RESTR I CTED
.L, " itA   tgU, jReport No. AS-133
This report was prepared for use within the Bank and its affiliated organizations.
They do not accept responsibility for its accuracy or completeness. The report may
not be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
CURRENT ECONOMIC POSITION
AND PROSPECTS
OF KOREA
(in four volumes)
VOLUME III
MANUFAC TURING
January 23, 1968
Asia Department



CURRENCY EQUIVALENTS
U.S. $1.00            =         Won 270
Won 1, 000            =         U.S. $3. 70
Won 1, 000, 000       =         U. S. $3, 703. 70



This Report is based on the findings of a Mission
which visited Korea in September 1967. The Mission
was composed o-° the following members:
Cornelis J.A. Jansen                           Chief
Shu-Chin Yang                      General Economist
Guenter H. Reif                    General Economist
M. Shafi Niaz (FLO)                      Agriculture
W.F. Doucet (FAO)                          Fisheries
Jacques M. Gruot (BCEOM)              Transportation
This Volume was prepared by Guenter H. Reif.






TABLE CF CONTENTS
Volume III
Manufacturing
Page No.
SUMIARY AND CONCLUSIONS  .........*......*.............           . - iii
I.     RECENT DEVELOPMENTS  ...................                     1
II.    USE OF LABOR AND CAPITAL  ...........................
III.   IlvPORT SUBSTITUTION  . , ............ ........... . .       8
A.  Changes in Import Dependence            .                8
B.  Import Restrictions  .....................    10
C.  Promotional M4easures                 .                 11
IV.    EXPORT PROMOTION  ................... ...               .    12
V.     FINAiNCING                         ........>¢^O@.16
VI.    STATUS AND PROSPECTS OF IvIAJOR INDUSTRES ............    22
A.  Investment and Intermediate Goods Industries  ..    22
B. Consumer Goods Industries                    e           28
STATISTICAL APPENDIX (Tables 1 - 16)






SU14MARY AND CONCIUSIONS
1.       iManufacturing has been the most dynamic sector in Koreats economy
growing about 1-6 times faster than GNP in recent years.  Annual growth of
gross value added accelerated from 12 percent in l962-64 to 18 percent in
1965-67 and the share of manufacturing in GNP rose to 20 percent in 1967
from only 14 percent in 1960 Investment in manufacturing, now one-third
of total capital formation, is almost three times higher than in 1962-64.
2.        Expanding private investments and rapidly growing exports as well
as increased government investment and consumption demand stimulated growxth.
Of late, domestic private consumption demand for manufactured goods also
expanded because of higher per capita incomes. Although Korea's rapid
industrial growth was basically the result of private entrepreneurship,
it was actively promoted and guided by the government's credit policy and
fiscal incentives.  The cDvernment's industrialization efforts concent-
rated on promoting export industries and some key import substitution
sectors, like cement and fertilizers, and more recently, basic metals and
petrochemicals.
3.        Korean manufacturers enjoy the advantage of having an inexpensive
but intelligent and hard-working labor force; it provides them with a sub-
stantial cost advantage even vis-a-vis neighboring cheap-labor competitors,
such as the Republic of China and Hong Kong. lanufacturing wages, however,
have been increasing noticeably in recent years, although less than other
urban incomes. Wage hikes for skilled labor have been particularly pro-
nounced reflecting the growing demand for technical personnel. Because
Korea's comparative advantage depends on the large scope for increasing
the productivity of its labor force, a reform of the education system with
emphasis on more'and better vocational training appears therefore indis-
pensable.
h.        Import substitution, previously the main goal of Koreals indus-
trialization,has in recent years been temporarily overshadowed by the
all-out export drive, Manufactured imports rose rapidly after major import
prohibitions wiere lifted in 1965. IMost pronounced has been the fast in-
crease of raw materials and intermediate goods imports'and, strongly
stimulated by the easy availability of foreign suppliers? credits, the
large-scale imports of machinery and transport equipment. At the same
time, official trade liberalization policy shifting gradually from admin-
istrative to tariff restrictions made further significant progress. But
despite the change from a positive to a negative list system of import
controls in July 1966 and the recent fiscal reforms, some sections of
Korean domestic market are still heavily protected.
5.        The Second Plan reemphasizes import substitution. Large-scale
investments in iron and steel, petrochemicals, fertilizer and cement
have either been completed or are planned fcr the future with the aim
of eliminating most of these imports by 1971. Key projects in the invest-
ment plan for the rest of the Second Plan are (1) the construction of the
Pohang integrated iron and steel plant and (2) the establishment of the



- ii -
Ulsan petrochemical complex. The technological and financial aspects of
both projects are still under studre  Both projects may in principle fit
into a reasonable industrialization program. But in both cases, the
projects will have to be further examined to ensure that economically
sound industries will be established. In its import substitution policy,
the Government will also have to pay more attention to the development
of a competitive domestic machinery industry, whose present sluggishness
is in marked contrast to the overall boom, To some extent this wzill
require reduced emphasis in the financing of industrial expansion on
credits connected with foreign equipment supplies.
6.        The results of the Government's export promotion program for
manufacturing has exceeded expectations by far, Rising much faster than
total exports, the value of' manufacturing exports was in 1966 almost 15
times higher than in 1962; its share in total exports rose from less than
20 percent to almost two-thirds.  Although the United States and Japan
are still main customers, new markets in Asia and Europe have been pene-
trated,  Despite the large labor cost advantage, the export success would
not have been feasible iiithout substantial Government support and sub-
sidization. For the future, with export industries becoming more stabil-
ized, export subsidization should be gradually reduced or applied more
discriminately. This would force the enterprises to increase their
competitiveness.
7.        Financing of manufacturing has ccntinued to be a crucial
problem. Although internal generation of funds (profit retention and
depreciation) is increasing fast as manufacturing expands, financing
requirements are rising even more rapidly1 Thus, need for outside fin-
ance for the enterprises is becoming more urgent.  With most enterprises
closely held, equity financing in Korea has largely been confined to
relatives and friends, The stock market, so far rather unimportant, is
to be stimulated by recent fiscal reforms favoring "open" corporations
and may henceforth channel more savings into equity. The growth of credit
from domestic financial institutions is being delayed by severe monetary
restraints under the Government's stabilization program. Special export
and import credits extended to Korean exporters have become an important
source of financing working capital needs. Due to the inadequacies of
the organized banking system, an important unorganized market (curb
market) exists where monthly interest rates of 4 percent upward are common.
8.        Almost half of bank credit to manufacturing is not ext.ended by
commercial banks, which provide only short-term loans up to 1 year. Long-
term development financing has so far been largely provided by the Govern-
mentts Korean Reconstruction Bank, (KRB),and as far as small enterprises
were concerned by the Government controlled H.edium-Industry Bank (MIB).
Both institutions have been playing an important part in development, but
current loan requirements exceed by far their lending capacity, In view
of the shortcomings in the existing financial market, the Korean Govern-
ment favored the recent establishment of the Korea Development Finance
Corporation (KDFC), as a privately-owned development bank. KDFC's



- iii -
initial capital resource wiill include an IFG capital participation, a
$5 million Bank loan. The Mission agrees that a private institutional
source of long-term finance such as KDIFC is necessary and thinks its
business prospects are good,
9.        The Mission believes that manufacturing will continue to be
the leading sector in Korean development. It seems likely that the
growth rate in 1967 amounted to 18-19 percent. For the rest of the
Second Plan, the Economic Planning Board forecasts annual growth rates
of 17-19 percent, which is an ambitious goal requiring large amounts of
capital. The 11ission, however, was more skeptical assuming a growth of
only 13-16 percent per year.  The 'iission felt that there are some impedi-
ments wJhich may restrict further growth in manufacturing. IHost important
among them are:  (1) the present power shortage which, despite large-scale
investments, may not be fully relieved before 1969, (2) insufficient
transport facilities and other infrastructure, and (3) lack of dormestic
capital because of insufficient domestic savings and inadequate financial
markets.
10.       The Mission estimated total investment requirements in manu-
facturing for the 1967-71 plan period at won 130 billion at constant
1965 prices. The calculations were based on the Govermment's invest-
ment plan for 1967 and 1968, considered feasible by the Hission, and on
information about future investment projects provided to the Mission.






I. RECENT DEVELOPIENTS
1.        Ymnufacturing has continued to be the leading sector in the
development of the Korean economy. Its growth wTas 1.6 times faster than
GNP growth in recent years, Annua; growth of gross value added accele-
rated from 12 percent in 1962-64 1/ to 18 percent in 1965-67,. As a  -
result, the share of value added in manufacturing in total GNP rose from
15.6 percent during 1962-64 to about 20 percent in 1967. Expanding
domestic private investment and consumption as well as increased foreign
demand for Korean export goods were main reasons for the upwing. The
supply of imported raw materials also improved after import credit
restrictions were relaxed following the introduction of the unitariy
floating exchange rate in early 1965.
2.       MIajor elements in Government policy towards manufacturing have
been active promotion of foreign capital inflows (both in loans and
direct investments), of export industries, and of certain import substi-
tute industries, such as petrochemicals, cement, basic metals, and
fertilizers, which are considered key industries for further economic
development. Since 1965, the Government has also pursued
1/ In discussing recent developments in manufacturing, the 1962-64
period has been selected, whenever possible, as the basic period
for comparison. As pointed out in Volume I, M4ain Report, the year
1964 alone is not considered to be "normal", especially so in manu-
facturing, and would therefore not provide a reasonable criterion
for the trend in the past three years. In 1964 the gro%th rate of
manufacturing dropped to only 4.6 percent after high rates of
15 percent and 17 percent in the two preceding years. Manufacturing
activities were depressed during the year when, due to stringent
government measures for the improvement of the balance of payments,
imports of raw materials were drastically reduced and domestic
demand declined. The tightening of the allocation of foreign exchange,
the increase of the exchange rate, and the enactment of the Temporary
Special Customs Tax Law put severe restrictions on imports and
raised their costs.
The 1964 reoession affected especially consumer goods industries
such as food processing, clothing and footwear, furniture, wood and
cork products where production declined reflecting the decrease in
domestic consumption. In addition, basic metals and metal products,
non-electrical machinery and transport equipment suffered seriously
due to the shortage of imported raw materials and the slackening
demand for domestic investment. On the other hand, export industries,
such as textiles, benefitting from the Government's export promotion
and some industries being promoted for reasons of import substitution,
e.g. petrochemicals and cement, achieved noticeable expansion more
than offsetting the slumps in activities in the other industries.



a program of rationalizing and improving medium and small-scale
industries.
3.        For 1967, a very high growth rate is also expected for manu-
facturing. The Economic Planning Board forecasts an increase in gross
value of output by 17.4 percent and in gross value added by 19.0 percent.
Economic indicators during the first half of the year show continued very
rapid growth. The industrial production index, seasonally adjusted,
increased 20 percent during the January - August period. However, power
shortage emerging in August 1967 may have slowed down to some extent the
growth of production in the last months of the year. Still a growth rate
of 18-19 percent is likely.
4s        Further increase in exports as a result of the stepping-up of
the merchandise export target to US$350 million for 1967 (as compared
with $250 million in 1966) has been a main element of the present boom.
Other growth elements include (i) the expected 8 percent rise in private
consumption expenditures reflecting growing purchasing power in urban
households, (ii) rapidly increasing private investment demand as a result
of vigorous construction activities promoted under the Second Plan, and
(iii) increased Government investment and consumption demand under the
1967 budget.
5,        Industrial production in 1967 was characterized by substantial
increase in output of chemicals (especially fertilizers), cement and
synthetic fibers following rapid expansion of production facilities. In
the course of the Second Plan emphasis on these sectors will continue.
6.        Small and medium sized enterprises still dominate in Korea.  In
1966, about 65 percent of all employees in manufacturing worked in enter-
prises with less than five employees. Those enterprises, however, produced
only around 36 percent of total manufacturing output. In order to improve
the structure and competitive position of small industries, the Small
Industry Basic Act was promulgated in December 1966. The Act emphasizes
not only promotional measur'es on the part of the Government but also self-
help efforts by small entrepreneurs. Major policies endorsed by the legisla-
tion include rationalization and education of management, introduction of
new production techniques, quality improvement; improvement of working
conditions and modernization of production facilities. The development
of industrial estates and cooperatives will be promoted. In addition,
small industries are to be converted into export industries at a faster
pace. For these improvements the Government is to give priority financing
and special tax privileges.



