an Su-30MMK?  Most likely not.  An Su-30 is faster, more powerful, has advanced beyond visual range (“BVR”) missiles and sensor driven helmet mounted displays that control “off-boresight” weapons.  However, the F/A-50 has something that may save it: Link-16.  The Philippines are buying long range ground based radars that they will station near the Spratlys.  If linked with the F/A-50s then they can see Chinese planes before Chinese planes can see them, thus giving the F/A-50s a fighting chance, particularly if they are armed with their own BVR missiles.

Lastly, as I had mentioned before, the procurement pattern for the T-50 family of jets appears to belie the fact that it was originally designed as a trainer.  The customers (namely Iraq and the Philippines) want this supposed “trainer” to fight.  As a cheap jet fighter in a “stop gap” role it may not be all that bad.  Smaller and poorer nations don’t have a lot of choices.  Back in the Cold War the Soviets and the Americans sold their poorer client states cheap and easy to maintain Mig-21 Fishbeds and F-5 Freedom Fighters.  America and Russia don’t offer these planes (or modern facsimiles) anymore so there is a market need.  At the end of the day the T-50 family might be a better 21st century F-5 than a 21st century version of a T-38.

Next up?  KAI is pitching the T-50 family to the UAE, PeruBotswana, Thailand, not to mention the U.S. T-X program (in conjunction with Lockheed).

Quest for the T-X Holy Grail

The original rational for Korea Aerospace and Lockheed’s cooperation in developing the T-50 was to build a trainer that could qualify for the “whale” or “mother lode” account: America’s replacement for the venerable, but older than dirt, T-38 Talon.

KAI and Lockheed’s chief rival has always been Alenia Aermacchi’s M-346 Master.  In the global pre-battles between KAI and Alenia Aermacchi there have been wins and losses.  Alenia drew first blood with a win in Singapore.  Then KAI won an order from Indonesia.  Alenia won Israel.  KAI got a big order from Iraq.  Alenia won a modest order from Poland.  KAI is apparently dotting the i’s and crossing the t’s with the Philippines.  It’s been back and forth for the past four years.

However, all this is early dress rehearsal for the estimated 350 new jet trainers that the U.S. Air Force will need.  This is, to say the least, a huge account, that neither side can afford to lose, thus both are playing to win.  Alenia has partnered with General Dynamics, one of the largest U.S. based aerospace companies, and has offered to manufacture the M-346 at General Dynamics’ plants in Arizona and North Carolina.  Needless to say the Koreans and Lockheed are probably dreaming up the same manufacturing arrangement in order to buyrecruit the support of influential Congressman.

Today’s Flightglobal has an excellent summary analysis (with a lot of pretty pictures) of the upcoming battle:

Richard Aboulafia, vice-president of analysis at Teal Group, calls the KAI/Lockheed T-50 Golden Eagle the “most capable” option – but also probably the most expensive to buy and operate. Lockheed declines to discuss prices, but Aboulafia estimates the T-50’s flyaway cost will be $26 million per aircraft.

[...]

The T-50, which has been in service since the mid-2000s, can reach Mach 1.5 and pull 8g, Lockheed says. The type’s single General Electric F404 engine also has an afterburner. “If the [USAF] has the budget, and they want [pilots] to [transition] easily into an F-22 or F-35, the T-50 is the choice,” says Aboulafia.

The BAE/Northrop Hawk option is the cheapest at an estimated $21 million per, but they are clearly the dark horse in this fight.  The Alenia Aermacchi option is in the middle at an estimated $24 million per.

Aboulafia says Alenia Aermacchi’s T-100 – a derivative of its M-346 trainer – holds the middle ground. The aircraft are “very modern”, have “great flying characteristics” and will likely cost about $24 million each, he estimates. The M-346 (below) is powered by two Honeywell F124-200 turbofans, can pull 8g and reach 590kt at 5,000ft (1,520m), according to Alenia Aermacchi.

[...]

“It’s a good compromise,” says Aboulafia of the T-100. “The market has spoken to that. Israel and Singapore [are] two of the most prestigious militaries around.”

Here is a blog with an interesting (but technical) specification comparison between the two jets.

It will be an interesting, hard fought battle between the two.  I am not normally a betting man, but looking at the selection process I would say that the M-346 Master has the edge if a pure trainer is what you are looking for.  Key U.S. allies with similar air power doctrines have the M-346 or have it on order (Singapore, Poland and Israel).  Out of all the KAI wins, only Indonesia has selected the T-50 as a pure trainer.  The procurement history would favor the M-346 and imply that the T-50 a bit of an underdog.  However, as it often happens, the USAF may want the “Cadillac” option and if so, then that would give the T-50 the edge.

