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Loss due to garlic dispute with China

Posted July. 12, 2000 21:08,   


Lee Kyong-Ju, a manager for Samsung Electronics Co. is not feeling too good these days. The recent trade dispute over garlic with China has spilled over to his business. Lee is in charge of Samsung`s cellular phones to China. The business was booming up until early last month, thanks to the infinite buying power of the 1.2 billion-strong Chinese market.

But all hell broke loose on June 7. The Chinese trade authorities slapped an import ban on Korean-made cellular phones, as a retaliatory measure for Korea having slapped high tariffs on Chinese garlic, blowing an unforeseen crisis for the leading cellular-phone maker in the nation. Lee, as the manager in charge has lost his appetite. The company is not asking Lee to answer for the recent losses, but Lee feels responsible for having given a wrong forecast on market trends. As the dust piles up on the phones stored in warehouses, so does the depth of Lee`s worries.

Aggravating the situation more is that there is nothing Lee can do about the situation. If it was a problem stemming from Samsung`s internal problems, Lee would have put his life on line to resolve the issue. But the import ban is the result of trade dispute between the two countries of China and Korea.

As a mere businessman, he is helpless.

Lee has appealed to the Korean authorities to work toward an expedient solution. Lee is not alone in his helplessness. Companies in the petrochemicals and other cellular phone makers have all been hit by the garlic dispute. Of the eight manufacturers of polyethylene, some are seeing inventory pile up in their warehouses. Daehan Petrochemicals has reduced production by 20 percent since China`s June 15 import ban, and will further cup their production by 50 percent. SK Co. plans to reduce its production starting next month, as it has yet to receive US$2.2 in delayed payment from their Chinese importers. There are approximately about 20,000 tons of PE sitting in the docks as well. For some oil companies, the Chinese market is their main market which absorbs about 60 percent of their exports, forecasting a closure of factories should China`s ban continue.

As for Samsung Electronics, the leading cellular phone maker, the Chinese ban has cut their production by 10 percent and foregone sales profits on 100,000 units of phones (worth $25 million). One employee with LG Information and Technology expressed the concern that the garlic dispute might cast a shadow on Seoul`s ongoing negotiations to sell its next-generation mobile communications system, the IMT-2000. It remains dubious whether the trade authorities are aware of the difficulties that these businesses are facing.

They should know that losses in these leading export businesses can translate into an abrupt slowdown of the domestic economy as a whole.