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South Korean Textiles - On The Cusp Of Change

South Korea, a textile industry leader, looks to technology, trade and niche products to sustain its position.

By Michelle Mendieta Mitchell, Assistant Editor

T he Republic of Korea — with its well-known electronics and automobile companies such as Samsung Electronics, LG Electronics, and Hyundai Motor Co. and its subsidiary Kia Motors Corp. — has made a definitive mark on the global economy. The Kwach’on-based Ministry of Commerce, Industry and Energy (MOCIE) wants to further the country’s influence and make it one of the world’s top four industrial superpowers by 2010 in the semiconductor and shipbuilding; digital electronics; steel, machinery, parts and materials; e-business, distribution and logistics; and automobile and petrochemical industries.

Nevertheless, the textile industry of the east Asian country — located in the southern half of the Korean Peninsula, bordering the Sea of Japan to the east and the Yellow Sea to the west, and conventionally referred to as South Korea — continues to be a global leader. The textile industry currently ranks fourth in terms of worldwide production, the organizers of the recent Korea International Textile Machinery Exhibition 2006 reported. It also had a production output of approximately US$34.32 billion in 2003, accounting for 6 percent of the country’s total output in the manufacturing sector, according to the Korean Federation of Textile Industries’ (KOFOTI’s) Textile Korea 2005 report.

Furthermore, KOFOTI — based in the country’s capital, Seoul — reports the textile industry manufactured textile products worth approximately $4.95 billion, including wovens, fabric manufacturing, and dyeing and processing; sewn apparel worth $19.22 billion; and man-made fibers worth $10.15 billion that year. With the production of value-added products worth $14.01 billion, the textile industry comprises 6.5 percent of the total manufacturing sector’s value-added production.

According to the Seoul-based Spinners & Weavers Association of Korea (SWAK), cotton and cotton-blend spun yarn production numbered 267,130 tonnes in 2004 and 240,685 tonnes in 2005. SWAK members also produced 110.65 million meters and 70.94 million meters of cotton and cotton-blend fabrics in 2004 and 2005, respectively. These totals show declines of 9.9 percent in yarn production and 35.9 percent in fabric production from 2004 to 2005.

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Industry Structure

In 2003, 18,215 textile companies operated in Korea, accounting for 16.2 percent of the entire manufacturing industry, KOFOTI reported. There were 9,397 textile products firms, 8,729 sewn apparel firms and 89 man-made fiber firms.

With regard to employment, in 2004 — the year the World Bank reported South Korea’s population as 48.1 million and a 1.4-percent labor force growth rate from 1998 to 2004, the textile industry employed about 329,000 people. This figure represents approximately 12 percent of the total employees for the manufacturing sector.

The 2005 South Korea Country Statement from the Switzerland-based International Textile Manufacturers Federation (ITMF) points to 9,422 textile SWAK-only production workers at the end of 2004, a decrease of 11.5 percent from the previous year.

Furthermore, the total number of installed spindles in SWAK-member mills was approximately 1.59 million and 1.29 million at the end of 2004 and 2005, respectively, according to information from the association. In December 2005, ring-spinning capacity for its members totaled 1.27 million spindles — a 19.1-percent decrease from year-end 2004, and rotor capacity numbered 15,012 rotors at year-end 2004 and 13,668 rotors at the end of 2005.

In the ITMF report, a 10.1-percent decrease in the number of installed shuttleless looms in 2004 was partly attributed to the mothballing of old facilities. SWAK weavers ended 2004 with a capacity of 1,224 shuttleless looms, and the declining capacity trend continued in 2005, when members reported 841 shuttleless looms — a further decline of 31.3 percent.

Another facet of the South Korean textile industry is the textile machinery sector, which employed 9,130 people, or 1.3 percent of the total machinery industry, according to the Kyongsan-based Korea Textile Machinery Association (KOTMA).

Trade: The Industry's Heart

It is difficult to profile South Korea’s textile industry without mentioning trade. The country has transformed its gross domestic product (GDP) per capita from being comparable to poorer countries in Africa and Asia four decades ago to an estimated $20,300 in 2005 on a purchasing-power-parity basis, according to the US Central Intelligence Agency. Utilizing exports as an engine for growth, South Korea has settled into a GDP growth rate of about 4 percent during the 2003-05 period, following several years of fluctuation — especially during the Asian financial crisis of 1997-99, when the rate ranged between -6.9 percent and +9.5 percent.
 