- 3 -
Table 1
Percentage Increases in Gross Value Added In
iEning, Manufacturing,, Constrction and Power
(at 1965 constant market prices)
1/                  2/        2/
Annual     1965      1966      1967      1968
Average
1962-64
Mining                         14.8     10.7       6,4       14.4      10.3
Coal mining                  7                 17        12.1
Other mining                12.1      6X1      14.0      16.9      12.4
Manufacturing                  1201     15.1      16.1      19.0       17.1
Food                         5:7      75       137        5.2        7.5
Beverage and tobacco         2,3     17.7      22.0      1h.6       12.4
Textile industry            10.9     21.4      10.6       10.7      10.7
Footwear and Clothing        5.8     -3.1      -0.2       7.8        8.1
Lumber and plywood, wood
products, except-
furniture                  20.5     10.8      31.9        7.0      16.4
Paper and pulp              24.2    10.2       18.3      12.6       12.4
Printing, publishing and
allied industries          19.6    16.4       19.7      20.0       20.1
Leather and leather
products except footwear    3.3      3.9       9.3        9.4      10.3
Rubber products             13.1     17.1        3.1       6.1       6.6
Fertilizer                  29.7     23.6       5.9    355.1        36.7
Other chemicals             27.5     -1.5      21.8      13.6       13.7
Refined oil                    -        -      29.3       59.4      79.8
Other petrochemicals        42.5    h9.0       22.4      19.9       19.9
Cement                     )38.7)    4140)
Clay, stone, glass products)27-0     21.5      13.7      149)24.0 15.2)26.2
Basic metal industries,
metal products, except
machinery and transport
equipment                  18.5    16.2       13.5      15.7       16.0
Machinery, other than
electrical                  5.4      1.h       0.5      10.0       10.0
Electrical machinery,
appliances and supplies    44.8     19.2      55.8      47.7       4°.3
Transport equipment         13.5     18.2      38.2       25.1      17.8
Other manufacturing         11.0      5.2      ll17      16.5       16.5
Construction                   11.0    16.8       26.0       26.6      1565
Power (Electricity and Gas)   19.7      20.0      20.8       32.0    =2.
1/ 1965 figures represent changes over 1962-64 arithmetic means at
compounded rate for two years.
2/ Forecasts by EPB in ORB 1968.
Source:  Bank of Korea; 1967 and 1968 figures F,6&nomic Planning Board.



-4-
II USE OF TLAEOR, AND CAPTPAL
7.        Korean manufacturers enjoy the comparative advantage of
having a cheap, but at the same time intelligent and hard-working labor
force. Labor costs have in recent years never exceeded 12 percent of
total manufacturing costs.  In addition., the Goverrment has kept prices
low for imported capital goods (especially in the case of priority
industries), and for raw materials and intermediate goods used for
the production of export goods, by permitting duty-free irmPorts or
imports at a preferential tariff.  On the other hand, domestic capital
has been scarce and very costly as reflected in the high interest rate
level.
Table 2
Composition of Hanufacturklv Costs
(%)
IYlaterial 1/   Personnel 2/   Other
Costs       _&p.enses      Ex_rses
1962                       5G.5              9.3         10.2
1963                       76.8            11.6          11.6
1964                       73.i-. u        11.5          15.1
1965                       77.1            10.2          12.7
1966                       73.2             9.6          12.2
1/ Direct and indirect material costs and purchased partki
2/ Direct and indirect labor costs and processing costs for outside orders.
Source:  Bank of Ks)rea, Financial Statements Analysis.
8.        Employment in manufacturing increased 36% between 1963 and 1966
as a result of rapid industrial expansion. 1T'ile share of employees working
in the manufacturing sector in total economically active population rose
from 7.31% in 1963 to only 9.2% in 1966.  in the last two years nomainal
wages in manufacturing have increased by 16.8% per year over the 1962-64
average (Statistical Appendix Table 5). Wage rises mera particularly
high in wood and cork products (23%), electrical machirnery (22%) and
chemicals (20%) where the number of skilled and semi-skilled workers
increased with the introduction of more sophisticated production Lines.



- 5 -
In contrast, wage increases were very low in the paper, leather and rubber
industries. Wages in textile industry increased by about 18% from a
fairly low base. Before 1965, increases in nominal wages tended to be
offset by rapidly rising costs of living. Real wages, in fact, declined
for several years although labor productivity showed a rising tendency
(Statistical Appendix Tahle 6)   Ini 1966, however, real wages rose by about
4?3, due mainly to a discernible slow-down of price inflation,
9.        The overall low wage level has provided Korea with a substantial
cost advantage vis-a-vis neighboring competitor countries in the Far East.
The table below attempts to present an international comparison of manu-
facturing wages for 1965. It shows that monthly earnings were less than
60% of those paid in the Republic of China (Taiwan) and only one-third
of those in Hong Kong. The 'wage level in Japan wJas almost six times
higher than in Korea. In 1966, wages have risen in Korea faster than in
Taiwan, reducing somewhat the Korean advantage. In all four countries
the wages shown include bonuses, overtime pay and other allowances which
differ among countries and may be quite substantial in some sectors.
Table 3
Average Monthly Wages in Manufacturing 1965
(in US$)
Korea                 $17.41
China (Taiwan)        $29.95
Hong Kong             $5'¢.°
Japan                $100.29
Source: ILO - Yearbook of Labor Statistics, 1966.
10.       Comparison with the Republic of China (Taiwan) and Japan 1/
by industries (Statistical Appendix Table7 ) in 1965 reveals t1>et in
Korea and Taiwan the difference between high and low wage sectoro was
much smaller than in Japan. Korean wages were conspicuously low in
non-electrical machinery, textiles, food and also chemical industries
but high in basic metals, printing and beverages. It is interesting that
in some sectors the advantage of Korea as compared to Taiwan is less than
one would expect. This is particularly so in the case of some typical
export industries with high female lebor contents in both countries,
such as electronics and textiles.  In these industries the difference
between Taiwanese female wages and total Korean wages is negligible.
1/ Data for Hong Kong were not available.



-6-
11.       Fixed capital formation in manufacturing has expanded con-
siderably in the course of Koreals determined industrialization efforts.
The share of fixed investment in manufacturing to total investment
increased rapidly from 23 percent in 1962-64 to 32 percent in 1966.
Table 4
Gross Fixed Capital Formation in Manufacturing
(1965 constant prices)
Average
1962-64   1965    1966
Fixed capital formation (billion won)        21.4    30.5    61.7
Percentage of fixed capital formation in
manufacturing to total domestic fixed
capital formation ( )                     22.6    25.9    32.h
For comparison:
Agriculture and forestry                    8.5    10.0      7.3
Public utilities l/                       10.3      6.o     5.0
Transport 2/     -                         22.7    20.5    2h.6
Incremental capital output ratio              1.89    1.17    2.69
Average 1962-66               1.89 
1/ Power, gas, water supply and sanitation.
./ Transportation, communication and storage.
Source:  Salculated on the basis of Bank of Korea and Economic Planning
Moard ta is ics.
12.       The average incremental capital output ratio for the 1962-66
period was fairly low, owing to emphasis on less capital intensive
industries. In addition, construction costs have so far been comparatively
low in Korea due to cheap local labor and rather short construction
periods because predominantly small- and medium sized plants were established.
The trends has changed since 1966 when the capital uutput ratio rose to
2.69 with the concentration on large-scale, more capital intensive
industries. This trend will continue as the industrialization program
in the Second Plan is being implemented.
13.       Another factor contributing to a relatively low level of the
capital output ratio until 1966 was the increase in the utilization of
productive capacity during those years. According to statistics of
the Bank of Korea, utilization of capacity in manufacturing was low
during the early 1960's but has been increasing steadily since 1964



- 7 -
(see Statistical Appendix Tab-e 8).l/ Capacity utilization rose frcm
55 percent in 1964 to 74 percent in 1966, owing to overall industrial
boom and rapid rise in  >inal demand, although many new plants were
added and existing facilities expanded.  In the first five months
of 1967, the utilization rate however fell slightly, due mainly to
seasunal factors. In addition, new large-scale petroleum fertilizer,
metal and cement plants had not yet reached full production.
1/ Utilization rates prepared by the Bank of Korea are useful
as indicators for business trends and as such reflect rather
realistically recent developments. However, the rates hardly
provide exact information on the absolute level of utilization
since the term of irstalled production capacity is rather
im,precise and the definition used by various enterprises appears
to differ.  Absolute capacity figures are more accurate in the
case of newly established capital intensive enterprises, e.g.
fertilizer,3-cement, refined oil, synthetic fibre plants, where
capacities are well known.  The figures are more questionable
in the case of older, labor intensive industries, such as rubber
shoes, soap, food processing, bicycles, etc. which appear
particularly affected by underutilization. The Bank of Korea
obtains annual capacity data from various producers' assocjations
concerned on the assumption of physical maximum use of major equip-
ment, disregarding the economically optimal combinatiLon of labor and
capital. Obsolete and inefficient capacities are included in idle
capacities in several sectors, thus overstating underutilization.
In some cases, however, lowi utilization reflects glaring overinvest-
ment in previous years (flour mills7 sugar refineries. bicycle
plants),



-.8-
III. IMPCRT SUBSTITUTION
14.       In the late 1950's and early 1960's, the main goal of Korean
industrialization was import substitution in order to improve the balance
of payments. This was reflected in the First Five-Year Plan. In recent
years emphasis has shifted to export promotion.  Of late, however, import
substitution in some basic materials has been regaining prominence. The
rise in overall imports since the relaxation of controls in 1964 was
accompanied by even faster increase of manufactured goods imports. In
1966, manufactured imports rose by 73% and accounted for 62% of total
imports. Most pronounced was the growth of imports in chemicals, inter-
mediate goods for textile industry, iron and steel, and machinery,
including transport equipment (see Statistical Appendix Table 9).
A. Changes in Import Dependence
15.       Market dependence on manufactured imports expressed as share
of imports in total supply also rose from 15°o in 1965 to 19% in 1966,
after passing a low in 1964 (Statistical Appendix Table 10).  The degree
of import dependence was especially high in the case of machinery, e.g.
6-6% in non-electrical machinery supply in 1966.  Due to rapid increase
in domestic production, however, import dependence on chemicals and
textiles (excluding finished products) rose only slightly, although
imports increased.
16.       The Second Plan reemphasizes import substitution, this time
in the fields of basic materials, in contrast with consumers' manufactured
goods before the early 1960's.  Large-scale investments in basic metals, cement.
fertilizers,and petrochemicals are planned with the aim of eliminating
imports of such products by 1971. An important development has been the
upward trend of imports of industrial inputs. With expanding industrial
production, some increase had to be expected. In fact,the increase in
imports of raw materials and manufactured intermediate goods was still
rather moderate in 1965 compared with the 1962-64 average.  (A comparison
with 1964 alone would not be realistic since stocks of raw materials were
replenished on a large scale during 1965 following the very tight import
restrictions of 1964.) In 1966, however, imports of raw materials and
intermediate products sarged upward dramatically, exceeding by far the
growth of manufacturing output, and for 1967 another increase by 40% is
expected.  About 20% of the 1966 increase may be attributed to rising
imports of construction materials, such as cement and steel products,
caused by the construction boom, and another 10% may have been the
result of higher fuel purchases abroad to meet the growing needs of the
transportation and power sectors. But the balance appears to indicate
that domestic production of finished goods has been grow-ing faster
in 1966 than domestic output of intermediate goods. One main cause
of the increase may have been the priority given to industries
producing finished goods for exports.  In addition, rising income
and consumption level has stimulated production of finished
consumption goods for the domestic markets. Another important element



- 9-
Table 5
Industrial Production and Imports
1962-64     19651/  1966
Gross Value of Manufacturing Output
(million US$ at current prices) 2/           1,270.0   1,722.1  2,163.9
Growth (%)                                                +16.5%   +25.7%
Total Imports (million US$)                       4k62.2    463.4    716.4
Growth (%)                                      .           0.1%    54.6%
Imports of Raw Materials and
Intermediates (million US$)                     272.7     319.4    464.7
Growth (%)-                                     -           8.2%    45.5%
Imports of Machinery and Equipment
(million US$)                                    85.o      73.5    171.7
Growth (%)                                      _          -7.0%   133.6%
1/  Growth over 1962-64 arithmetic means at compounded rate for two years.
2/ Conversion rates:
1962   $1  =  157.0 w  4 Exchange rates used by
1963   $1  =  189.0 W    1966 IBRD Report.
1965   $1  =  265 9 , ) Rates applied in revised
1966   $1       271.3 W  ) Korean national accounts
Sources: Economic Planning Board and Bank of Korea.
in the import pattern has been the rapidly growing domestic demand for
investment goods reflected in the extremely high growth of imports
of machinery and transport equipment in recent years. The Government
tries to reduce these imports by expanding the small domestic machine
tool industry and by encouraging assembly plants for engines, auto-
mobiles and railroad rolling stock. There is no doubt that Korean
machinery industry could ccntribute more to domestic supply, but the
lack of domestic credit and a large volume of foreign suppliers'
credits have hampered development of domestic machinery industry.
17.       The Korean Government has in the past afforded domestic
industry almost full protection against foreign competition by import
ban sor prohibitive tariffs and has supported local production by
an array of promotional measures, including tax exemptions and
preferential credit.  Import restrictions have, of course, not only
been used to protect the local market but also to ward off undesirable



_ 10 -
and unnecessary imports for balance of payments reasons. But the
protective component has been considerable. Despite important steps
taken towards trade liberalization, especially the change from a
positive to a negative list system of import controls in July 1967,
Korean domestic market is still rather restricted to foreign goods.
B. Import Restrictions
18.       Restrictive measures include quotas, prohibition, tariffs
and commodity taxes. Prohibitions and quota restrictions,which played
a key role in the past, have become less important since 1965. Imports
under quota restrictions now cover only about 13 percent of total import
value. At the same time the number of items on the prohibited list has
continuously been reduced since 1965, by transfer to the restricted or
automatic approval lists. In mid-1967, there were only 64 items left
on the prohibited list as compared to 620 at the end of 1965 (see
Statistical  Appendix Table 11).  Significant items taken off the list
include all machinery and transport equipment, galvanized iron sheets,
nails, plywood, tires, and almost all chemicals and pharmaceuticals.
On the other hand, textile, clothing and footwear industries remained
fully under the protective umbrella.
19.       With introduction of the negative list system in 1967, the
list of restricted items in the import plan for the second half of
1967 was reduced to 321 items, which may be imported only with the
approval of the Ministry of Commerce and Industry. Most of the items
eliminated from the prohibited list reappeared on the restricted list,
including plywood, iron and steel products, many essential chemicals,
machinery, and transport equipment. In the past, main criteria for
restricting imports had been whether (a) the goods were already being
manufactured in Korea, (b) local prices were not too high compared
with world market prices, and (c) technology was not obsolete. The
future degree of protection by quantitative restrictions will depend
on how liberally the approval system will be. applied.
20.       Commodity tax has been imposed on a growing number of
products with the main purpose of earning revenues and discouraging
domestic luxury consumption. Rates range between 30-70% on finished
industrial goods of luxury character, coffee and soft drinks; rates
are lower (between 2-20%) on materials and intermediate goods and on
mass consumption commodities. Although the tax affects both locally
produced and imported goods, it has a strong restrictive effect on
imports, since most of the luxury items ccme from abroad. In some
cases, e.g. certain textiles, where commodity tax has been imposed
on imported goods only, the tax has been clearly protectionist.
Reform of the commodity tax in November 1967 (see Appendix on Fiscal
Reform in the Main Report) is a further attempt to discourage imports
and local production of luxury goods.



