Even if Domestic Raw Materials Are Reimported... If Cost Exceeds 15%, Classified as 'Foreign'

Mid-sized Ombudsman, "Negotiations on Readjusting Manufacturing Cost Ratios"

Jubong Park, Ombudsman (Vice Minister level).
[Photo by Asia Economy DB]

[Asia Economy Reporter Kim Jong-hwa] When domestically produced raw materials are simply processed overseas and then re-imported into Korea, if the price of the re-imported raw materials exceeds 15% of the total cost, they are classified as "foreign-made." There has been a claim that it is unreasonable for the country of origin to be marked as foreign even when precision processing is carried out domestically but the manufacturing cost ratio is not met.

The Small and Medium Business Ombudsman (Ombudsman) held an "S.O.S. Talk (Small and Medium Enterprise Meeting)" event on the 15th with the Busan Regional Headquarters of the Small and Medium Business Corporation to listen to companies' requests for regulatory improvements.

S.O.S. Talk is a joint meeting held since 2015 by the Small and Medium Business Ombudsman and the Small and Medium Business Corporation to resolve regulatory difficulties faced by local small and medium enterprises, with 14 to 16 sessions held annually.

At the meeting, Company A pointed out, "When domestically produced raw materials are simply processed in an overseas factory and re-imported into Korea, the country where the processing took place is classified as the country of origin," adding, "Even if the raw materials are simply processed overseas and then undergo secondary precision processing domestically, if the raw materials account for more than 15% of the total manufacturing cost, the country of origin is marked as foreign."

Company A lamented, "Despite using high-quality domestic materials and carrying out secondary precision processing requiring advanced technology domestically, the country of origin is marked as foreign because the manufacturing cost ratio is not met, causing difficulties in gaining recognition from client companies and hindering exports."

For example, when stainless steel produced by POSCO is first simply processed at a local factory in Vietnam and then imported back to Korea for secondary precision processing and post-treatment, the stainless steel material is labeled as originating from Vietnam due to the initial processing there. When submitting proof of origin to clients, the raw materials are marked as Vietnamese, causing difficulties in export sales.

In response, Park Ju-bong, the Ombudsman (vice-ministerial level), stated, "In cases where companies export domestic raw materials, have them processed overseas, and then re-import semi-finished products, we will actively discuss with the Ministry of Trade, Industry and Energy (Export-Import Division), the relevant administrative agency, about adjusting the manufacturing cost ratio so that the raw materials can be recognized as domestically produced."

Company B appealed, "Due to unstable ship schedules and increased export volumes, the container storage volume at Busan Port has increased," adding, "Because of terminal congestion, the Busan Port operator has restricted container imports, forcing the use of external private temporary storage yards, which incurs additional logistics costs. Measures are needed to resolve the terminal congestion."

In response, Ombudsman Park said, "After prior consultation with the Busan Port Authority, an additional permanent storage yard was established last month in the rear complex of New Port Ungdong to support export companies and logistics firms facing difficulties due to storage shortages, and it is operated year-round," adding, "It is available at a lower cost compared to private storage yards."

Additionally, at the meeting, members of the Small and Medium Business Corporation's public participation group and small and medium enterprises related to the Busan Federation of Small and Medium Business Convergence conveyed regulatory and difficulty issues such as ▲ easing qualification requirements for ABTC (APEC Business Travel Card) issuance ▲ revising guidelines on suspension of participation in export voucher performing organizations ▲ adjusting the ratio of disability-linked employment burden fund benefits.

Ombudsman Park said, "We will continue to consult with relevant ministries and agencies to resolve logistics and manpower difficulties faced by small and medium export-import companies in the Busan area and strive to improve the issues discussed here today."

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