USAF%20T-50.jpg

(Photo credit: Flightglobal)

FATCA Has Arrived and What It Means For Americans in South Korea

Koreans have protested the American FTA as being a means by which American law could be used to subvert Korean interests. Likewise, America has managed to insert themselves into other countries practices through treaty. One current bit of American legislation that has finally come about is the 2010 Foreign Account Tax Compliance Act (FATCA), which affects all Americans living overseas that keep a bank account in a foreign country.

South Korea has finally negotiated an reciprocal FATCA agreement with the US (that goes into effect this September) so that Korea can snoop on the Koreans that may have evaded paying Korean taxes by keeping their money in America. Likewise, the National Tax Services (NTS) will provide information about Americans, in Korea, with account balances of $10,000 or more to the U.S. Internal Revenue Service, beginning in September. This has happened because, the American Government thinks that there are so many Americans evading taxes overseas, thus robbing the country of money (they so desperately need to waste). The result is FATCA. The real fact is this treaty will not stop tax evasion and will likely cost the government more to implement it than is taken in by it:

. . . In the past, the OECD has used pressure and coercion to compel low-tax jurisdictions to agree to rules against their own economic interests. It is unclear how well such tactics will work in this instance, however, as the new rules impose a much more significant cost by signifying an end to the idea that nations can attract investment by offering more competitive tax systems than those of the high-tax welfare states. (cite).

So not only does America waste my tax money but South Korea will put the extra cost of reporting expatriates, through NTS, upon the already burdened banks (additional cite) or will they waste the tax I pay them here just to make American’s lives more complicated!?

Living overseas is already a burden for the American expatriate:

. . . No group is more severely impacted than U.S. persons living abroad. For those living and working in foreign countries, it is almost a given that they must report and pay tax where they live. But they must also continue to file taxes in the U.S. What’s more, U.S. reporting is based on their worldwide income, even though they are paying taxes in the country where they live. (cite)

Reading through the wiki article for FATCA lists the deficits of this treaty as:

  • Cost. Although numbers are still somewhat speculative, estimates of the additional revenue raised seem to be heavily outweighed by the cost of implementing the legislation. The Association of Certified Financial Crime Specialists (ACFCS) claims FATCA is expected to raise revenues of approximately US$800 million per year for the US Treasury; however, the costs of implementation are more difficult to estimate, and estimates between hundreds of millions and over US$10 billion have been published. ACFCS also claims it is extremely likely that the cost of implementing FATCA (which will be borne by the foreign financial institutions) will far outweigh the revenues raised by the US Treasury, even excluding the additional costs to the US Internal Revenue Service for the staffing and resources needed to process the data produced. Unusually, FATCA was not subject to a cost/benefit analysis by the United States House Committee on Ways and Means.
  • Capital flight. The primary mechanism for enforcing the compliance of foreign financial institutions is a punitive withholding levy on US assets. This may create a strong incentive for foreign financial institutions to divest (or not invest) in US assets, resulting in capital flight.
  • Foreign relations. Forcing foreign financial institutions and foreign governments to collect data on U.S. citizens at their own expense and transmit it to the IRS has been called divisive. Canada’s Finance Minister Jim Flaherty has raised an issue with this “far reaching and extraterritorial implications” which would require Canadian banks to become extensions of the IRS and would jeopardize Canadians’ privacy rights. (also this article from Canada) There are also reports of many foreign banks refusing to open accounts for Americans, making it harder for Americans to live and work abroad.
  • Extraterritoriality. The legislation enables U.S. authorities to impose regulatory costs, and potentially penalties, on foreign financial institutions who otherwise have few if any dealings with the United States. The U.S. has sought to ameliorate that criticism by offering reciprocity to potential countries who sign Intergovernmental Agreements, but the idea of the US Government providing information on its citizens to foreign governments has also proved controversial. The law’s interference in the relationship between individual Americans or dual nationals and non-American banks led Georges Ugeux to term it “bullying and selfish.”
  • Citizenship renunciations. Time magazine has reported a sevenfold increase in Americans renouncing U.S. citizenship between 2008 and 2011, and has attributed this at least in part to FATCA. According to the The New American a record number of Americans have given up U.S. citizenship in 2012 “amid IRS Abuse” and “facing an increasingly out-of-control federal government in Washington, D.C” . According to the BBC, the act is one of the reasons for a surge of Americans renouncing their citizenship – a rise from 189 people in the second quarter of 2012 to 1,131 people in Q2/2013. Another surge in renunciations in 2013 to record levels has been reported in the news media, with FATCA cited as a factor in the decision of many of the renunciants.  Forbes Magazine writes that the renunciation of citizenship by Americans is up by 221%, as of this time (cite).
  • American citizens living abroad. According to the Canadian Broadcasting Corporation many Americans living abroad may face large fines as a result of this legislation. According to the story a forty-years old developmentally disabled man, and a Canadian man married to an American will become some of the victims of this law. According to Time (magazine) American citizens living abroad are unable to open foreign bank accounts.
  • IRS not ready. According to the NYTimes it is unclear whether the IRS is ready to handle millions of new complicated filings per year.  According to one former IRS Deputy Commissioner, this summer is going to be one large FATCA “train-wreck” (cite).
  • Effect on “accidental Americans”. The reporting requirements, including penalties, apply to all U.S. citizens, including those who are unaware that they have U.S. citizenship. Since the U.S. considers “all persons born in the U.S., and most foreign-born persons with American parents, to be citizens, FATCA affects a large number of foreign residents who are unaware that the U.S. considers them citizens.
  • Complexity. Doubts have been expressed as to workability of FATCA due to its complexity, and the legislative timetable for implementation has already been pushed back twice.