- 11 -
21.       Tariff (including the "special customs duty") rates are
highest on consumer goods, lower on intermediary products and lowest
on unprocessed materials and investment goods. Because of many
exemptions, actual tariff rates are far below nominal rates. As a
result only slightly more than one-half of the tariff revenues was
actually collected in 1966. For manufactured goods, it was only about 44%.
Statistical Appendix Table 12 shows tariff exemption rates by major
commodities. The high exemption rate is primarily caused (1) by
exempting imported inputs used for export production and (2) by
granting exemptions to imports of vital investment goods. The
latter explains the very high tariff exemption rate of machinery,
transport equipment, and non-metallic minerals (including cement).
The resulting low protection, especially for domestic machinery industries,
has impeded considerably the growth of these industries inducing
substantial additional imports during the present boom.
22.       The tariff reform passed recently by Parliament revises
the protective features of the tariff structure, the details of which
are analyzed in the Appendix on Fiscal Reform in the Main Report.
C. Promotional Yieasures
23.       Allocation of credits has been an important instrument in
promoting import substitution.  The Government required the banking
system - which is either Oovernment owned or Government controlled -
to gear its lending policy to the priorities of developm,ent. Foreign
suppliers' credits are controlled through the approval of the National
Assembly in granting repayment guarantees issued by the banks. In
addition, Government exercises direct control over foreign official
aid. As a result of the domestic credit allocation policy of the
Government the Korean Reconstruction Bank - the main source of
industrial finance in Korea -- extended 27% of its new loans in 1966
to the textile sector, and 25% to chemicals, non-metallic minerals, basic
metals and metal product industries (for details see Chapter V of this
Appendix).



- 12 -
IV. EXPORT PROMOTION
24.       Main element in Korea's spectacular export performance has
been the fast expansion of manufacturing exports, which (excluding
some processed agricultural products) accounted for 61 percent of
total exports in 1966 as comlpared to less than 20 percent in 1962
(see Statistical Appendix Table 13). Major exports are textiles,
clothing,and veneer sheets, together accounting for 56 percent of
total manufacturing exports in 1966. But new items have been
constantly added to the export list. These include electrical
appliances and equipment, light industry products, tools and some
less sophisticated machinery, more recently also human hair and
wigs ($15.5 million in 1966). As a result the commodity pattern
of exports became increasingly diversified.
25.       The main market for Korean manufacturing products is tie
United States, purchasing one-half of these exports (see Statistical
Appendix Table 14), which in 1966 bought almost 40 percent of Korean
textile and clothing exports, 50 percent of the electrical machinery,
90 percent of the veneer sheets and 94 percent of the human hair and
wig exports. Although total Korean exports to the United States is
less than 0.3 percent of U.S. imports, the present heavy reliance on
the U.S. market <wTcl;o som0e danger of demand f'luctuations
and of trade resistance. For instance, Korean plywood exports
already felt the effects of the decline in housing construction
in the U.S. in late 1966 and cotton textile;.exports are subject to
quota arrangements. Korea has tried to diversify its export markets
too and succeeded in establishing important trade relations with
Wlestern Europe, especially Sweden, the Federal Republic of Germany,
the Netherlands and Belgium, primarily selling clothing, non-electric
machinery and radios. In the 4estern Hemisphere, Canada is becoming
an important customer for veneer sheets. In Asia, it has expanded
industrial exports, especially to Hong Kong, Thailand, Malaysia and
the Republic of China. Direct exports of manufactured goods to
Vietnam, predominantly steel sheets and plates, combustion engines
and textile machines, did not exceed 8 percent of total manufacturing
exports in 1966 and have declined since. Manufacturing exports to
Japan, so far primarily textiles and aluminum and iron products, have,
however, been relatively limited.
26.       Korea's remarkable export performance would not have been
achieved without the Government's determined promotion policy. The
concerted export drive started in 1962 with emphasis on direct subsidies
and introduction of an overall export-import-linking system.  Since the
1964 devaluation, indirect promotional measures such as tax and customs
duties exemptions, credit incentives and subsidies have increasingly
become more important. Meanwhile, the import controls have been
gradually liberalized as discussed previously.



- 13 -
27.       At present, the following major export incentives are offered
tr the manufacturing sector:
(1) Taxation
Business and Corporate Income Taxes.  50% of profits
earned on exports are tax exempt.
Other Taxes. Goods for exports are exempt from
com,modity tax.  Exemption is granted by the tax
office upon receipt of a bank's export certificate.
Exporters are exempt also from payments of business
activities tax on gross receipts derived from exports.
Effective September 1966, the exemption of business
activities tax is granted not only to the exporter
proper but to all enterprises producing export com-
modities, including those producing raw materials
or intermediate goods needed for export products.
(2) Customs Duties
Imported goods used in the production of exports are
exempt from customs duties and special customs duties.
Effective September 1966, the provision also includes
imports of machinery and other equipment to be used
for manufacturing of export commodities. (Previously,
duty had to be paid on capital goods.)
Import duties exemption is applied rather liberally,
e.g. also in cases-where the producer is not the
direct importer or exporter. The authorities have
developed-certain standard allo-ances for the processing
of imported raw materials or intermediate goods into the
export product, which will limit but perhaps not entirely
prevent leakage of duty-free imported goods into production
of commodities for the Korean market.
(3) Credit Incentives
(i) Export Credits - The exporters have semi-automatic
access to 90-day bank credit to finance activities
related to exports. The credits are granted on the
basis of Won 200 per US$ of export earnings at an
interest rate of 6%.i/ The interest differential
1/ Before June 1967, the rate was 6½%.



- 14 -
as compared to domestic credits is considerable
ith commercial bank loans bearing at present
26% interest p.a.  Previous special qualification
requirements promoting bigger exporters have been
abolished in March 1967. The credits are given
on the basis of a letter of credit opened by a
foreign importer. The cost of subsidy provided
by the low interest rite is carried by the Bank
of Korea, which provides special rediscounting
facilities to the commercial banks for export
credits.
(ii)  Import Credits - Domestic usance credits in
foreign exchange are granted by the banks to
exporters at an interest of 6% p.a. for imports
of inputs for processing export goods up to 135
days from the date of release of the bill of lading.
These credits can also be rediscounted with the
Bank of Korea. Imports of capital goods for export
industries are permitted on a deferred payment basis
(1-3 years) at 6.5 percent annual interest up to a
total amount of $60 million. These credits are
extended by Korean foreign exchange banks and are
only available for specific export industries.
(iii) Other Incentives include:
(a) Discounts on power rates (applicable only
to manufacturing export industries whose
total power requirements are below KtJ2CO)J
and railway fares for activities related
to certain exports.
(b) Liberal allocation of foreign exchange
for foreign travel etc. related to export
promotion.
(c) Exporters who tap and develop sufficiently
a new foreign market are permitted to mono-
polize it for a period of six months.
1/ Such industries have also been exempt from the 15% hike in
power rates which became effective on November 1, 1967.



- 15 -
(d) Under the reintroduced export-import
linking system, raw materials previously
on the quota list can be imported only by
traders who have earned foreign exchange
through exporting commodities manufactured
by the use of the same type of raw materials.
In addition, the export-import link system is
extended to certain goods, whose profit margins
in the export markets are low, linking export
performance with import rights of popular
import commodities: (e.g. import licenses
for television accessories are given only
to exporters of radios and electronic goods,
import licenses for porcelain only to
exporters of chinaware, and import licenses
for Swiss watches only to exporters of-
locally assembled watches or to exporters
gaining export earnings from Switzerland).
28.       Although evidently very successful in boosting exports,
these incentives may be shrouding inefficiencies in' xportt'industries
by lowering artificially production cost. Under the present e-zpprt
credit system, an exporter may obtain almost all his working capital
at 6%, which under Korean conditions is extremely low. W4hile the
Korean Government realizes that perpetual export subsidization can
be a hazard, in practice  it has,however, concentrated mainly on the
achievement of the ambitious export goals and considered efficiency
of secondary importance. In the long run, this policy could become
costly and should therefore be constantly reviewed. Despite the-
liberal incentives and the comparative advantage of low labor costs,
there is only a thin margin of profitability, and sometimes financial
loss, in the exports of various items. Exporting is generally not as
attractive as selling in the protected domestic market.
29.       In addition to the tendency of perpetuating inefficient
industries or providing exporters with profits at the expense of
the domestic sector, export credits have the disadvantage of being
granted on the basis of gross instead of net foreign exchange earnings,
thus disregarding the share of import contents of raw materials and
intermediates. Easy credit terms and payments guarantees would-even
induce domestic producers in some cases to substitute foreign for
domestic raw materials. The Korean Productivity Center calculated
that import contents in Korean manufactured goods are very high,
amounting to two-thirds of the export value on the average. As
raw material imports (including manufactured intermediates) have
recently been rising more rapidly than exports, an amended credit
policy using net foreign exchange earnings as a basis appears to
be urgent.



- 16 -
V. FINANCING
30.       Internal generation of funds is increasing rapidly in size as
the manufacturing sector expands.  However, financing needs, especially
for increased production capacity, are rising at even more rapid rate
and thus the need for finance from outside the firm is becoming more
urgent. From the national accounts, it appears that corporate earnings
(of all enterprises) have risen almost as fast during the 1960ts as value
added in manufacturing and that a major part of corporate earnings is
being retained in the business (over 80 percent, see Main Report para 48).
A large sample of manufacturing enterprises would point to even higher
profit retention in manufacturing. Less than 10 percent of earnings during
1963-65 was distributed in the form of dividends and bonuses and the
remainder retained in the business. According to this sample, retained
earnings and provisions for the depreciation of capital goods amounted to
about 24 percent of total funds used in manufacturing industries.,  the
remainder being external funds including new stock issues.
31.       Equity financing.  Enterprises are closely held in Korea, equity
financing being largely confined to relatives and friends. The stock
exchange has a very limited scope (total volume of trading $4.1 million
equivalent in 1966) and does not yet fulfill an important function in
mobilizing capital.  The recent fiscal reform (iMain Report, Appendix on
Fiscal Reform, para 9) favors "open" L  over closed corporations.  If
successful, this policy could lead to increased channelling of savings
into equity. Other developments of importance are the possible activities
in the field of underwriting issues of the recently founded Korea Development
Finance Corporation and perhaps also the establishment, recently and in
the near future, of branch offices of a few major foreign banks. The
sharp increase in recent years in foreign direct investment ($13.4 million
in 1966) will also lead to an increase on the Korean scene of equity
financing because of the direct impact of foreign held equity the required
counterpart of local equity in joint ventures. Even more important,
perhaps will be the galvanizing effect on local business attitudes of
this rapid, widely diffused inflow of corporate funds.
1/ Financial Statements Analysis, 1965, Bank of Korea.
2/ "Open" corporations are defined as selling shares through the stock
exchange or by public auction and allowing only less than 50 percent
of the shares to be held by one family.



- 17 -
32.       As pointed out in the Main Report (Appendix on Fiscal. Reform
para 6), tax laws are greatly favoring interest income over business
profits. The recent tax revision has reduced the inequality of treat-
ment, but further revisions will be needed for healthy growth of equity
financing.
33.       Credit from domestic financial institutions.  The growth of
credit from domestic financial institutions is being delayed by continued
restraints on bank credits which is part of the Government's stabilization
policy, As pointed out in the Main Report (para 51) these restraints are
closely related to the buoyancy since 1965 of the foreign sector. It-is
hard to get a conclusive view of the size of the total amount of funds
used to finance manufacturing and the degree to which bank credit has
helped satisfy the need. It seems probable that the growth of gross
value of manufacturing output gives a fair picture of the increase in
these financing needs and the rising ratio of bank credit to gross value
in recent years shown in the following table is therefore of great int-
erest. However, the ratio had by the end of 1966 not yet regained the
level of 1963, before the start of the Government1s stabilization effort,
Table 6
Bank Credit to Manufacturing
(in billion won)
1963   1964    1965    1966
1. Gross value of manufacturing    235.7   330.9  457.1   587.1
2. Outstanding bank credit to
manufacturing                  29.4    32.6    47.5    68.1
3. Total outstanding bank credit    77.0    85.5  107.3   145.39
4. Credit to manufacturing as
percent of gross value (2)    12.5%    9,93  10.4,)  11.6%
5. Credit to manufacturing as
percent of total credit (2)    38.2%   38.1%   44.3%   46.9%
Source:  Misik of Korea, Mont    Statistical Review and data supplied to
34.       To complete the picture of institutional bank credit to manu-
facturing allaonance should be made for the fact that special export and
import credits extended to Korean exporters also serve to finance working
capital needs. These credits are not included in line 2 in the above table.