Textile exports have played an important role in the country’s economy, as evidenced by the industry’s exportation of two-thirds of its processed products, according to the Korean Overseas Information Service of the Government Information Agency. Additionally, KOFOTI reports the textile industry ranked fifth in the world in terms of exports, with 3.5 percent of the global market share in 2003. Ahead of the country are the European Union, China, the United States and Turkey.

South Korea also ranked seventh worldwide in textile machinery exports in 2004, with $1.1 billion in exports, according to KOTMA. South Korea ships 45.5 percent of its machinery to Asia, 28.4 percent to North America and 11.3 percent to Europe, followed by Central and South America, 7.4 percent; Middle Asia, 4.7 percent; and other countries, 2.7 percent.

Additionally, the industry’s $8.8 billion trade surplus in 2004 earned it a third-place ranking, following the country’s electric/electronics sector with $42.8 billion and the machinery sector with $37.9 billion surplus. The industry’s trade surplus, once totaling more than $10 billion, fell to $9.8 billion in 2003 and continued to fall by 10.2 percent in 2004.

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KOFOTI notes the end of the global textile quota system on Jan. 1, 2005, along with an exchange rate decrease of South Korea’s currency caused a 6.7-percent decrease in textile exports, to $7 billion, during the first half of 2005 in comparison to year-earlier levels. When textile exports are evaluated by item, fabrics were worth $4.05 billion. Exported fibers came in at $492 million, yarns accounted for $744 million, and textile products were worth $1.68 billion in the first part of 2005.

South Korea saw a change last year when it imported more clothing than it exported for the first time since the 1960s, the Korea Times recently reported, citing MOCIE. South Korea imported $3.65 billion in apparel products, compared to its exportation of $3.56 billion in clothing, including caps, gloves and other apparel products. The ministry pointed to China’s narrowing of the technological gap with South Korea and its intensifying price competitiveness as well as greater imports of Italian and French high-end products as causes for the import increase.

With regard to cotton, South Korea reported imports of 268,794 tonnes of raw cotton, cotton yarns worth $534 million and cotton fabric worth $382 million in 2004, ITMF reports. The country currently ranks 13th among world cotton consumers, and it used 1.3 million 480-pound bales in the 2004/2005 marketing season, according to the March 2006 US Cotton Market Monthly Economic Letter of the US Department of Agriculture and Cary, N.C.-based Cotton Incorporated.

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According to the US Department of Commerce Office of Textiles and Apparel’s March 6, 2006, Major Shippers Report, the South Korean market share of Multi-Fiber Arrangement (MFA)-categorized imports into the United States was 2.1 percent for the year ending in January 2006. This figure consists of MFA apparel and nonapparel products, with 1.6 percent and 3.6 percent, respectively, of the share of US market imports.

Several South Korean-produced exports had a significant share of imports into the United States. Of note were fabrics as a whole, which made up 10.5 percent of the total import market. Knitted fabrics and special purpose fabrics made of cotton or man-made fiber comprised 25.5 percent and 11.8 percent of the respective import markets for those products. Cotton printcloth, at 14.1 percent, and cotton sheeting, at 34.5 percent, also had high shares of the US import market. In the man-made category, significant products included lightweight polyester filament fabrics with 31.4 percent, man-made-twill / sateen-staple / filament fabrics with 18.3 percent and woven man-made-filament fabrics with 13.8 percent of the market share of imports.

Combed cotton yarn at 10.4 percent, nontextured filament yarn at 15.6 percent, and men’s and boys’ nonknitted man-made fiber shirts at 11.7 percent were other textile products with a 10-plus-percent share of US market imports.

South Korean hosiery products also have made their mark in the US market. Wool hosiery accounted for 39.1 percent of imports into the market during the measured period. Cotton hosiery had 21.2 percent, and man-made hosiery captured 15.8 percent of market imports. In addition, 17.8 percent of US imports of silk/vegetable fiber blend hosiery came from South Korea.

Indeed, South Korea and the United States have established themselves as major trade partners with two-way goods trade valued at $72 billion in 2005, the office of the United States Trade Representative (USTR) reported. On the docket for the United States and South Korea this year is the negotiation of a free trade agreement (FTA) that would expand trade between the countries and remove tariffs and nontariff barriers.

“This is the most commercially significant free trade negotiation we have embarked on in 15 years,” said USTR Rob Portman in February 2006, when the FTA negotiation was announced. “Korea is the world’s 10th-largest economy with an annual GDP rapidly approaching $1 trillion and our seventh-largest export market.”

In the US textile industry, reaction to the possible FTA has been mixed, as James A. Morrissey recently reported in Textile World (See “ Washington Outlook,” TW, March/April 2006). Morrissey also notes a large portion of the United States’ $2 billion textiles and apparel trade deficit with South Korea is in textiles.