So, is FATCA good, bad or not a factor for Americans living in South Korea?

Bad – If you are living here and earning income, you will spend more time and money complying with this extra tax hassle just to prove you don’t owe anything to the government or have complied with current tax law. For foreign non-Americans, in America, this is possibly also bad news since under U.S. diplomatic agreements to enact FATCA, U.S. financial firms must share information on foreign-born U.S. residents with foreign governments (cite).
IMHO, this is bad legislation that is directly from the nightmares of so many Americans that fear ever increasing government encroachment into their private affairs if not pocketbooks. I place this sort of government handiwork into the same category as the Department of Justice arranging to arrest foreigners on a layover through the US because they run a foreign online casino that Americans might spend money on – forget the law or the rights of individual, this is all about a bungled, misinformed, congressionally-lead, grabbing of money and not about fighting tax evasion.

More useful links for Americans on FATCA and for information to fight this legislation:

http://americansabroad.org/issues/fatca/

pursuance-of-money
photo credit: Celestine Chua via photopin cc

Hello, America. Is your cheese more expensive?

Well, it would appear so.  A pound of American cheese on the open market is $2.22 (as of March 6th, 2014) vs. $1.56 a year ago.  And it’s getting more expensive.  As a matter of fact, some investors worry that the age of cheap pizza may end because of the rapid rise in cheese prices.  What?  You mean the end of $9.99 extra large pepperoni pizza, with free garlic bread, and a second medium sized pizza for two bucks more?  Dammit!  There goes my football party.  Who do I go and blame?

According to the news blog Quartz, it’s the Koreans.  They love their cheese and they are buying more than ever due to the KORUS FTA.  The Koreans seem to be drizzling cheese on everything from corn to ramen, to their crime againstversion” of  “pizza,” or eating it straight as a snack.

Times are good for American dairy farmers. They are selling milk at the highest prices on record, up 17% in January on the previous year.
That’s surprising, because US consumers aren’t demanding more milk…

[...]

South Korea blew past Japan and Canada in 2008 to become the number two market for US cheese.

Here’s some data:

Top-importers-of-US-cheese-as-a-percentage-of-total-cheese-exports-2003-2013_chartbuilder

Holy, gorgonzola! That’s a lot of cheddar.

The other side of the cosmetics and plastic surgery discussion

When it comes to the topic of plastic surgery, many people take a “good or bad” value position.  The unofficial consensus is if a lot of it is done to a normal face then it’s “bad,” but if it’s done to restore looks lost due to an accident, then it is generally thought of as “good.”

When it comes to South Korea, much of the press is negative and borders on reporting mostly on the strange and/or weird such as the so-called “tower of jaw bones,” the proliferation of plastic surgery ads in Gangnam-gu, startling before and after shots, or the fact that South Korea undergoes the highest number of plastic surgery procedures per capita in the world.

Korean culture, particularly modern urban culture, puts an extraordinary amount of emphasis on outward appearance.  Clearly, sociological pressures play a decisive role.  Interestingly enough, there is pressure on the supply-side too.  Korean doctors essentially have their incomes capped by price controls mandated by the National Health Insurance plan, so there is pressure to turn to plastic surgery to escape limits on their pay.  All this has created a massive aesthetics-based business of cosmetics companies, skin care clinics and plastic surgeons.

All points well taken from a position that’s attracted a lot of attention, debate and discussion.  IMHO, criticism of Korean sociological pressures and aesthetics culture is not without merit.

However, is it all bad?  If we are to take perhaps subjective values out of the equation and just look at economic impact, then is this all “bad,” per se?  From an economic and business perspective, Korea’s highly demanding aesthetics culture is creating an expertise, technology and infrastructure base that’s become the core of a highly developed cosmetics and plastic surgery industry.  It’s an industry that’s so developed it is attracting considerable overseas demand, particularly in medical tourism and cosmetics.  The big prize is China’s aesthetics market, for which Korea may be uniquely positioned to capture a greater share of than more established players in Japan (i.e. Shinseido), France (i.e. L’Oreal) and the U.S. (i.e. Procter & Gamble).  From a plastic surgery standpoint, Chinese patients now make up the largest percentage of medical tourists visiting Korea.