- 18 _
As discussed elsewhere in the report (Chapter IV) such credits have become
a major instrument in export promotion. The total outstanding of these
credits rose from won 0.6 billion at the end of 1961 to won 9.3 billion at
the end of 1966.
35.       Almost half of bank credit to manufacturing is extended by the
commercial banks (all government controlled) wrhich provide only short-term
loans of less than one year, requiring substantial collateral from the
borrower.  Earning power, quality of management and the use of loans are
generally not major considerations of lending policy.
36,       Long-term development linancing has so far been largely provided
by the Korean Reconstruction Bank (KRB), wholly owned by the Government,
and to a lesser degree by the Kedium Industir Bank (86 percent Government-
om-ed). By legislation, IUZB is to act only when other institutions are
unable to provide financing but, in fact, IEB  has been virtually vhe only
financial institution which undertakes long-term industrial firencing
outside the field of medium and small-sized industries. In addition, it
has provided substantial funds to mining, construction, power, transport,
and other services.  By the end of September 1967, IRBts total outstanding
loans amounted to won 51.0 billion, of which PO percent were equipment
loans.  One-half of KRB1s total loans was extended to the manufacturing
sector, of which more than tw-ro-thirds iJere equipment loans. (See Statist-
ical Appendix, Table 15.)
37.       IRB finances both public and private sector projects, acting
primarily as an intermediary for channelling Government funds, counterpart
funds, and foreign loans.  The latter consists of loans from the United
States (two loans totalling $17 million) and Germany (,$5 million). Its
loan policies are basically geared to Governmaent planning. Its main
function is to finance equipment and machinery; working capital loans are
authorized only to recipients of capital loans and to Government-owned
enterprises. The issuance of repayments guarantees of foreign loans has
become an important function since 1964 when such loans first assumed
importance. in the issuing of. these guarantees KRB acts in consultation
with other Government agencies, especially the Economic Planning Board,
the Ministry cf Finance and the Bank of Korea. Since 1966 part of the
guarantee function has been taken over by the commercial banks,  For
Government appr6ved foreign borrowings, IKB usually assumes repayment
guarantees in local currency, containing a maintenance of dollar value
clause in favor of the' Bank of Kora_, which assumes dollar repayment
guarantees to foreign, creditors. Such guarantees amounted to over 65
percent of the KRB3s assets by the end of 1966 as compared to only 7
percent in 1962.
38.       Intezrest rates charged by iRB vary wridely, according to the
purpose of the loan or the origin of the fund.s,  In view of the high
interest rates charged by commercial banks (26 percent p.a.) and the



- 19 -
even higher rates prevailing in the unorganized money market (4 percent
and more per month), it is clear that these interest rates contain a
substantial subsidy element.
Table 7
Korean Reconstruction Bank: Interest Rates on Loans
(per annun as of June 29 1967)
1. Loans
a. Capital loans :1/
"Basic" industry loans2/                          7.5%
Loans under 2 years                               12.0s
Between 2 to 5 years           -                 71.0;l
Over 5 years                                     10. OjS
AID sub-loans                                      8. O,
IKW 3/ sub-loans                                     8. /o
b. Operational loans:
(Government funds)                               18.Os
2. Overdue (Total charges on loans)                        36.5%
1/ PMkdlDim limit for equipment loan is 25 percent of total project
costs.
2/  Including electricity, coal mining, ship building, marine trans-
portation, public works and waterworks.
3/ Kreditanstalt fuer Wiederaufbau, German Development Bank.
Source: Bank of Korea, Monthly Statistical Review, October 1967.
39.       The Medium Industry Bank (P1B) established in 1961 assists the
development of small and medium-size industries. Its major sources of funds
come from private and Government deposits, loans out of counterpart funds,
and foreign loans (Japan $30 million, United States $8 million and Germany
$3.75 million). Total outstanding credits amounted to won 12.1 billion at
the end of March 1967 of which 94 percent were loans to manufacturing. IUB
in particular lent to textile firms and small-scale chemical business. By
legislation, IffB is limited in its lencting to enterprises with less than
200 employees or with total assets not exceeding w-zon 30 million.  MIB was
for them a major source of working capital funds.  Only 13 percent of the
volume of total lending operations was for equipment loans.



- 20 -
4O.       In view of the shortcomings in the existing financial market
structure, the Korean Government endorsed the establishment of a newr,
privately-awmed development bank.  In April 1967, the Korea Development
Finance Corporation (KDFC) wTas founded with encouragement of AID and
IFC. Sponsored by the Federation of Korean Industries, an association
of leading industrial firms, it aims at assisting sound and productive
private enterprises, particularly in manufacturing, by providing long
and medium-term loans, equity participation (including financing in
foreign exchange), guarantees, and by furniahing managerial and technical
assistance Export industries and import substitution industries will
receive high priority. Through its operations, KDFC intends also to
promote broad (nmership of private securities.
41.  -   KDIFC's initial capital resources wrill be $22.5 million equiv-
alent, consisting of $5 million equivalent paid-in share capital, $765
million equivalent of a quasi-equity long-term loan from the Korean
Government (out of AID counterpart funds), a proposed $5 million AID
loan and a proposed $5 million Bank loan. Sixty-one percent of the
authorized share capital has already been subscribed and paid-in (31
percent by the Federation of Korean Industries and Other Korean private
investors, 15 percent by Korean banks, 15 percent by Korean insurance
companies). Another 14 percent will be subscribed by IF5, the remaining
25 percent will probably be taken by U.S., airopean and Japanese banks.
42.       Current loan applications from the private sector for 1RB and
IJB exceed by far their lending capacity.  After the establishment of
IKDFC, Korean industrialists will have an opportunity to submit their
projects to the management of a private institution independent of Govern-
ment directives.  As private enterpreneurship is flourishing, the rate of
commitment of KDFC's proposed initial resources will in the beginning probably
depend more on its capacity to process loan applications than on the
availability of requests.  The I1ission agrees that a private institutional
source of long-term finance such as KDFC is necessary and feels that its
business prospects are good.
43.       The resources of the organized banking system (commercial banks,
KRB and M4IB) are not sufficient to cover all the financial needs of man-
ufacturing and an important unorganized market (curb market) exists where
interest rates are said to range from 4 percent per month upwards. There
is uncertainty about the amount of financing through the curb market but
qualified observers in Government, banking and industry agree that it is
large.  The curb market is especially important Eor those w4ho have no or
insufficient access to the resources of the organized banking system, wL-hich
favors certain activities (export production, "basic" industries) and
leaves others out.  Some of these favored activities are very well supplied
with fands as a result of the official-credit policy, e.g. exporters -who
cover most of their working capital needs with 6 percent export credits



- 21 -
and fixed capital needs largely with Goverrnment guaranteed foreign
supplierst credits and loans from KR3 or UB. Undoubtedly, a consider-
able part of funds obtained from the organized banking system in this
way must be deflected to the curb market. The high interest rates
received on this market are adding indirectly to the profitabiLity and
thus the success of the activity favored by the Government.
44.       The increased role of foreign suppliers' credits and foreign
cash loans has been discussed in the Main Report.  As pointed out there
is, paradoxically, some danger of substituting domestic by foreign funds
-- at the detriment of the domestic capital market and the domestic
capital goods industry and review of official policy in this respect
was recommended.



_ 22 -
VI. STATUS AND PROSPECTS OF MAJOR INDUSTRIES
A. Investment and Intermediato Goods Industries
45.       Basic metals industries in general recovered very quickly
after import restrictions on raw materials were relaxed in 1965. Rapidly
increasing construction activity especially stimulated iron and steel
production.  Demand for iron and steel products reached about 460,000 MT
in 1966, a level previously expected to be attained only in 1968.  For
1967, total requirements were estimated at 525,OO MT, and contrary to
the 800,000 MT de-mand estimate given for 1971 in the ORB, it seems now
possible that demand for iron and steel products may well reach the 1
million MT mark by then, as tentatively forecast by the Ministry of
Commerce and Industry. This would mean an annual demand increase by
17.5 percent as compared to a 10 percent growth estimated by the previous
Bank mission.
46.       Production of iron and steel has beccme a bottleneck in the
Korean economy. Existing pig iron and rolling plants, small-scale opera-
tions with frequently obsolete machinery, proved insufficient for domestic
requirements. Despite a 64 percent production increase in 1966, almost
40 percent of domestic rolled steel requirements had to be imported.
Imports of scrap as well as of iron and steel products in 1966 amounted
to over 7 percent of total Korean imports. Expansion and modernization
of existing production facilities is taking place. Also a new cold
rolling mill is being built in Inchon. To achieve a major breakthrough
in meeting local iron and steel demands, the Government has decided to
construct an integrated iron and steel plant.
47.       The hew iron aind steel plant has become a major project in Korean
development planning-.  Located at Pohang (South-East Coast of Korea),
the complex with an initial capacity of 600,000 MT ingot equivalent
is to produce 48O,000 HC of finished steel goods, including plates and
billets, when completed in 1971. Later on, capacity is to be expanded
to 1.15 mivi.onYNT steel ingot with a planned production of 855 thousand
MT of metal products. An international consortium of suppliers of plant
equipment 1/ estimated on a preliminary basis of total investment costs
at $160 million, thereof $95 million foreign exchange.
48.       In view of lack of mineral resources, most of the iron ore
and all coking coal will have to be imported. Although recent discoveries
raised Korea's known iron ore deposits to 112 million 1X, about 88 million
1/ Korea International Steel Associates (KISA), headed by Koppers
Company, Inc., and consisting of U.S., British, French, German
and Italian firms.



- 23 -
MT have only 25 percent Fe-contents and their exploitation is economically
doubtful. The rest has an average 55-60 percent Fe-contents requiring
a special type of blast furnace to be used in modern steel plants. Besides,
Japan is buying the poor Korean ore at a favorable price as an additive to
other ores for producing special steels. A special blast furnace will be in-
stalled in Pohang to permit the use of low-grade domestic iron ore for 30%
of total requirements; it may have been more economical to rely fully on
pelletized imported ore and continue exporting the local ore. Wlith the
project still under negotiation, a full assessment is not yet possible.
A UNIDO Mission previously endorsed the project in principle, because
of the demand situation. However, production costs are likely to be
initially high and the plant ill therefore reed tariff protection.
Productive capacity will also be small in the beginning compared with
neighboring Japanese plants, although it is gradually to be expanded.
It is also doubtful whether all necessary infrastructural and supporting
investments are covered by the present investment cost estimate which is
substantially below previous ones. Despite these shortcomings, the project
will probably become economical in due course because of the fast growing
domestic market.
49.        Growing domestic demand for aluminum induced the Korean Govern-
ment to build an aluminum smelter based on imported bauxite with a total
cost olC won 5.18 billion, including US$l3.5 million of foreign exchange.
By 1971, the plant is to supply local demand of aluminum ingots and permit
some exports. Production costs will be high because of expensive bauxite
imports and high power rates and the thought that the industry wlll be
able to compete in the world market is unrealistic.  It would have been
more economical to continue importing aluminum and to produce only
finished aluminum goods locally for which the Korean producer enjoys a
considerable labor cost advantage.
50.        The establishment of an efficient machinery industry in Korea
may be crucial for future economic development. Under the Second Plan,
machinery output was to increase by 118 percent until 1971, requiring
an investment of won 32.8 billion at 1965 prices. Higher investments
will probably be needed, especially because of the higher export targets
in electrical machinery visualized in the ORB.
51.        Non-electrical machinery industry output had the lowest growth
rate in the entire investment and intermediate goods sector. The industry
suffers frcm the disadvantages of small-scale production, inadequate tech-
nological skill and low quality; the products are overpriced. Consequently,
local manufacturers prefer imported machinery. The most important reason
for the industry's sluggishness is, however, the fact that development
projects in recent years have attracted a large volume of foreign equip-
ment loans. Simultaneously, scarcity of domestic funds has kept demand
for locally produced machinery almost stagnant despite the investment
boom. This situation - also prevailing in part of the transport equipment



-24 -
sector (railways, vessels) - requires the Government's foremost
attention.  As argued elsewhere (Main Report para 24), revision of
the policy regarding foreign financing of machinery and equipment
appears desirable. As pointed out by the previous Mission, Korea
should concentrate on a limited number of production lines, and be
prepared to import the rest. Possible complementary investment programs
and common market arrangements with neighboring Asian countries, of the
same nature as the recent arrangements for the production of petro-
chemicals with the Republic of China, deserve consideration.
52.       In contrast, electrical machinery and appliances industry
have been scoring record growth rates, especially in 1966 when the gross
value added increased by 56 percent, and very high growth rates are
predicted for 1967 and 1968.  The rapid expansion was the result of the
fast build-up of new capacities in line with the Government's emphasis
on this sector in its export promotion program.  In addition, domestic
demand for electrical goods increased with growing electrification and
expanding communications facilities. The number of plants and employees
has more than tripled since 1960. The industry has been attracting
foreign capital and technical know-how on a large scale, mainly from
the United States. Development of this branch has been parallel with
what is occurring in other Far Eastern countries, especially the   -
Republic of China and Hong Kong. Most of the new plants are producing
parts for the computer industry and other sections of the electronics
industry in the developed world. Korea's main advantage in this respect
is its low-cost, but highly capable labor force. Also local demand for
electrical appliances has been rising with higher per capita income.
For many products, the protected domestic market paying higher prices
than the world market is much more lucrative.  Export prospects for
electronics and electrical appliances are excellent; the 1968 export
target was therefore raised from $11.6 million to $31.9 million. But
whether exports can be increased further will to a large extent depend
on how effectively growing internal demand can be restrained.
53.       Transport equipment industries has expanded with the establish-
ment of automobile assembly plants and increasing production of spare
parts. This sector will grow in the future with more motorization. Alao
rolling stock assembly facilities for the railroads are being expanded.
The Korean National Railroad will use its facilities to assemble various
types of freight cars. In addition, the planned expansion of the Hangkuk
Machinery plant will include assembling facilities for oil tank cars.
As a measure of import substitution, the Government also plans to expand
the shipbuilding facilities of the state-controlled Forea Shipbuilding
and Engineering Corporation from 29 thousand GRT to about 60 thousand
GRT by 1971. However, by far the larger part of the proposed expansion
of the merchant fleet is to be imported.



