Weaker euro, FTA help lower prices of European goods in Korea

A large Korean retailer sells French-made laundry baskets that are cheaper than Chinese products, not to mention Korean-made ones.

Lotte Mart, one of Korea’s largest discount chains, introduced the 40-liter laundry baskets made in France last month for 7,800 won (7.16 U.S. dollars) each, cheaper than 8,500 won (7.80 dollars) for a Korean basket with a capacity of 30 liters. Lotte had planned to import Chinese-made laundry baskets but decided otherwise since they cost 9,300 won (8.54 dollars) each, or 19.2 percent more than Korean products.

Since French products usually have high labor costs and logistical expenses in addition to their favorable images of strong safety and quality designs, it is highly unusual for such baskets to be cheaper than their Chinese rivals.

The lower price is thanks to the Korea-European Union free trade agreement that took effect in July last year, and to the euro`s lingering weakness in the wake of Europe’s quantitative easing due to the continent`s financial crisis.

○ Cheaper than Chinese goods?

Lotte imported the French laundry baskets May 17 for 2.62 euros each, moving quickly as soon as the won-euro exchange rate fell 4.3 percent to 1,478. Korea`s trade deal with the EU also removed the 6.5-percent tariff on the import, allowing the retailer to earn a profit even at the price of 7,800 won. Chinese laundry baskets cost 4.10 dollars each at that time. Due to a decline of 6.7 percent in the won`s value against the dollar and the absence of tariff benefits, Lotte had to sell them for 9,300 won each. “As soon as we began to sell the French laundry baskets, their sales grew more than four times those of Korean-made ones,” said Lim Hyeon-jong, a merchandiser at Lotte marketing director.

Because the weaker euro and the free trade deal have enhanced the price competitiveness of European industrial goods in Korea, Lotte also has a large variety of European products at Big Market, its wholesale warehouse store, offering Italian vegetable dehydrators for 9,900 won (9.09 dollars), or 100 won (9 cents) lower than similar Chinese models. Italian iron boards are also sold for 6,900 won (5.68 dollars).

“If the (won-euro) exchange rate stabilizes or falls further, we plan to double our offerings of French chocolates and hold monthly discounts,” said a Lotte official.

yhkang@donga.com