Tremendous domestic demand and emphasis on quality is creating a “virtuous cycle” of sorts, that’s in turn supporting an industry that’s becoming increasingly more attractive to a lot of non-Koreans.  The demand translates into sales and profits, which creates additional capital to be available to fund more product and service improvements and to keep comparative costs down due to efficient capacity utilization and expansion of economies of scale.  This creates even more non-domestic demand, further expanding and accelerating the cycle and thus giving Korea, Inc. yet another industry to hang its hat on.

Korea a great place to get fertility treatment… as long as you’re officially married

A piece in the, again, the Chosun Ilbo notes a rather odd quirk that’s hurting the medical tourism industry.

Namely, a number of foreign couples who come to Korea for artificial insemination procedures are being denied the procedure because they aren’t officially married.

Korea’s biological ethnics law apparently requires couples to submit a marriage certificate or a similar certification before they can undergo an artificial insemination procedure. This particularly sucks for potential patients from Russia and elsewhere in the former Eastern Bloc, where—due to decades of rule by godless commies—only about 60% of couples living together are officially married.

Some 90% of foreign patients who come to Korea for fertility treatments come from Russia and elsewhere in the former Soviet Union. Over the last three years, the number of Russians who’ve come to Korea for fertility treatments has quintupled.

Anyway, some now ask if perhaps some flexibility might be required in the case of foreign patients.

Chinese tourists feel disrespected in Korea: Ye Olde Chosun

Despite being the biggest customers in the Korean tourism market—both in terms of numbers and money spent—many Chinese tourists come away with bad feelings.

Or so reports the Chosun Ilbo, citing a poll it took of 100 Chinese tourists in Myeong-dong, Dongdaemun and Gangnam taken last year.

A full 25% of respondents said their image of Korea worsened after actually visiting the country. In particular, 37% responded that they were the target of real or perceived contempt from Koreans. Only 10% said they’d felt such contempt when traveling in other countries, which would suggest—says the Chosun—that globe-trotting Chinese tourists get such a strongly negative impression only in Korea.

Chinese not only accounted for a full third of all the foreigners who entered Korea last year, but they also spend the most money here. In 2012, the average Chinese tourist spent USD 2,153.7 in Korea, 140% the foreign tourist average of USD 1,529.5. They also spent USD 378 per day; likewise, this was the highest among foreign tourists. Chinese tourists are also responsible for a considerable amount of added value—perhaps as much as KRW 7 trillion’s worth.

Of the disrespected Chinese tourists, 12 said they were verbally disrespected, 11 pointed to facial expressions, and eight cited body language.

One 20-something Chinese tourist the Chosun met in Myeong-dong recently was pissed off about an incident that took place in a subway. On the second day of her visit, she was talking in Chinese with her friend on the subway when an ajumma tapped her with her foot and motioned for her to go into another carriage. She could feel the contempt in her eyes, she said. At Dongdaemun Market, the only time she felt welcomed was when she handed over money.

When Chinese tourists head off the major tourist track, things get even worse. Volunteer Chinese interpreters say the places about which they get the most complaints are the well-known beauty salons in places like Sinchon and Apgujeong (Marmot’s Note: Well-known hair stylists? Being dicks? To tourists? Noooooooooooooooo!). One volunteer said he took a 20-something Chinese woman to a hair stylist in front of Ewha, but when they got there the owner’s faced turned sour. The volunteer said the open display of dislike was embarrassing.

Despite this, Korean officials are still saying there’s nothing to worry about. A government survey on inbound tourism taken this year showed the Chinese tourists were highly satisfied with their travel experience, scoring 4.14 points out of 5. This was the same level of satisfaction as the total average. Experts say this is an illusion, however. The government polls are often given of tourist groups at select shopping malls, hotels and restaurants—places where tourists are unlikely to meet the “real Korea,” so to speak.

China experts warn the impact of this goes beyond money—it could affect the entire Sino-Korean relationship. One foundation director head said the Sino-Korean relationship was an important matter on which Korea’s future depended, and lessening the gap in culture and values was the basis of diplomacy, both at the private and government levels. He added that this social value was a national asset much more important than money.

Marmot’s Note: Being from New York, I just naturally assume tourists are treated like jerks and am pleasantly surprised when they aren’t.

Speaking of which, somebody posted this on Facebook yesterday. I thought it was hella funny:

Anyway, Korean readers, on your way home today, please hug a Chinese tourist. They apparently need one.

Korean firms sue striking workers in Cambodia/N. Korean-built museum in Siem Reap

Korean garment companies in Cambodia are suing the head of Cambodia’s opposition party and a union for USD 10 million in losses from a strike and subsequent protests. And the Kyunghyang Shinmun doesn’t like it one bit.