- 25 -
54.       Intermediate Goods - Besides on iron and steel, the Government's
import substitution policy concentratues on petrochemical) cement and
fertilizer production, giving these sectors top priority in the alloca-
tion of resources. Stimulated by the boom in investments and construction,
cement production increased rapidly from 778,000 MT in 1963 to 1.88
million MT in 1966. In view of the forecast growth of construction
activities, the Government made the expansion of cement production one
of the important targets of the Second Plan, but will concentrate on
expanding existing plants rather than on constructing new ones. Total
supplying capacity is to reach 2.6 million MT2 by the end of 1967 and,
assuming a continuing rise of domestic demand by 25% p.a., capacity
will be expanded to 8.6 million MT by the end of 1971. In line with
the forecast increase in capital formation, domestic demnand in that
year is estimated at 7.6 million STV; the rest would be available for
exports. At present, cement is in short supply in Korea and will
probably be so in the near future. But it seems somewhat doubtful
whether domestic demand will rise as fast as indicated above.
55.       Production of bricks, tiles and glass has also been
stimulated by the construction boom. Production of high-quality
bricks has been expanding rapidly with low-quality bricks being
increasingly substituted by cement blocks. Tiles and pottery industry
has also prospered due to growing domestic demand for sanitary equip-
ment and household chinaware. Korean ceramics industry benefits by
the ample supply of high-quality domestic kaolin and is being promoted
by the Government as one of the important export industries in view of
good export prospects, particularly in South East Asia, for sanitary
equipment, dishes,and tableware. For this purpose, a ceramics center
is being established as a technology research institution and as a
model plant in tiles, toys, sanitary products and high pressure
porcelain. It also attempts to improve design and quality of Korean
ceramics which despite its old tradition is still generally below inter-
national standards.
56.       Glass production capacity - monopolized by one enterprise -
is fully utilized and production increased by 30 percent between 1963
and 1966. Exports have been declining with rapidly growing domestic
demand; in 1966 only about 14% of the output wTas sold abroad. All raw
materials for glass manufacturing are amply available in Korea and pros-
pects in the domestic market are excellent due to the construction and
investment boom.
57.       Oil refining began in Korea with the completion of the Ulsan
refinery run by Korean Oil Company (KOCO) in 1964. In addition, there
is a lubrication oil refinery in Pusan operating on partially refined
lube oil. Using crude oil from the Persian Gulf, the KOCO's refinery
rated capacity of 55,000 barrels per day is fully utilized due to the
rapidly growing demand, especially for heavy oils. Most of the increase
was in Bunker C fuel oil because of the Government's decision to switch



- 26 -
several previously coal burning power and heating plants to oil in
order to alleviate the coal shol'tage. Furthermore, growing gasoline
consumption in road traffic as well as the completion of three large
fertilizer plants in 1967 using naphtha as raw material,added to demand.
Refining capacity in Korea will be enlarged considerably within the
next years to meet future demand for refined products by the Ulsan
petrochemical complex and by several new oil-fired-power plants. The
Ulsan refinery is being expanded from 55,000 to 115,000 barrels/day
and a new 60,000 barrels refinery will be built in Yosu. The construction
of a third refinery towards the end of the Second Plan, perhaps in Inchon,
is under consideration.
58.       The Government attaches top priority to the establishment of
a petrochemical industry.  The industry's core will be the Ulsan
petrochemical complex.  Investment costs for Ulsan are calculated
at around $160 million. It will consist of two complexes: (1) a
naphtha cracking unit of 60,000 Ml ethylene, whose capacity will be
increased to 100,000 MT by 1971,and (2) a VCM polyethylene plant with
related production units. A highly desirable aspect of this project
is the planned regional cooperation with the Republic of China
which will import caprolactam from Korea and supply DMT. The Korean
Government and the local Korean sponsors are still negotiating with
interested foreign enterprises, mostly from the U.S.,to secure foreign
financing, both loans and equity participation, and also technical
assistance.
59.       The Government's decision to enter the petrocherical field
appears due to the key role of petrochemicals in modern -industry. There
is the danger, however, that some of the plants may produce at costs
above international level. Although later large-scale plants are planned
for Ulsan, they will have to compete with even bigger operations in Japan,
Europe, and the United States. Another pitfall is the fast-changing
technology in petrochemicals, which Korea will have to watch with a
careful eye.  Since demand for the numerous intermediates turned out
by the cormplex (plastics, inputs for synthetic fiber production etc.)
is so closely connected with the direction of Korea's industrialization
effort, the project may in the long run be a desirable step. The Mission
is, however, uncertain whether the time has already come for Korea to
start this project.  At any rate, extraordinary efforts -ill be needed,
to make the complex technologically and economically successful.
60.       In recent years there has been a conspicuous increase in coal
briquettes production when urban households changed from rice straw and-
wood as fuel for heating and cooking to coal, a process which was
promoted by the Government's policy of holding coal prices domn and
contributed to the current coal shortage. The 30% coal price incre2se
in July 1967 and the expected decline in oil pri1ces tends to initiate
another switch from coal to oil as basic household fuel and reduce in
the long run briquettes production.



- 27 -
61.       Domestic fertilizer demand is estimated to increase by 9.5%
a year between 1966 and 1971.  Three fertilizer plants with a total
capacity of 440,000 MT nutrient were completed in 1967, giving Korea
self-sufficiency in nitrogen fertilizer by 1968. Future expansion
in production capacity will be much slower than in the past, and no
attempt is made to make Korea self-sufficient also in phosphate and
potash fertilizers. Some of the older fertilizer plants are not
economical, due to obsolete coal and oil gasification processes,
and may have to be retired. In building new plants, recent changes
in technology will have to be carefully considered.
62.       The following table indicates the differences in unit price
per M.T. of production among the five existing major plants calculated
on the basis of urea. All fertilizer is sold to the Governmnent, which
pays different prices to the plants and resells fertilizer to the farmers
through NACF at a pooled price, thus subsidizing the less efficient plants
at the expense of the more efficient producers.
Table 8
Korean Fertilizer Plants
Capacity                    Unit Price
Plant         M.T./Year      Product      (US$p2r MT.)    Raw Material
Chungju        85,0oo          Urea            86.80           Bunker C
Honam          85,0Oo          Urea            86.80            Coal
Yungnam         84,100         Urea
(180,630       Complex)          90.00           Naphtha
Chinhae        84,100          Urea
(180,600       Complex)          69.98           Naphtha
Korea         330,000          Urea            58.87           Naphtha
Price in U.S.                          Approx 100.06
Japan                                 94.00
Sources:  Ministry of Commerce and Industry and Korea Fertilizer Company.
63.       In non-fertilizer chemicals there has been considerable
expansion of production of industrial explosives because of increased
demand in the mining sector and of inorganic chemicals, soap and dyestuffs.
Nearly all current chlorine output is converted to hydrochloric acid,
while recently created additional capacity wdll be used in PVC plants or
as a bleach in pulp and textile industries. Present capacity of caustic soda



- 28 -
end seoda ash output *ill be sufficient to mieet fc"ecast dezand until 1970.
Korean carbide industry was operating at only 30% capacity in 1966,
due to limited demand for acetylene gas for the use of welding and
cutting metals. The dyestuff industry is still in an infant stage
and special dyestuffs have to be. imported.
64.       Output of lumber and wood products, expanded in 1966 because
of rising construction demand, increased imports of timber, and an upswing
in wooden ship construction. Plywood, one of Korea's leading export items
with 12% of total exports in 1966, has increased from 335 million square
feet in 1963 to 1,198 million square feet in 1966. Raw materials for
veneer sheets are imported predominantJly from the Philippines and Borneo.
The plywood industry appears to be well-organized and fully utilizing
its capacity. Production facilities will be further expanded, since
export prospects are favorable with good chances of increased roles
in the U.S. and in new promising markets, for instance Canada.
65.       Paper and pulp industry has.not been able yet to meet growing
domestic demand for newsprint, printing paper,and kraft paper.  A
considerable expansion was therefore foreseen in the Second Plan. About
70% of local pulp requirements have now to be imported.
B. Consumer Goods Industries
66.       Textiles - Textile industry, in fact partly an intermediate
goods producer, continues to be the biggest industrial branch in both
production and exports. In 1966, it accounted for 27% of gross value
added in manufacturing and almost 20% of total exports. About 40% of
output is yarn, 45% fabrics and the remainder a variety of finished
products, including socks, knitted underwear, sweaters, gloves and
fishing nets. Cotton textiles still account for about 50% of total
production but use of synthetics is growing rapidly, reflected lately
in a sharp increase in synthetic fiber and fabric imports. Some
synthetics are already produced locally and the Government attaches
high priority to the expansion of production capacities for synthetic
yarns and fabrics, especially by building the Ulsan petrochemical
complex. At present, more than 90% of the raw cotton requirements
are imported, of which about 80% is supplied by the U.S. under the
PL-480 program.
67.       After a temporary upswing in l965, textile industry has
been sutfering from stagnating exports in 1966 and capacity utiliza-
tion dropped well below the national average.  However, business has
again become buoyant in 1967 and the $130 million export target for
this year will probably be attained.  In 1968, output of textiles
(including clothing and footwear) is expected to grow by 10% over
the 1967 plan target; the export target for that year has been revised
upward to $138 million.



- 29 -
68.       Present production plans for the rest of the Second Plan are
ambitious. With the establishment of the Ulsan petrochemical complex,
new production lines like polyester fiber, P.P. fiber, rayon staple,
and acetate rayon yarn will have become important by 1971. Other
productions like acrylic fiber, nylon yarn, wJoolen and worsted yarn
will be substantially increased but, at the same time, cotton fabric
output will also be raised by over 60%. Also production of silk fabrics
and most lines of finished goods (e.g. sweaters, stockings and sewed
garments) will be expanded.  At present, about 75% of textile production
is for the domestic market; the ratio would have been reduced if the
accelerated export program would be realized.  Investments in 1968 are
earmarked for the expansion of synthetic fiber production facilities,
partly in connectJion with the Ulsan petrochemical complex.
69.       Like in electrical appliances, future growth in textile
exports also depends on the extent to which growing domestic consump-
tion can be restrained. Position of Korean exporters in the inter-
national market is not bad because of the export incentives afforded
to them but will be limited by the recently extended GATT Long-Term
Arrangement Regarding International Trade in Cotton Textiles and
restrictive agreements with the United States.
70.       Processed food industry although acco.mting for 15% of
total manufacturing output has in the past not been given high
priority in Government development planning, except when import
substitution of essentials was concerned. For 1967 and 1968 only
a 7% growth of output is expected with rice cleaning, flour milling
and sugar refining accounting for about 50% of the production.  With
the establishment of the Agricultural and Fishery Development Corporation,
canning of farm and fisheries products will be emphasized with the aim
of export promotion. But domestic demand for higher valued food is also
growing fast with rising per capita income.
71.       Rubber products industry has been sluggish.  It is true that
tire production is increasing fast with growing motorization, and exist-
ing production facilities are over-utilized. However, other rubber
products, e.g. rubber bands, are produced at costs almost double that
of international prices due to small scale of production and also
because Korea has to buy more expensive U.S. stockpile raw rubber
instead of purchasing cheaper raw material directly from Malaysia.
Owing to declining domestic demand, rubber footwear output dropped by
al-most 26% in 1966 and production capacity was utilized by less than
50%.  Sneaker production expanded by only 3%.  However, rubber shoes and
sneaker industry has relatively large production units and appears to be
able to compete in export markets. Furniture industry using domestic
wood has so: ,L been stagnant although there exist export opportunities
in Japan and the U.S. for certain qualities, due to the substantial
labor cost advantage. Export prospects are also good for grass cloth
aaer, an industry which has expanded rapidly from a very small base
in 1960. Both industries are promoted by cheap Government loans.






