Government Alarmed by Element-Induced Logistics Crisis... Managing Supply Chains Despite Low Import Volume

Ministry of Industry Reviews Exclusion of Import Value for Focused Management General Import Item Standards
Weighing Influence in Global Supply Chains and Market and Technology Substitutability
Moon Instructs "Closely Manage Items with High Import Dependence on Specific Countries"

[Image source=Yonhap News]

[Sejong=Asia Economy Reporters Haeyoung Kwon and Minyoung Kim] The government has decided to expand the scope of items subject to supply management in response to the shortage crisis of urea solution originating from China. Previously, one of the criteria for selecting core items in materials, parts, and equipment was based on import value thresholds, but the government plans to further subdivide the selection criteria for major general imported items to be managed, including eliminating the import value threshold. Since items like urea, which have relatively low import volumes but significant impacts on our economy, caused problems this time, the government decided to scrutinize the management targets more thoroughly. President Moon Jae-in instructed at the Cabinet meeting on the 9th, "For items with excessively high import dependence on specific countries, conduct thorough preliminary investigations and establish a meticulous management system."

According to the Ministry of Trade, Industry and Energy on the 9th, the ministry is reviewing a plan to prioritize import dependence on specific regions regardless of import value when selecting major import management items. In addition to regional import dependence, the ministry will subdivide management criteria such as the influence of specific regions in the global supply chain, market substitutability, and technological substitutability to select supply chain management items.

An official from the Ministry of Trade, Industry and Energy said, "When selecting core items in materials, parts, and equipment in 2019, we initially considered import value as the criterion, but now we need to focus more on what problems arise when supply chain difficulties occur," adding, "If import value is set as the primary criterion, items that cause significant damage during supply shortages may not fall within the government's management scope. Therefore, we plan not to set an import value criterion separately and to make the selection criteria for management items more detailed."

According to the Korea International Trade Association, the import value of urea was $251.61 million in 2019, $234.97 million last year, and $276.79 million from January to September this year. Although the annual import value is around 300 billion KRW, there are concerns that if logistics chaos occurs due to a shortage of urea solution causing trucks to stop, losses of several hundred billion KRW per day could occur. The Hyundai Research Institute reported in 2012 that during a cargo strike, when transport disruption rate was 60%, daily losses amounted to 336 billion KRW.

There are many items with lower import values than urea. Magnesium, whose price has recently surged, had an annual import value of $26.91 million in 2020, and tungsten oxide used in medical devices and semiconductor manufacturing was only $60.87 million. However, the proportion of imports from China accounts for 100% and 98.4% respectively.

Previously, the government used import value and global dependence as primary criteria when selecting core items in materials, parts, and equipment. Different criteria were set by region such as China, Europe, the United States, and others. For example, for region A, only items with import values over $100 million and import dependence over 50% were designated as key management targets. This could result in cases like urea, where despite significant damage due to supply instability, items with low import values are excluded from the government's focused management.

The industry argues that diversification of import sources for major items is urgently needed. The Korea Ready-Mixed Concrete Association recently submitted a letter to the Ministry of Environment requesting that the import share from any single country for urea solution not exceed 30%.

Professor Cheonggu Kang, invited professor at Inha University’s Department of Energy Resources Engineering, said, "For major items, even if economic feasibility is somewhat low, the government should establish a system for domestic production through subsidies and tax benefits," adding, "It is urgent to devise measures to break away from the system dependent on specific countries like China and to diversify import sources while the government manages the supply chain."

This content was produced with the assistance of AI translation services.