Technically, the lawsuit is being raised by the Garment Manufacturers Association in Cambodia (GMAC), but the Kyunghyang notes it is Korean companies that have been driving the lawsuit (with Chinese and Taiwanese companies tagging along for the ride—how’s that for cross-strait cooperation!). Unionists have been striking to see their minimum wage immediately doubled to USD 160 a month, and things have been getting ugly, with police killing five protesters and Cambodian special forces being called in to protect a Korean-owned factory.

The Kyunghyang blames Korean garment factories for doing in Cambodia what companies do in Korea—trying to crush labor with big lawsuits. The Kyunghyang is right that this is often used as a way to negate workers’ right to strike, and the ILO has been asking Korea to do something about this for years. I am sympathetic to arguments that sit-down strikes and factory occupations are essentially the illegal seizure of private property, but I suppose that’s neither here nor there.

Anyway, according to the Kyunghyang, the protests grew worse—and led to bloody repression—because the GMAC, including Korean companies, refused to negotiate on the wage increase and threatened to move their factories elsewhere. The Kyunghyang worries that the inhumane behavior of some Korean companies overseas might not only harm Korea’s national image, but also bring about something even worse. It also calls on the government to demand that Korean companies in Cambodia respect international standards and universal human rights (Marmot’s note: to be fair to the Korean companies, seeing how they’ve been joined by the Chinese and Taiwanese, it seems they are behaving to international standards, at least as far as respect for labor rights is concerned).

BTW, if you think this has nothing to do with you readers in the States, guess where a lot of this clothing is going:

Nam-Shik Kang, managing director of Phnom Penh-based Injae Garment Co, which employs 3,500, said that despite the new plan, he stood to lose out on profits.

“Our factory currently has a full capacity of orders to fill by February, most of it being material equating to about three million garment pieces. We will send to partners in either Indonesia or Vietnam . . . This is a huge quantity and a very big disaster for us and for others,” said Kang, whose South Korean factory supplies Wal-Mart and JC Penny.

“Even if we ship part of our shipment, about one million pieces, we will incur shipping costs of about $200,000 or even $300,000. And it will not even solve the problem.”

Meanwhile, it appears North Korea’s Mansudae art studio sunk about USD 10 million into building the Grand Panorama Museum near Angkor Wat. North Korea is hoping it might yield profits when it’s done, and at any rate, Pyongyang has something of a special relationship with Cambodia:

At first, it’s hard to imagine why any country would commission an isolated, autocratic government to build a museum of culture in a tourism hotspot. But for Cambodia, whose head of state once called North Korea’s iron-fisted founder “brother”, the news is not so surprising. The mercurial former King Norodom Sihanouk, who in the 1970s was a figurehead for the murderous Khmer Rouge regime, forged a close friendship with Kim Jong-Il’s father, Kim Il-sung, who ushered in a similarly brutal communist regime. Between 1979 and 2006, Sihanouk made numerous retreats to Pyongyang, where he relaxed in a 60-room royal palace and shot amateur films.

The “special relationship”, as it was referred to in a US diplomat Wikileaks cable from 2006, has since faded, following the deaths of both Kim Il-sung, in 1994, and Sihanouk, in 2012. The Cambodian government’s attention has turned to South Korea, the country’s second biggest investor. Nonetheless, Cambodia still holds the dubious accolade of hosting the world’s second highest concentration of North Korean overseas operations, after China.

The country is already home to three outlets of the government-run Pyongyang restaurant chain, and a fourth is on the way. The North Korean women who staff them and perform nightly dance shows are believed to be kept inside, under surveillance, and subjected to gruelling rehearsal schedules. The Kathmandu branch, closed in 2011, was found to be a North Korean spy base. Both the restaurants and Mansudae art studio are believed to be at least partly managed by Kim Jong-Il’s younger sister, Kim Kyong-hui, wife of Jang Song-thaek, who was publicly purged and then executed in December.

Tears For Fears: South Korean Tear Gas in Bahrain?

teargas_BahrainAs of this year, Bahrain interior ministry personnel have ordered 1.6 million teargas canisters to use against protesting Baharainians, who have been in the middle of an extended protest, if not revolution (see Bahraini uprising).  Oddly enough, Baharin turned to South Africa and South Korea for their supply of tear gas, which has been used not just to stop protesters but to cause harm as well.  So far 39 people have died due to misuse of teargas in the protests:

. . . Based on field evidence the organisation collected between 2011 and 2013, the top teargas exporters to Bahrain are DaeKwang Chemical Corporation and CNO Tech. Both companies have shipped “over 1.5 million pieces of tear gas to Bahrain between 2011 and 2012,” which exceeds “the entire population of Bahrain, which is 1.2 million, of which 600,000 are citizens,” according to the group’s website. Financial Times cited a senior executive at DaeKwang as acknowledging the export of around one million units of tear gas to Bahrain between 2011 and 2012. (cite)

6.10__002This is odd considering the history of tear gas to suppress popular dissent in South Korea throughout the latter part of the Twentieth Century in South Korea (at right, Yonsei U., 1986, 6.10 민주항쟁), however, the money side of this situation is not bad for South Korea since “the monetary value of the planned shipment is unclear, however based on an estimate of $10 to $20 per canister, the total price could be between $16 and $32 million.”

