How Businesses Utilize FTAs
Case 1: Logistics
As cargo traffic increased dramatically in Asia, particularly in China, Korea is emerging as a central hub of international logistics. Korea is located at the heart of Northeast Asia and boasts one of the world’s most extensive and advanced logistics systems, proven by its Incheon International Airport (the world' third largest gateway of cargo transportation as of 2015) and Busan Port (the sixth largest container harbor and the third largest port of transshipment in the world as of 2015). In a bid to be the center of logistics in Northeast Asia, Korea strives to support foreign-invested companies expanding businesses in the logistics industry by enhancing logistics infrastructure and providing a broad array of incentives to free trade zones and free economic zones.
When imports of fresh fruit for export to Asia increase, logistics costs will rise greatly if each countries in Asia operate individual logistics systems. Company “B,” a leading food wholesaler based in Canada, established an advanced logistics center near Busan Port and uses it as its integrated logistics hub. Fresh fruits are sorted, packaged and branded at the cutting-edge refrigeration facility where the company’s expertise on hygiene and safety of imported fruit is combined with the ideal location of Busan port before being exported to all regions in Asia through Korea’s FTA networks.
Company B (2013)
- Fresh Fruits
- BusanPort - Manufacturing Logistical Hub, +Value-added activities Refrigeration, Classification, Packaging and Branding
- 일본, 중국, 베트남
Case 2: Parts and materials
Korea is the leading country in the parts and materials industry with its superior design capability and manufacturing technology as well as competitive quality and price. Main products are electronic components and parts for transportation and machinery, which are Korea’s major export items. These products collectively accounted for 50.2 percent of total amount of exports in 2015 and recorded a trade surplus of USD 105 billion. Such achievements have been possible through the Korean government's active efforts to develop the parts and materials industry. The central government established industrial complexes for parts and materials businesses in Iksan, Gumi, Pohang, and Jinhae, and provided diverse business incentives. As the sector is emerging as one of the most promising industries, the amount of foreign direct investment in the sector surged every year to account for 24.3 percent of total foreign direct investment in 2014.
Company “T,” a multinational chemical company headquartered in Japan, entered the Korean market by launching a joint venture in 1996. Company T originally planned to establish a plant for production of polyphenylene sulfide (PPS, an innovative metal- and ceramic-like material that substitutes metals) in Southeast Asia, but decided to build the world’s first integrated PPS plant in Korea, hoping to reduce logistics cost and take advantage of Korea’s FTA with China when entering the Chinese market. By mass producing PPS in Korea, the company will benefit from reduced tariff and thereby export growing quantities of its product to China, the rest of Asia, and Europe.