STATISTICAL APPENDIX
Table 1.   -   Gross Value Added of Mining. Manufacturing,
Construction and Power, at Current Market Prices
Tabl2 2.   -   Gross Value Added of Mining, Manufacturing,
Construction and Power (Constant 1965 Market Prices)
Table 3.  -   Manufacturing - Composition of Gross Value Added
by Sector (Percent) at Constant 1965 Market Prices
Table 4.  -   Industrial Production Index
Table 5.   -   Monthly Earnings and Man-Days of Production rbrkers
in M1ining and Manufacturing
Table 6.   -   Trends of Labor Productivity and Real Money Wllages
in Manufacturing by Sector
Table 7.   -   Average Monthly Earnings by Branch of Manufacturing
in 1965 in Korea, the Rep. of China (Taiwan) and
Japan
Table 8.   -   Rates of Capacity Utilization in Xajor Industries
Table 9.   -   Imports of Manufactured Goods
Table 10.  -   Market Dependence on Imports
Table 11.  -   List of Prohibited Imports, July-December 1967
(Principal Items)
Table 12.  -   Korean Tariff Rates for Selected Manufactured
Commodity Groups in 1966
Table 13. -   Exports of Manufactured Goods
Table 14.  -   Major Export Markets by Major Manufacturing Expoots
in 1966
Table 15.  -   Outstanding Loans of K0R.B. by Industry
Table 16.  -   Manufacturing Investment Plan for 1968






Table 1
Gross Value Added of Mining, Manufacturing, Construction and Power
(In Billion Won)                (Current Market Prices)
1961    1962   1963    1964      1965    1966
Mining                                 5.50    6.99   8.30    12.35    14.73   16.59
Coal mining                          3.45    4.21   5.08      6.35      7.22    8.17
Other                                2.05    2.78   3.22      6.oo      7.51    8.42
Manufacturing                         39.73   50.67  72.53   108.80   142.81  185.81
Food                                 6.4o    6.59  11.55    15.69    16.68   23.65
Beverages and tobacco                7.38   10.60  13.00    17.90    19.73   26.92
Textiles                             6.76    8.65  12.37    21.68    4o.66   43.04
Clothing and footwear                2.20    2.68   3.00      4.82     5.40    8.30
Lumber and plywood, twood products
except furniture                    .77    1.20   2.U1      4.05     3.45    5.42
Paper and pulp                        .99    1.35   2.17      2.75      3.50    5.25
Printing, publishing and allied
industries                        1.47    1.90   2.40       4.76     6.91    8.98
Leather and leather products
except footwear                    .43      .54    .77      1.00       .97    1.35
Rubber products                      1.11    1.00   1.52      2.39      3.18    3.35
Fertilizer                            .37     .57    .71      1.28      1.87    1.78
Other chemicals                      1.32    1.70   4.00      5.94    4.95    7.99
Refined oil                             -       -       -     1.39     2.76    2.46
Petrochemicals and coal products   1.21    1.24   1.53        2.03      2.24    3.41
Cement, clay, stone and glass
products                          2.13    2.94   3.12       5.43     6.22    9.48
Basic metal industries, metal pro-
ducts except machinery and
transport equipment               1.69    2.73  4.09        5.13      7.73    9.60
Machinery other than electrical    1.69    2.25   2.72        3.00      3.78    5.24
Electrical machinery, appliances
and supplies                        .55     .91   1.36      2.51     3.19    5.91
Transport equipment                  1.81    2.22   3.53      3.84     5.91    9.14
Other manufacturing                  1.45    1.60   2.28      3.21      3.68    4.54
Construction                           9.63   11.65  14.70    20.21    27.64   37.94
Power (electricity and gas)            3.08    4.20   4.37      5.73      9.18   12.81
Source:  Bank of Korea.



Table 2 -
Gross Value Added of Mining,-M anufacturing, Construction and Power
(in billion'V)                  (Constant 1965 Market Prices)
1961      1962      1963      1964        1965     1966       1967-/      19681/
Goal mining                  8.82     lo.86      11.86     13.36      14.73    15.67       17.92      19.76
Coal mtininr'               47174      !T2       625         ' .7      7.22    7rU 29.5119             9.9'5
Other                        4.65      5.60       5.61      6.5S       7.51     7.47        8.73       9.81
lianufacturing                 82.32    95.14    111.63    116.78       11,2.81   165.76     197.32     231.07
Food                                  12 ~).21             II*1.721.46
Beverages and tobacco       14.36     13.29      14.04     15.36      1'9.73   2).07       27.58      31.01
Textiles                    21.97     24.87      27.93     29.96      40.66    44.98       49.80      55.13
Clothing and footwear        4.31      5.75      66.37      5.10       5.40     5.39        5.81       6.28
Lumber and plywood, wood
products except furniture   1.69       2.43      3.04      2.96       3.45      4.55       4.87       5.67
Paper and pulp  -            1.67      2.34       3.09      3.20       3.50     4.14        4.66       5.24
Printing, publishing, and
allied industries           3.46      4.45       4.95      5.S2       6.91     8.27        9.92      11.91
Leather and leather prod-
ucts except footwear        0.87       0.90      0. 83     o.96       0.97      1,06       1.16       1.28
Rlbber products              1.82      2.03       2.30      2.63       3.18     3.23        3.48       3.71
Fertilizer                   0.74      0.93       1.12      1.62       1.87     1.98        9.01      12.32
Other chemicals              2.63       3.84      5.98      5.45       4.95     6.03        6.85       7.79
Refined oil                     -          -         -      1.30       2.76     3.57        5.69      10.23
Petrochemicals and coal
products                    1.15       1.41      1.95      2.10       3.25      2.56       3.07       3.68
Cement                 )                                                         2.71)      3.76)      5.30)
Clay, stone and glass  )     2.61       3.35      3.97      5.34       6.22          )7.07      )8.77       )11.07
products              )                                                         4.36)      5.01)      5.77)
Basic metal industries,metal
products) except machinery
and transport equipment     3.57       4.79      6.41      5.95       7.73      8.77      10.15      11.77
Machinery other than
electrical                  2.84       4.11      3.60      3.32       3.78      3.80       4.18       4.60
Electrical machinery,
appliaances and supplies    0.95       1.59      2.27      2.88       3.19      4.97       7.34      10.30
Transport equipment           2.92      3.41      5.01      4.28        5.91     8.17      10.22      12.04
Other manufacturing           2.53      2.95      3.56      3.46        3.68     4.11       4.79        5.58



Table 2  (Continued)
Gross Value Added of Mining, Mlanufacturing, Construction and Power
(in billion I-on)                     (Constant 1965 Market Prices)
1961      1962       1963      1964        1965      1966       1967-       1968-
Construction                    15.99      18.23      20.69     21.83       27.64    34.84       42.71       49.33
Power (Electricity and Gas)      4.40       5.37      6.19       7.54        9.18    11.09       14.64       18.86
1/ Forecasts by EPB in ORB 1968.
Source: Bank of Korea; Econcmic Planning Board for 1967 and> 1.968.






Table 3
Manufaatur in
Composition of Gross Value Added by Sector (Percent)
(at corstaint 1965 market j es)
Average1//
1962-1964    1965    1966   19671/  1968-'
Investment Goods:                       14.7       1*.3    iS.5   16.1    16.8
Basic metal industries and metal
products                                    5.3        5.4 5.3   5.1            5.1
Machinery other than electric                 3.4         2.6     2.3    2.1      2.0
Electrical machinery                          2.1         2.2     3.0    3.7      4.5
Transport equipment                           3.9         4.1     4.9    5.2      5.2
Intermediate Goods:                     18.0       18.3    18.6   22.3    24.8
Cement, clay, stone and glass products        3.9         4.4     4.3   LL.4    4.8
Lumber, plywood, wood products                2.6         2.4     2.7    2.5      265
Paper and pulp                                2.7         2.5     2.5    2.4      2.3
Fertilizer                                    1.1         1.3     1.2    465      5.3
Other chemicals                               4.8         3.5     3.6    365      3.4
Leather products (except footwear)            0.8         0.7     o.6   0o0       065
Refined oil                                    -          1.9     2.2    2.9      4.4
Other petrochemicals and coal products        2.1         1.6     1.5    165      1.6
Consumer Goods:                         64.3       64.8    63.4   59.0    56.1
Food                                         13.3        11.7    1165  10.1       9.3
Beverages and tobacco                        13.2        13.8    14.5   14.0    13.4
Textiles                                     25.6        28.5    27.1   25.2    23.9
Clothing and footwear                         5.3         3.8     3.3    2.9      2.7
Printing and publishing                      hL7          4.8     5.0    5.0      5.2
Rubber products                               2.2         2.2     2.0    1.8      1.6
Total 2ianufacturing21           100.0       100.0   100.0  100.0   100.0
-/Forecasts by EPB in ORB 1968.
2/
- Including other manufacturing not classified above.
Source:  Bank of Korea; Economic Planning Board for 1967 and 1968.



Table 4
Industrial Production   Index
(Average 1962-6)4=100)
-Average
Weight     1962-64        1965      1966
Mining                                  lOQ.0       100.0          115.3    127.8
Coal                                  62.8      100.0          114.3    129.5
Metal                                 21.6      100.0           99.9    108.0
Non-Metal                             15.6      100.0          118.1    122.9
Manu-facturing                           100l      100.0          130.9    154.3
Food                                   8.5      100.0          104.9    129.7
Beverages                              5.0      100.0          133.5    160.5
Tobacco                                6.9      100.0          154.8    161.0
Textiles                              19.3      100.0          138.1    153.4
Clothing and footwTear                 3.5         -          (100.0)  ( 96.5)
Wood and cork                          4.3      100.0          110.0    146.6
Furniture and fixture                  0.8         -          (100.0)  (103.8)
Paper and paper products               3.7      100.0          114.2    132.1
Printing and publishing                4.2      100.0          137.4    169.5
Leather and its products               0.6      100.0          107.5    128.5
Rubber products                        3.1      100.0          119.3    121.0
Chemicals                              8.8      100.0)         123.5    147.6
Petrochemicals                         4.9      10O.C          188.3    234.1
Glass, clay and stone                  6.6      10O.G          143.1    168.4
Basic metals                           4.8      100.0          105.6    126.0
Metal products                         2.6      100.0          110.2    124.9
Machinery other than electrical        3.J4     100.0           94.3      95.8
Electrical machinery                   2.8      100.0          111.9    150.7
Transport equipment                    4.3      100.0          186.9    300.0
YIscellaneous                          1.9      100.0           98.0    120.5
Power                                    100.0      100.0          141.6    169.4
Note:
Weights of Secondary Industry            100.0
Mining                                10.5
Manufacturing                         85.3
Power                                  6.2
Source: Bank of Korea, Monthly Statistical Review.



2 -
An Explanatory Note on Revised Production Index
1.        A revised industrial production was introduced by the Bank of
Korea in early 1967. The new index uses the 1965 average as base; the
previous series was based on 1960. The index covers mining, manufacturing
and electricity; however, as in the previous index, construction has been
excluded due to technical difficulties. Reflecting the significant
changes in industrial structure since 1960, the number of items in the
monthly series has been increased from 269 to 278 and classifications
have been modernized. In addition to the basic classifications, three
special groupings for the manufacturing index have been introduced, namely
export versus domestic oriented industries, producer versus consumer goods
industries, and heavy versus light industries.
2.        The revised data show marked increases in the weights for manufac-
turing and power, but reduced weights for mining.   The higher level for
manufacturing is mainly due to the inclusion of a great number of new prod-
ucts and the higher weights for chemicals, petrochemicals, basic metals,
electric machinery and transport equipment.
3.        For establishing the weights, revised GNP data were used as no
census was taken in 1965.   The 1965 net value added figures were derived by
subtracting from gross value of production the cost of raw materials, fuel,
power and contract work and adjustments were made to deduct indirect taxes.
The computation, however, neglects Government subsidies.
4.        It should be noted that the revised gross value and value added
figures used for the compilation of the new industrial production index
differ from the figures shown for the various industries in the revised
national accounts series.   In contrast to GNP calculations, the Bank of
Korea - for practical reasons - did not completely follow the SITC classi-
fication. To ensure that the production index reflects more truly the trend
in manufacturing activities some processed agricultural products (e.g.
slaughtered animals, straw products, salted marine products, bean sprouts,
grass floor coverings, etc.) were excluded from the manufacturing sector.
5.        The Korean Reconstruction Bank has also changed the base year of
its production index from 1960 to 1965.   The index is based on the mining
and manufacturing censuses of 1960 and 1963 followed by estimates derived
from sample surveys.   It covers only industrial establishments employing
five or more persons.   Furthermore, the KRB conducts its survey at the
industrial establishment level while BOK takes the approach by commodity.
At the aggregate level the KRB index is not much different from the BOK
index; differences, however, become more conspicuous at the 2-digit indus-
try level.  When the results of the 1966 census will be available, further
revision of both indices may become necessary.