Though the KFTU (Korean Federation of Trade Unions) does not enjoy my sympathy or respect, they seem to be enjoying a case of ethics regarding this issue:

. . .The Korean Federation of Trade Unions threw its support behind the Stop the Shipment campaign, sending a letter to the Korean Government asking them to halt all tear gas exports to Bahrain, meanwhile, in London, the UK-based NGO Campaign Against Arms Trade (CAAT) has called for a protest outside the Korean Embassy on Friday. (cite)

Korean companies face anti-discrimination lawsuits in United States

Korea’s major corporations may be experiencing some, ahem, growing pains in the United States.

Two women in the United States have filed a lawsuit in a US federal court in Georgia against three companies, including a major Korean company identified only as Company A, and two executives for allegedly firing them after they got pregnant.

The women, who were sent to the big Korean company’s local factory by subcontractor, claim Company A’s Korean manager said pregnant women are a headache to the company and ordered the subcontractor to terminate their contracts. One of the women also said the Korean manager yelled at her that she was incapable of doing her work because of her pregnancy and told her that if she didn’t leave he’d call the guards.

She claims the day after the fight, she was sent to an empty warehouse with no air conditioning or drinking water and with a broken bathroom. The subcontractor said they’d back her up, but instead they fired her after she gave birth.

The two women reportedly brought the matter before the EEOC last year, but earlier this year withdrew that and filed a lawsuit.

Company A, meanwhile, said the lawsuit is nonsense. In an phone call with Yonhap, the head of the company’s US subsidiary said this was a matter with the subcontractor and had nothing to do with them. The stuff about the manager was also one-sided and untrue.

Interestingly enough, the manager in question left the company last year and was excluded as a defendant.

An industry official thinks Company A was included in the suit to increase the potential pot.

This case comes on the heals of another case in Georgia in which Hyundai Heavy Industry’s US subsidiary got sued by a former executive for racial discrimination.

The executive, who is white, claimed he and some other executives were sacked by the subsidiary president, a Korean-American, because they were a) old and b) weren’t Korean. Some 13 executives had their contracts terminated in 2009; of these, 11 were non-Koreans. They were allegedly replaced entirely by young Koreans.

The plaintiff also claimed he felt ostracized by the Koreans, who ate and played golf only among themselves.

The plaintiff lost the case, but as editorial writer Sunny Yang writes in the JoongAng Ilbo:

The head of the subsidiary made racial jokes, and Korean employees had a cliquish culture that excluded locally hired employees. If the suit were filed by a non-white American, would the company have been able to avoid the charge? Hyundai may have benefitted from the preconception held by many in America that Caucasians are traditionally the inflictors of racial discrimination.

I found the possibility that the guy may have been screwed by the racial politics of not just one, but two countries darkly amusing.

Anyway, you can read more about the case (in English) here.

Now, it should be noted here that an all-white jury found in favor of Hyundai. Hyundai argued that for business reasons it preferred employees fluent in Korean and Spanish. It also argued that due to the nature of the company, it would be difficult to conduct international business in English only. One of the lawyers who handled the case told the US edition of the JoongAng Ilbo that the jurors agreed that it wasn’t unusual that, for instance, German would be used in a German company or French in a French company. Or as the Oranckay tweeted:

The Hanguk Ilbo put it thus—the jury recognized that if we consider that Korean was a major language of communication within the company, preference for a certain race was largely unavoidable. Feel free to debate “racism as motivation vs. racism as outcomes” among yourselves.

Nevertheless, some are calling for Korean companies in the United States to use the case as an opportunity to reflect. An official with one major Korean company with a subsidiary based in Atlanta told the Hanguk Ilbo that there have been endless complaints among American employees that the Koreans associate only among themselves. After the case, Hyundai Heavy Industries asked (presumably Korean) employees not to eat kimchi in the office.

I shit you not.

An official with another major Korean company said a lot of misunderstanding occur because family-oriented American employees can’t really get with the whole poktanju thing and that Korean staff were being told to watch what they do and say so that the company doesn’t get sued.

The head of Hyundai Heavy Industry’s US subsidiary, John Lim, had apparently caused something of a stir during a 2011 ceremony to mark the move of the subsidiary’s headquarters from Chicago to Atlanta when he joked that there was a way to tell Koreans, Chinese and Japanese apart—if they look rich, they’re Chinese; if they look smart, they’re Japanese; and if they’re good-looking, they’re Korean. Apparently Georgia’s governor and other state political and business big-wigs were in the audience.