SKoreaGlance

The Industry's Future

In the foreword of Textile Korea 2005, KOFOTI Chairman Seho Kyong wrote, “[I]t is important to emphasize that textiles remain a key industry for the Korean economy after being considered the mother of Korea’s modernization drive.”

While the country’s textile industry continues integrating the latest technologies, it also is dealing with growing competition from other Asian countries, and the effects of trade liberalization and the end of MFA quotas, he added.

Kyong said the industry has responded with a course of differentiation and specialization, and future growth will depend on the following actions:
• cost burden reductions and efficiency increases to improve the industry’s international competitiveness;
• efforts to stimulate textile exports and imports, and to capitalize on growing domestic textile demand;
• investments in new technology, facilities and cultivation of manpower;
• greater promotion of the apparel and fashion industries; and
• a more proactive role in “international cooperation activities” that could ease trade friction with other countries.

Likewise, the South Korean government plans to encourage the production of a variety of high-value-added textile materials, including nanofibers, industrial textiles and smart fabrics, while acquiring new technologies such as digital dyeing and printing processes. The government also has turned its attention to the development of technologies and textile products for information technology and biotechnology applications.

To be sure, South Korea and other countries involved in the textile industry are facing many changes and challenges related to today’s ever-expanding global economy. The country’s industry has not been immune to these changes and, as a result, has experienced recent shifts. Nonetheless, those in the textile sector have continued to see their products as engines for next-generation growth.


Textile Trade Across The North/South Korean Border

The division of the Korean peninsula following World War II, among other events, adversely affected relations between what would later become the Republic of Korea, also known as South Korea, and the Democratic People’s Republic of Korea, commonly called North Korea. Dealings between the two Koreas were minimal and tension-ridden for almost 20 years after the 1950-1953 Korean War. The countries finally legalized inter-Korean trade in 1988, and from 1991 to 2005, two-way trade between the Koreas grew by 1,000 percent to a record high of US$1.1 billion in 2005, according to the Seoul-based trade promotion agency Korea International Trade Association (KITA). Textile trade has played a key role in reaching this milestone.

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Typically, the textile trade between the Koreas involves the processing of apparel items. South Korean companies send raw and auxiliary materials to North Korea. North Korean manufacturers, in turn, tailor and sew the apparel products and export them to South Korea — the country’s second-largest trading partner following China. In 2004, this apparel processing trade, which was worth $176 million, represented 21.2 percent of the total trade volume — equivalent to 40.8 percent of the total commercial transactions — between the Koreas. The total worth of North Korean-made apparel from January through September of that year accounted for 3.2 percent of South Korea’s total apparel market.

The heart of the textile trade across the 4-kilometer-wide Demilitarized Zone (DMZ) that has separated the two countries since 1953 is the Kaes¢ong Industrial Complex (KIC), located 6 miles north of the DMZ. According to KITA, KIC’s development greatly influenced the 2005 level of inter-Korean trade. Trade related to the complex in 2004 — just one year after construction began — totaled $41.7 million and represented 6 percent of total trade. KIC-related trade jumped to $176.7 million the next year, or 16.7 percent of total trade.

Of 15 South Korean companies that began constructing KIC manufacturing facilities during the 2003 pilot phase, 13 had begun operations by the end of 2005, the US Department of State Under Secretary for Public Diplomacy and Public Affairs’ Bureau of East Asian and Public Affairs reported. An additional 250 South Korean companies are expected to join the complex during this year.

KITA notes that from January to June 2005, South Korea exported equipment and raw and auxiliary materials worth $75.7 million for the production of goods at the complex. North Korea, on the other hand, exported completed products worth $2.64 million, including apparel that was sewn and processed at KIC.

Furthermore, nine of the top 10 South Korean import items processed in North Korea during that period were apparel. Sportswear, men’s trousers, men’s suit coats, and women’s trousers and skirts topped the list and were worth $11.8 million, $8.9 million, $5.5 million and $4.4 million, respectively. Other clothing products in this group were men’s shirts, coats and jackets; women’s suit coats; indoor underwear and blouses. The products with the largest year-over-year growth were coats and jackets, at 265.1 percent; sportswear, at 191.6 percent; blouses, at 140.6 percent; and men’s shirts, at 57.4 percent.

The two Koreas also have collaborated on several other economic cooperation projects, including infrastructure development. According to the US State Department, South Korea has funded much of the new railroad and road links across the DMZ and as far north as KIC on the west coast. Tourism, in the form of South Korean-organized cruise and overland tours, also is key in the growing economic ties between the two countries.



May/June 2006

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