Table 5
lonthly Earnings and iMIan-Days of Production liorkers
_In 14'ining and ianufacturine
Average 1562-1964             1965                      1566
Earnings   Ilan-days   Earnings      M.an-days    Earnings      Nan-days
Mining                                5,611        2L .6       7,680        25.0         8,920         26.9
Coal                                6,257        24.5       9.010         25,1        10,480         27.5
Yletals                             4,843        26.5       6,220         27.2         7,170         27.1
Non-metals                          2,837        22.3       4,030         23.4         4,870         25.1
Manuf~~ina                                         21.8        4,700        24.          5430          25.3
Fvo0d                               3,170        21.5        4,380        20.0         5,400         23.8
Beverage                            4,657        26.0       6,160         25.5         7,380         26.6
Textile products                    2,?10        25.2        4,160        25.3         4,790         25.3
Wood and cork products              3,723        24.0        5,850        23.4         6,860         23.8
Paper and its prodtucts             It,430       26.5        5,510        26.9         5,740         26.6
Printiig and publishing             5,463        27.6       6,500         27.7         8,350         27.4
Leather and its products            2,760        24.5        3,590        24.1         3,500         23.5
Rubber products                     3,473        24.3       bi,920        2)4.8        5,o60         25.7
Chemicals                           3,103        24.4        4,510        24.0         5,380         24.2
Petroleum and coal products         3,867        26.7        5,470        27.0         6,160         26.7
Glass, clay and stone products      4,310        25.8       5,620         27.2         6,9oo         24.5
Basic metals                        5,237        25.7        7,260        25.7         8,020         25.6
Mietal products                      3,273       23.6        4,470         23.8        5,410         24.3
Miachinery                           2,870       25.8        3,750         26.8        4,510         26.0
Electrical machinery                 3,420       25.1        4,720         25.4        6,250         25.1
Transport equipment                  4,020       25.3        4,970        23.8         5,770         21.7
Idiscellaneous                       2,387       23.1        2,980         24.7        3,490         24.7
Source: Batk of Korea, Monthly Statistical Review, June 1967,



Table 6
1/
Trends of Labor Prodtuctivity-and Real Money Wages
in Manufacturing, bSecZor
(1962 - 1964 = 100)
1962     1963      1964     1965      1966
Total
Labor Productivity                 93.0     99.1    107.9    J26.7    129.3
Real Money 'Wages                 108.0      99.1     92.9      95.7     99.4
Food
Labor Productivity                101.7    106.4      91.9    130.1    104.2
Real Money Wages                  111.8      98.7     89.3      93.9    l05.4
Beverage
Labor Productivity                111.9     93.3      94.8    136.3    136.7
Real Money Wgages                 109.4      98.9     91.7      92.4     98.6
Textiles
Labor Productivity                 98.2      94.2    107.6    136.1    129.8
Real Money Wages                  105.3    100o14    91.3    100.24    102.9
Lumber, Plywood & Wzhood Products
Labor Productivity                102.3    113.2      84.5      9810    104.0
Real Money Wages                   98.5    102.0      99.5    111.3    116.1
Paper and Pulp
Labor Productivity                 86.3    104.5    109.2    106.5    105.8
Real honey W4ages                 110.9      92.9     96.2      87.2     80.8
Printing and Publishing
Labor Productivity                 88.1     93.7    118.2    1241.8    180.0
Real Money Wages                  1124.4    100.2     85.4      86.8     93.6
Leather Products (except Tootwear)
Labor Productivity                 99.8      96.1    104.1    109.8    113.4
Real Money Wages                  1'6.6      90.2     93.2      90.6      78.6
Rubber Products
Labor Productivity                 85.1    106.1    108.8    114.5        85.5
Real Money W,Iages                105.0      94.8    100.2    100.1       91.6
Chemical (including Fertilizer)
Labor Productivity                 80.4    104.1    115.5    121.1    132.9
Real Money Wages                  106.9      92.6    100.5    102.6    108.8
(Continued on next page)



Table 6 (Cont'd)
1/
Trends of Labor Productivity and Real Money W,,!ages
in Mqanuifacturi-ng5 byv Sector
(1962 - 1964 = 100)
1962     1963     1964      1965     1966
Petrochemical & Coal Products
Labor Productivity                 67.7      90.7    141.6    204.3    236.0
Real Money lWlages                105.7    103.3      91.0     99.0      99.3
Cement, Clay, Stone & Glass
Products
Labor Productivity                 90.5     88.7    120.8    128.3    161.9
Real Money W,Jages                110.7      99.9     89.4    90.9       99.3
Basic Metals
Labor Productivity                 91.3      96.2    112.5     97KO    109.4
Real Money WTages                 109.4      96.4     9h.2     97.1      95.6
Metal Products
Labor Productivity                 96.7    121.5      81.8    104.2    116.8
Real Money Wages                  109.2      98,1     92.7     95.6    103.0
Machinery (other than Electrical)
Labor Productivity                121.7      88.7     89.6     98.9      83.9
Real Money W^ages                 110O4      99.0     90.6     91.2      97.6
Electrical Machinery
Labor Productivity                 90.3      98.8    110.9     87.3      87.4
Real Monev Wages                   99.7      98.1    102.2      98.0    115.5
Transport Equipment
Labor Productivity                 72.5    105.9    121.6    167.6    173.2
Real Money Wages                  106.6    103.3      90.1     85.9      88.7
Not Elsewhere Classified
Labor Productivity                 95.5    109.1      95.4     99.9    102.5
Real Money Wages                  113.1      99.8     87.1      86.o     89.5
1/ Net production per man-day; wage earners only.
Source: Productivity: Korea Productivity Ceniter, Labor Productivity
-ndex, Seoul.
IWages: Bank of Korea, Monthly Statistical Review, Seoul
Deflator - Seoul Consumer Price Indewx.






Table 7
Average Monthly E            Branch of Yanufacturins/ in 1965
in Kore eRe. of China (Taiwan) andJapa
(in US$)
Korea   TaiwanZ/   Taiwan_/   Japan
(male)    (female)
Industry
Food                                  16.22    47.25       27.50     89.841/
Beverages                             22.81    33.25       31.75
Textiles                              15.41    26.75       17.55     69.63
Luaber, plywood and wood products   21.67    24.75         18.45      75.23
Paper and pulp                        20.41    28.25       21.12    1o4.98
Printing and publishing               25.56    31.50       25.75    132.33
Rubber products                       18.22    38.25       16.00     89.12
Chemicals                             16.70    32.25       16.82    122.47
Petrochemicals and coal products    20.26    38.25         1.-75    145.87
Cement, clay, stone and glass
products                  20.81       -          -       101.95
Basic metal                           26.89    34.25       18.05    136.89
Metal products                        16.56      -           -       97.59
Nachinery (other than electrical)   13.89    36.50         21.02    107.12
Electrical machinery                  17.48    30.75       18.75     89.12
Transport equipment                  18.41    36.50        20.82    121.61
1/ Including family allowfances.
2/ Based on 25 working days per month.
3/ Food and beverages are combined.
Note: The exchange rates are as follows:
Korea - 1US$ = 270 Wqon
Japan - 1US$ = 360 Yen
Taiwan - lUS$ -40 N.T.$
Source:  ILO - Yearbook of Labour Statistics, 1966.



Table 8
Rates of Capacity Utilization in Major Industries-/
In Percentage (%)
196L      1965      1966       1962/
Low Rate:
Soap                            52.4      40.9      27.7       30.7
Paint                           18.7      23.2      30.3       33.6
Wheat Flour                     275       35.14     30.8       52.0
Refined Sugar                    7.0      18.4      30.8      L45.6
Bicycles                        25.8      25.0      35.8       21.8
Rubber Shoes                    80.3      83.5      41.2       28.0
Ethyl Alcohol                   17.6      27.6      143.14     56.9
Industrial Explosives           30.8      38.3      45.8       50.0
Galvanized Iron Sheet             -         -        47.6      ;6.7
Medium Rate:
Cotton Fabrics                  60.8      66.9      53.5       5L.3
Rayon Fabrics                   73.0      94.5      55.6       60.5
Pig Iron                         2.0      45.4       56.1      34.7
Woolen and IWorsted Yarn          -         -        60.2      33.5
Steel Ingots                    43.7      65.1      67.6       71.5
Sneakers                          -         -       68.1       60.o
High Rate:
Cotton Yarn                     79.5      79.2      72.9       77.8
Cement                          72.7      93.8      87.0       86.9
Automobile Tires                52.8      74.1      92.1      103.3
Flat Glass                      93.3      90.2      95.3       88.9
Steel Bar and Reinforcing
Bars                 50.5       62.3      96.4    101.8
Electrolytic Copper            107.7      88.5      96.7       96.0
Newsprint                       80.8      83.5      97.9      101o4.1
Urea Fertilizer                 83.0      95.9     101.5    100.8
Plywood                         91.2      81.0     107.0      109.2
Refined Oil                     143.7     92.1     111.6       66.2
Nylon Yarn                       7.7     106.3     130.8       76.8
Viscose Rayon Yarn                -         -          -       53.5
Average3.              55.14      69.7      73.8       63.5
1/  Classified according to capital ut,ilization in 1966.
2/  January - May.
7/ The average rate of utilization is computed by arithmetic mean wzeighted
weighted with composition rate of value added.
Source:  Bank of Korea, Review of Korean Economy 1964 and 1965, and data a
supplied to the Mission.



Table 9            1/
Imports of-74anuractured Goods         Percent Share in Total Imports
(11illion US$)
SITC
Code        Commodities             1962     1963     1964    1965      1966       1962    1963    1964    1965    1966
5    Chemicals                     94.31    79.98    84.34  103.42   134.55         22.4    14.3    20.9    23.0    18.8
62    Rubber Products                 .33      .86       .26     .32      .43          .1      .2       .1      .1       .1
63    Wood & Cork Products            .11      .11       .15     .08      .20          -       -        -       -       -
64    Paper & Paperboard             3.64     2.25     1.91    1.52      3.52          .9      .4       .5      .3       .5
65    Textiles                      28.80    29.51    19.64   26.92    4L5.16        6.8      5.3     4.9      6.o     6.3
66    Non-Metallic Minerals          5.84     6.98     2.07    1.48      6.09         1.4     1.2       .5      .3       .9
67    Iron & Steel                  22.62    32.46    14.84   24.74    39.53         5.4      5.8     3.7      5.5     5.5
6a    Non-Ferrous Metals             6.82     8.47     4.18   (8.96    11.16         1.6      1.5     1.0      2.0     i.6
69    Other M4etal Manufactures      4.92     7.68      2.99    7.08    18.81        1.2      1.4       .7     1.6     2.6
71    Non-Electrical M1achinery     34.t45    61.94    38.21   35.34    95.64         8.2    11.1     9.4      7.9    13.3
72    Electrical Machinery          28.71    22.33    19.68   12.61    26.09         6.8      4.0     4.9      2.8     3.6
73    Transport Equipment            6.62    31.30    11.62   25.19    49.99          1.6     5.6     2.9      5.6     7.0
84    Clothing                        .21      .32       .23    .45       .48                  .1       .1      .1      .1
85    Footwear                        .02      .09       .01     .03      .05          -       -       -        -       -
86    Professional, Scientific &
Controlling Instrunent      6.39      4.85     2.65    3.88      5.43        1.5       .9      .7       .9      .8
Miscellaneous Manufactures    3.64      2.78     2. 2    2.57      4.80          .9      .5       .6      .6      .7
Total Manufactures    247.43   291.91   205.30  255.59   4411.93        58.7    52.1    50.8    56.8    61.7
Total Imports         421.78   560.27   404.35  449.95   716.44        100.0   100.0   100.0   100.0   100.0
1   Not including agricultural goods with sorme processing, such as refined sugar and raw silk, and mining products.
Source:  Bank of Korea, Monthly Statistical Review, 1964, 1966, 1967.



Table 10-
Market Dependence on Imports
(Share of    osinTerent  j TotSupply
1962     1963      1964       1965    1966
Investment Goods
Basic Metal                           39.2     40.9      22.5     27.6      32.5
M4etal Products (except machinery and
transport equipment)16.0      21.3       9.8     16.8      30.2
Piachinery (other than electrical)   46.1      64.2      53.7     1<8.9     65.5
Electrical Machinery                  57.7     4o.0      33.7     22.8      26.1
Transport Equipment                   16.0     39.8      21.1     30.3      35.2
Intermediate Goods
Non-IHietallic Mineral Products       12.8     14.4       3.5      2.3       7.2
WIood and Cork Products except
Furniture                            .3       .2        .3        .1       .2
Paper and Paper Products              10.6      5.7       4.1      3.1       5.3
Chemicals and Chemical Products       61.2     48.5      44.8     52.2      53.3
Leather and Leather Products            .2        .1       .6      1.4       1.9
Products of Petroleum and Coal        43.7     39.9      26.9     25.5      27.3
Consumer Goods
Food                                   2.7      3.7       3.8      5.2       4.9
Beverages and Tobacco                  0.1      0.2       0.1      0.1       0.1
Textiles                              11.8     11.8       6.4      6.2       7.9
Clothing and Footwojear                 .3       .5        .3       .6        .5
Printing and Publishing                 -        -         -         -        -
Rubber Products                        1.2      2.8        .6        .5       .9
Furniture                              1.1      1.3       1.9      0.7       1.3
Total Manufacturing   20.3      21.2      14.2     14.9      18.9
l/Total supply = gross value of output at current prices.
For converting import figures the following exchange rates were used:
1962  $1 = 157.0 '.)  Exchange rates used
1963  $1 = 189.0 le-)  by 1966 IBRD Report
1964  $1 = 225.9 7H-)  Rates applied in revised
1965  $1 = 265AL Hw-)  national accounts
1966  $1 = 271.3 'f-)
Source:  Bank of Korea, Mlonthly Statistical Revie-ws, 196h, 1966, 1967, and
revised national accounts data received by Mission.