In Yonhap, an official with a major Korean company said there were many cases in the United States of thoughtless words said by executives coming back as lawsuits. He said his company asked executives to watch what they say and do, but this wasn’t working as requested due to what he called Korea’s unique workplace culture in which employees speak candidly when they grow close.

I’ll let you ponder that last line on your own.

Anyway, judging from the reports, I can’t really tell which aspect of American culture Korean companies are rudely awakening to: our dislike of racial and gender discrimination or our butt-hurt litigiousness. Maybe a little of both.

Do you know 전세? – The government plans to ease the high 전세 price problem

Everybody, now even including some Koreans themselves, likes to make fun of how Korea likes to come up with such annoying 5-year-old mentality national catchphrases such as “Do you know 비빔밥 (pibimbap)” or “Do you know 한복(hanbok)”?

This probably doesn’t affect a lot of the short-stay expats in Korea who would only get the smaller choice of places they can rent in a more traditional (monthly, with or without a deposit) way. I would like somebody to tell me what the hell the deal is with this 전세(Chunsei) system. For those who really don’t know it at all, simply put, it’s a system in the Korean real estate market where one is able to rent a place by giving a lumpsum to the owner, usually a considerable proportion of the actual value of the property price and – here is the thing- getting it ALL BACK – from the owner at the end of the contract. What does the owner get? The freedom to do whatever he/she wants to do with that lumpsum, provided he returns it all at the end of the contract.

I just don’t get it. It seems to be an incredibly bad deal for everybody, and not very safe. Simply put, the owner is entitled to work the entrusted sum to outperform the bank interest, while wishing for the property price to rise, and the renter gets to live in the place(“rent-free” funnily enough), with the assurance that he/she will get all the money back – a common method that young people (mortgage is still a foreign concept in Korea) would save up to own their own place.

Talking to my mother, who owns a place she’s let out by Chunsei, and is living in a rented place by Chunsei, it still boggles my mind, and I just cannot comprehend the mentality of a financial society that can have such a strange system being able to exist/function for such a long time.

Anyway, the problem at the moment in Korea, can be summarized as the rise in the Chunsei price (after the contract ends as the owner can raise the price) while the actual sale price remains stagnant, in some cases the Chunsei almost matching the sale price. It is a phenomenon that arises at a period of low bank interest, coupled with no expectation of rise in the sales price.

To counter this, the government has come up with a few not-so-hopeful plans including encouraging low-interest mortgage.

Somehow, my feeling is that this system is a very Korean way of doing things. De-centralized free market economy at a primitive yet convoluted ajuma level. It’s hard to explain to the outsiders (and even to themselves) how it can work, but it’s worked so far. Whether it can continue to work, without drastic intervention from the government, is yet to be seen.

P.S. Additionally, this blog entry about the “foreign” nature of mortgage in Korea, and comments following it, shows the difference in 인식 by Koreans and Western people, in buying a house through mortgage. It goes a little into what “owning a house (specifically, without a mortgage on it)” means to a Korean, and why it might be that despite active promotion since its introduction in the last 18 years or so, mortgage has not definitively replaced the more traditional way of saving up enough through 전세 method (I am still looking for figures to back this up, but just the fact that today we have such a 전세난 and the Korean government is trying to actively promote mortgage to replace it should be enough to corroborate)

In the West, in the heydays before the global financial crisis, for example, if 40 percent of the property value were provided (usually from parents) the rest was easily borrowed from any one of the fiercely competitive mortgage companies/banks. I can see that this would be kind of similar to the way Koreans (usually with help from their parents) first get their step on the property ladder through chunsei. However, I still think it is a very strange system, and is too-deregulated (opposite of what it was originally intended to do) – as fluctuating interest rates have no direct effect (but plenty of indirect ones) on such a system – but maybe this can also act in a good way, as it is buffered from the impact of global effects and closely tied to the consumer trends.

P.P.S
This article (in Korean) is very clear in its explanation of what the problem is at the moment. I particularly appreciate the examples and the charts which show the 전세 percentage of the sales price by different “ku” (boroughs) in Seoul. Especially of interest is the historical origins of the system, which they can trace it back to Koryo dynasty, through the late-Chosun all the way to its modern form in the 1970’s.
The crazy preference of apartment(and new ones) over house is also unique in Korea, and it comes as no surprise that this is closely tied to the continued prevalence of 전세 system.

Who has an account in the British Virgin Islands?

is the question on many Korean news-sites at the moment, following the report that ICIJ (International Consortium of Investigative Journalists) has acquired a list of several thousand people around the world with an account in the tax haven Virgin Islands – some of which may have been set-up for tax-evasion purpose.

Reportedly, there are around 70 South Koreans included in the list, and although the South Korean tax authority has asked for these names, they have been turned down so far. It is expected that the list will be released later this year, and *should* names of political or financial heavyweights be on the list, it is expected to whip up some sizeable commotion in the Korean media.

