By: Steve Toloken
April 16, 2013
SEOUL, SOUTH KOREA — Free-trade agreements often have winners and losers within industries, but two recent trade deals with South Korea seem to be helping European and U.S. plastics equipment makers pick up market share in that country, possibly at the expense of the Japanese.
Judging from interviews at South Korea's Koplas show, held in mid-March in Seoul, an FTA with the European Union in 2011 and a second with the United States last year, have helped boost machinery exports from the EU and U.S.
"As a salesman, I see a dramatic influence in the field for the plastics industry, shifting from the Japanese," said Dee Kim, technical sales manager with Dae Joo Industrial Co. of Bundang, which represents 10 European and U.S. auxiliary equipment makers in Korea, including Nordson, Starlinger, Piovan, Keifel and Pallmann.
"After the FTA with Europe, the price of the European equipment dropped dramatically and a lot of users turned to European equipment," he said. "The Japanese lines lost a lot of customers."
Japan does not have free trade deals with either the U.S. or EU, so eliminating the roughly 10 percent tariffs on European equipment meant that more midrange Korean companies started buying machinery from the EU, he said. Previously only upper-tier local firms like Samsung would have, according to Kim.
U.S. equipment suppliers are seeing some of those benefits, but the U.S.-Korea FTA, which started in March 2012, phases in more slowly and could take longer to impact the marketplace, Kim said.
That's the positive side for Western firms.
On the other side, there was evidence at the show that Korean mold-making companies were increasing their exports to the United States and Europe, but not as much evidence at the show that U.S. and European mold makers were increasing their exports to Korea.
The reason: South Korean mold makers said their prices are still cheaper than North American and Western European competitors.
Regardless of who wins and who loses, the interest in South Korea at the show was strong. The country is one of Asia's larger domestic markets for plastics equipment, with, for example, about 3,600 injection molding machines sold there each year, equivalent to the U.S. injection molding market market.
For the German equipment makers, some statistics support the idea that the FTA has aided exports.
German plastics and rubber machinery exports to South Korea nearly doubled in 2011, to $202.9 million, which officials of Germany's VDMA machinery association at the time attributed partly to the EU FTA, which took effect in July 2011.
But those same German machinery exports to South Korea dropped to $131.8 million last year.
That could suggest the FTA's longer-term impact is limited, although VDMA officials noted that exports to mainland China and Taiwan also dropped in 2012 and Korea was part of that trend.
"In all those countries, exports in the previous year had taken a major leap, which had resulted in export peaks," VDMA said. "As such, the drop in exports in 2012 to a certain extent should be seen as a consolidation."
Even with the drop last year, 2011 and 2012 were still the two biggest years for German machinery exports to South Korea since at least 2000, VDMA data showed.
Munich-based KraussMaffei Technologies GmbH said the tariff reductions have boosted sales in South Korea.
"Before the FTA, they always told us our machines were too expensive," said Yeon-Jeong Dullin, a Munich-based key KM account manager, in an interview at the company's Koplas booth. "[The FTA] is not the only reason but it has helped our sales in the Korean market."
The South Korean market is important because Korea's large car and electronics manufacturers such as Samsung and Hyundai have factories around the world, so the company has sales staff in Germany assigned specifically to manage Korean accounts, she said.
For Ferromatik Milacron GmbH, the FTA has been a boon for selling its advanced models from its European factories, said Hyunglip Kim, president of AM Systems Co. Ltd. in Anyang, south of Seoul. AM is Milacron's agent in Korea.
"This helps us a lot," he said in an interview at Koplas. "We are directly competing with the Japanese."
But the impact of the FTA has been less clear for Milacron machines from the United States, he said, because the U.S.-South Korea FTA is newer (it came into force in March 2012) and because Korea can sometimes receives service out of Milacron's China factory.
An official with the Washington-based Society of the Plastics Industry Inc. said it's still early to assess the full impact of the Korea-U.S. FTA, but he said U.S. machinery exports to Korea have shown an increase.
"It is probably too early to say definitively because of the lengthy phase-in of the agreement, but also because of the political uncertainty surrounding the budgetary and fiscal environment in the U.S. — this latter reason has clearly discouraged some companies from taking advantage of [the trade agreement] thus far," said Michael Taylor, SPI senior director of international affairs and trade.
"It does appear when looking at the core segments of the industry, however, that U.S. machinery manufacturers have experienced a notable jump in exports, perhaps close to a 6 percent increase."
For the overall U.S. economy outside of plastics, the trade agreement seems to have increased Korea's trade surplus, according to a mid-March article in the English-language Korea Herald newspaper.
Citing South Korean government data, the newspaper said Korea's trade surplus with the U.S. grew 44 percent to $14.6 billion in the 11 months after that FTA was implemented, led by exports of automobiles, machinery, petroleum products and rubber goods.
In the mold-making sector, Koplas show-goers interviewed said the FTAs looked to be a positive for the South Koreans.
U.S. automotive injection molders are buying more molds in South Korea since the trade agreement, said Hank Yoon, a manager in the technical and sales department at Seoul-based Samu Dies Corp.
He said Samu expects its exports to the U.S. to grow 10 percent a year as a result of the FTA. It does about $5 million in exports to the U.S. now, out of $36 million in total company sales.
But Yoon said he does not see more U.S. molds in the Korean market because U.S. labor costs are too high and U.S. molds are not competitive there.
Other Korean mold makers at the trade show echoed those comments.
Data from VDMA, however, said that in 2012 Germany's exports of molds to Korea increased and imports from Korea fell. VDMA said Korea remains a small market for German firms, the 39th largest worldwide for mold exports.
Dae Joo's Kim said he's not sure the FTAs will be positive overall for Korean plastics equipment makers, because most of their equipment is midpriced in world markets.
Budget-minded customers will buy from China and upper-tier customers now are looking more seriously at North American or European equipment, he said.
The country's main plastics equipment trade association — the Korea Plastic Processing Machine Industry Cooperative — said it supported the free trade agreements and it believes they will lead both to more imports and to South Korean firms exporting more, a positive net for both sides.
The Korean market has basically been flat the past two years, following the ups and downs of the world economy, with the overall plastics machinery market split roughly equally between local equipment and imports, said Han Yi-Koon, general secretary of the Seoul-based cooperative.
Some Korean firms interviewed at the show said they were focusing on exports. Injection press maker Woojin Plaimm Inc., for example, is targeting the U.S. market, setting up new offices in Chicago and Atlanta.
But others in South Korea's industry, which includes about 500 machine suppliers of various sizes, were not sure of their global niche.
Phillip Kim, president of injection press maker Dongshin Hydraulics Co. Ltd. in Busan, South Korea, said he supports free trade agreements but his company is doing very little exporting these days.
That's partly because its domestic business is very strong and it has no capacity to ship overseas. But it is also unclear where the firm fits into the international pecking order, he said.
"The low-end customers, they are using Chinese machines, the higher-end customers they use either Japanese or European ones, so where is my market?" said Kim. But, he added, Dongshin is focused on becoming more competitive.
"I have to be equivalent to the Japanese or the Europeans," he said.