The Second Miracle on the Han River

While the Pyongyang Kim’s have enjoyed their fleeting fame as spoilers, the real and quiet battle for South Korea’s future has been taking place here in South Korea. There are several issues that have grown slowly out of aggravated and unsolved problems but, the largest problem that affects the most citizens in South Korea is Household debt – this long-standing problem has kept growing and growing despite the claims of so many who felt that this is a not a big problem. Well, now most people have come to share the view that it really is bad. This proverbial hole in the dike could be manageable, if it were not for other conditions that exist today, per a McKinsey & Company article on the problems that face the South Korean economy and society:

. . . More than half of middle-income households spend more each month than they earn(cite). The signs of social distress are multiplying. South Korea’s divorce rate has doubled, fertility rates have fallen to the fourth lowest among advanced economies, and the suicide rate is the highest in the OECD(cite). (McKinsey article)

PGH’s idea of starting a “new era of people’s happiness and hope” or her “happiness fund” is only useful if it focuses upon increasing middle class solvency rather than handing out new loans, which would ignore the underlying problems that haunt the middle class in South Korea as they struggle under ever increasing debt. Wonsik Choi and Richard Dobbs, in the McKinsey article, claim that nothing less than a “second miracle on the Han River” is needed for South Korea to overcome the economic problems that have have been allowed to grow into big problems. IMHO, If ever there was a time for South Koreans of all ideologies to unite in a common goal, now is the time. PGH is probably the right person to lead this task, unlike her predecessor who has left Korea with a miracle on four rivers – miraculous only because this prodigious example of mismanagement, corruption and waste was allowed to happen and has mostly gone unpunished.

Read the McKinsey article, in full and also the excellent article in the JoongAng Ilbo for a very succinct view of the economic issues that Korea faces today.

Korean War II’s Effect on the Global Economy

Normally, I don’t like to speculate on things that have a negligible chance of happening.  However, I thought an article in the Christian Science Monitor would compliment what Robert has already posted from the U.S. News & World Reports.

The main thing to keep in mind is that both South Korea and the world are very different places than in Korean War I.  Obviously, South Korea is more prominent economically than in 1950 and the sourcing of manufactured supplies is also a lot more global.  South Korea is an integral global supplier of a myriad of important components to complete finished goods.

According to  Nariman Behravesh, chief economist for IHS Global Insight:

For example, some South Korean companies have specialized in such things as fans used in vehicle air conditioning units. “If you are getting a fan for an A/C unit from South Korea, you just can’t switch to any old fan blades,” says Smitka. “They are all carefully engineered, there could be delays.”

He estimates a Korean conflict could shut down the auto industry for a couple of weeks since every company uses products made in Korea as do many electronics firms.

So what about the U.S.?  Well Behravesh says:

“… economists say the disruption would be similar to what happened with Japan after the March 2011 earthquake, tsunami, and nuclear power plant shutdown.”

“It took off a couple of tenths from Gross Domestic Product at most,” recalls Mr. Behravesh.

However, one American company would be severely affected, you know, that fruit company in Cupertino, CA:

Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Lake OswegoOregon, says the disruption could be especially painful for Apple, which counts on Samsung – also a competitor – to produce key parts for the iPhone such as the “flash memory,” the working memory, and the applications processor. According to an estimate in the Economist magazine, Samsung parts count for about 26 percent of the cost of an iPhone.

“If I were Apple, I would be worried,” says Mr. Dickson.

No need to fear though.  The U.S. could economically handle the potential tab from a Korean War II:

Although the cost of any war in Korea would be expensive, Mr. Martel [associate professor of international security studies at the Fletcher School at Tufts University] estimates the US economy is sufficiently strong to afford it. “It won’t break us,” he says. “It will be significant, but it won’t change our way of life. But, in the case of South Korea, I don’t see any way it can escape unscathed.”

BusinessWeek’s Cover Story is About Samsung

Interesting cover:

bloomberg businessweek cover featuring samsung

(Image from Business Insider)

The coming week’s BusinessWeek cover story will be about Samsung and how it got such a large slice of the smartphone market.  Sam Grobart, a senior writer at Bloomberg/BusinessWeek spent a few days at Samsung training facilities in South Korea to see what makes the company tick.  Seems like Sam comes up with an analysis that puts equal credit (or blame) on the cult of Lee Kun-hee, the current Chairman of Samsung Group.

Sam appears to have some cognitive dissonance on the strict leadership style over at Samsung.  He finds the so-called “Frankfurt Declaration” (where Lee told executives to “change everything but your wife and kids”) especially strange.  However, 19 years ago Robert Neff penned an article for the same BusinessWeek that provided wonderful insight on the incident.

Samsung.  Love ‘em or hate ‘em, the article is an interesting read.  Here’s Bloomberg/Businessweek’s video on the subject here and here.

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