Table 11
List of Prohibited Imports
Ju-ly-Decemner U6t7~
(Pri1cipaJ Items)
Basic metals and metal products:
Magnesite, cast iron tubes and pipes, knives, cutlery handles,
picture frames, metal mirrors.
Paper products:
Wallpaper and lincrusta, filling containers, almost all kinds of stationery.
Chemicals:
Ethyl alcohol, mining blasting and safety fuses.
Leather products:.
Leather parts of footwear; all leather or composition leather products,
except industrial appliances.
Food:
Condensed and evaporated milk and cream, prepared or preserved meat products,
sausages, tapioca and sago, sugar confectionery, chocolate, green peanuts.
Textiles:
Cotton, silk, jute, woolen, rayon, synthetic fabrics; cotton, woolen, worsted,
jute, synthetic yarns; paper yarns.
Clothing and footwear:
All footwear, clothing of textile fabrics, clothing accessories of textile
fabrics.,including knitted and crocheted fabrics.
Rubber products:
Plates, sheets and strips of unvulcanized natural or synthetic rubber.
Others:
Jewelry (worked or unworked), matches, unbrellas and sunshades, corsets,
non-mechanical fans.
Source: Ministry of Commerce and Industry.



Table 12
Korean Tariff Rates for Selected
Manufactured Commodity C-roups in 1966
1/       2/ Full Tariff
Value of   Actual-  Tariff-   Rate If No
SITC                             Imports    Tariff Exemption  Exemptions
Code                             (000 US$)   Rate_  Rate    Were Granted3(
51  Chemicals                    134.55     12.1      1.9        l140
62  Rubber Products                 .43      8.3     27.9         36.2
63 Wood and Cork Products           .20     17.3     19.8         37.1
64  Paper and Paperboard          3.52      17.4     24.0         41.4
65  Textiles                     45e16      13.8    16,7          30.5
66  Non-Metallic Minerals         6.09       5.7      21.8        27.5
67  Iron and Steel               39.53      10.0      8.7         18.7
68 Non-Ferrous Metals            11.16      12.1      3.7         15.8
69  Other Metal Manufactures    18.81        9.5      31.0        h0o5
71 Non-Electrical Machinery    95.64         4.5     11.6         16.1
72  Electrical Machinery         26.09      11.9     12,5         24,4
73  Transport Equipment          29.99       7.7     17.7         25.4
84 Clothing                        .48       9,,2    23c3         32.5
85 Footwear                        .05       1.1    100.0        101.1
86  Professional, Scientific &
Controlling Instrument     5.43       34.9     14.1        49.0
Total Manufacture listed
above                   437.13       101.0    10.6         20.6
All Commodities             716.44       9.7       8.8        18,5
1/ Tariff revenues actually collected divided by value of imports.
2/ Tariff revenues lost because of exemptions divided by value of imports.
3/Sum of 1/ and 2/,
Source; Ministry of Finance, Foreign Trade of Korea, 1966
Ronald I. McKinnon "Tariff and Commodity Tax Reform in Korea:
Some Specific Suggestions"



Table 13             1/
Exports of Manufactured Goods -
(million US$)                      Percent Share in Total Exports
SITC
Code          Commodities                  1962    1963    1964    1965    1966           1962    1963    1964    1965    1966
5      Chemicals                            .99      ScO     .63      .38     .71          1.8     1.0      0.5      0.2     0.3
62     Rubber products                     (.08)   (.51)   (.91)  (1.04)  (1.46)          (0.1)   (0.6)   (0.8)   (0.6)   (0.6
629.1  Rubber tires and tubes
for vehicles                       .07     .51      .81     .92    1.28          0.1      o.6     0.7      0.5      0.5
63     Wood and cork products              2.30    6.34   11.50   18.23   30.64            4.2     7.3      9.7    10.4    12.2
631.211  Veneer sheets                    (2.06)  (5.83) (11.40) (18.03) (29.88)          (3.8)   (6.7)   (9.6)  (10.3)  (11.9
64     Paper and paperboard                 .03      .07     .08      .16    1.07          0.1     0.1      0.1      0.1     0.4
65     Textiles                            2.22    7.80   19.64   26.34   34.48            4.1     9.0    16.5    15.1    13.8
652      Cotton fabrics, woven            (1.84)  (4.29) (11.12) (10.52) (10.12)          (3,4)   (4.9)   (9.3)   (6.0)   (4.0
66     Non-metallic minerals                .12      .88    1.95    2.76    1.61           0.2     1.0      1.6      1.6     0.7
67     Ir;on and steel                      .59   11,71    4.51   12.75    8.10            1.1    13.5      3.8      7.3     3.2
68     Non-ferrous metals                   .25      .30    2.86    2.94    2.55           0.5     0.3      2.4      1.7     1.0
69     Other metal manufactures             .59      .51     .86    2.17    4.19           1.1      o.6     0.7      1,2     1.7
71     Non-electrical machinery             .30    1.09      .!46    2.50    3.65          0.5     1.3      0.4      1.4     1.5
72     KLectrical machinery                 .11      .73    1.02    1.91    5.10           0.2     0.8      0.9      1.1     2.0
73     Transport equipment                 1.04    2.24      .72    1.10      .80          1.9      2.6     o.6      a.6     0.3
84     Clothing                            1.12    4.64    6.61   20.71   33.39            2.0     5.3      5.5    11.8    13.3
85     Footwear                             .24      .74     .88    4.15    5.47           0.4     0.9      0.7      2.4     2.2
899.94
899.550 Human hair and wigs, etc.           .09      .26    3.66    6.61   15.49           0.2     0.3      3.1      3.8     6.2
-      MiscelZaneous manufactures           .51      .77    2.09    3.04    4.93           0.9     0.9      1.7      1.7     2.0
Total Manufactures  10.58   39.49   58.38  106.79  153.64           19.3    45.5    45.0    61.0    61.4
Total Exports        54.81   86.80  119.06  175.o8  250.33         100.0   100.0   100.0   100.0   100.0
1/  Not incl1ing agricultural goods with some processing, such as refined sugar
and raw silk and mining products.
Source: Bank .of Korea, Economic Statistics Yearbook, 1966 and 1967.



Table 14
a., ,..  
Najor E,-2ort Markets by MaLcir ya    tu ES  xprts in 1966
(in thousand US$)
Rest
of the
SITC         Commodities                 Total  U.S.A.   JaPan   Viet Nam World
629.1    Rubber tires and tubes for                                                1/
vehicles                       1,281      102        7         6    1,166-
2/
631.211  Plywood and veneer sheet       29,880   26,469       14         -    3,397-`
64       Paper, paper board and
manufactures                   1,069      158     134        384      393; /
65       Textiles                       34,477    9,688   2,631         83   22,0759-
652         Cotton fabrics, woven      (10,121)  (3,067)    (46)        (2)  (7,006 ,,
66       Mon-metallic minerals           1,612      407       99       442      664``
67       Iron and steel                  8,10L       14      125     7,887       78
68       Non-ferrous metals              2,547      150      259       533    1,605:~
69       Metal manufac'tures             4,191      994   2,430        239      528i
71       Non-electric machinery          3,655       72      410     1,771    1,402-/
72       Electrical machinery            5,101    2,635      818       361    1,2872/
724.2       Radios                      (3,319)  (1,774)   (435)         -   (1,110)
729.2       Electric lamps                (995)    (625)   (355)        (7)      (8)
84       Clothing                       33,387   16,274   2,758          1   14,354;0
85       Footwear                        5,467    5,208       47       115       97
899. 94   Human hair, wigs, etc.        15,487   1)l,579     328         -      580
899.950)                                          
Sub-total           146,258   76,750  10,060    11,822   47,626
(%)              100.0     52.4      6.9       8.1     32.6
Total exports       250,334   95,782  66,293    13,843   74,416
(X)             (1000-)   (38.3)  (26.5)      (5.5)   (29.7)
1T  Thailand $851 thousand.
2/ Almost all of it to Canada.
3/ Equally divided between "Other Asia" and "Europe".
T/ Fairly well distributed throughout the world, with Hong Kong some-,xhat higher
than the rest.
5/ "Other Asia" slightly more than "Europe".
6/  Europe dominated with United Kingdom leading.
7/ Very thinlyx divided among the "Rest of the '7orld"
7/  Federal Republic of Germany and Hong Kong leading with $645 and $336 thousand
respectively.
9/ Federal Republic of Germany and Belgium together constituteA 505.
10/ Sweden alone accounted for $8.75 million; others are:  NL±!herlands, U.K.,
Canada and Federal Republic of Germany.
Note: This table omits some small export items included in Table IV-1.
Source: Ministry of Finance, Republic of Korea:  Foreign Trade of Korea, 1966.



Table 15
Outstanding Loans of K.R.B. By Industry
(in billion won)
September
End of Period                   1962       1963           1964         1965          1966         1967
Equip-  -   Equip-         Equip-       Equip-        Equip-       Equip-
Total  ment  Total  ment  Total ment  Total  ment  Total  ment  Total  ment
VHanufacturing                 11.52  8.89  12.25  8.95  14.25  9.27  18.64  12.09 23.69  16.15 25.55  17.63
Food                            1.09   .86   1.25   ,90   1.33   .91   1.92   1.46  1.99   1.48  2.05   1.56
Beverage                         .02    .01     .01           0     0    .22    .20   .32    .30   .40    .36
Textile                         2.15  1.60   1.95  1 .4    2.32  1.53   3.79   2.75  5.40   4.20  5.59   3Q91
Footwear, other wearing
apparel, etc.                  .01     0    .04   .01    .05   .01    .05    .01   .07    .01        -
Wood and cork                    .17   .12    .30   .13    .30   .13    .30    .13   .47    .35   .47    .38
Furniture and fixtures           .01   .01    .01      0      0     0      0       0     0      0      0      0
Paper ald paper products         .73   .46    .75   .49    .80   .47    .76    .43   .99    .66  1.26    .84
Printing and publishing          .03   .02    .02   .02    .14   .07    .29    .07   .26    .05   .34    .15
Leather and leather products    .08   .04    .08   .04    .07   .03    .18    .08   .12    .07   .09    .04
Rubber products                  .29   .11    .34   .10    .45   .11    .71    .17   .99    *28   .93    .23
Chemical and chemical products 3.43  3.23   3.62  3.24   3.45  3.22   3.88   3.62  4.34   3.60  5.32   4.78
Petroleum and coal products      .03   .01    .01   .01    .03   .01    .02    .01   .04    .02   .o8    .08
Glass, clay and stone products 1.08   .91   1.10   .94   1.86   .93   2.18   1.00  2.42   1.37  2.56   1.53
Basic metal                      .74   .45    .81   .55    .89   .60   1.19    .73  1.29.   .85  1.37    .9S
Metal.products                   .14  .o9    .24   .16    .32   .19    .43    .22   .65    .41   .72    .48
Machinery                        .49   .33    .37   .21    .42   .27    .50    .31   .79    .51   .92    .64
Electrical Machinery &
appliances  -                 .18   .10  - .38  .14    .68   .20    .74    .24  1.10    .51  1.14    .60
Transport equipments             .78   .47  -.89   .49   1.02   .52   1.35    .61  2026   1.30  2.22   1.01
Miscellaneous                    .08   .05    .11   .o6    .12   .62    .13    .07   .20    .16   .o8    .06
Fishery                          .33   .30    .28   .26    .25   .23    -        -     .51    .18   .63    .16
Mining and Quarrying            1.42  1.14   1.75  1.33   1.72  1.33   1.77   1.39  1.97   1.38  2.91   1.79
Construction                    2.62  2.62   2.98  2.98   3.18  3.18   3.46   3.46  3.70   3.70   .06    .06
ELectricity and Gas             7.57  7.14   9.37  9.22  11.08 10.95  11.20  11.09 13.28  13.19 15.69  15.45
Transport and Storage            .58   .38    .66   .47    .95   .75   1.34   1.16  3.00   2.83  5.42   5.25
Services                         .28   .28    .33   .33    .32   .32    .37    .37   .49    .47   .70    .65
Total                2j3-2 20.74  27.62 23.54  31.74 26.02  36.78  29.56 46.64  37.89 51.01  41.o6
Source:  The Korean Reconstruction Bank:  Monthly Economic Review, 1967.



Table IL
Manufacturing Investment Plan for 1968
(t Fiiurrie-nt prices)
R e q u i r e m e n t s
Local         Foreign         Total        Government      Private
(Billion W)   (Million US$)   (Billion W)   (Billion W)   (Billion W)
Investment Goods
Basic Metal                            1.49          17.58            6.29          0.50           5.79
Non-Electrical Machinery               0.35          050             0.49                         0.49
Electrical Machinery                   0.26           6.12            1.93                         1.93
Transport Equipment                    2.44          14.13            6.29          0.70           5.59
Intermediate Goods
Cement                                 2.37          14e31            6.28                         6*28
Clay, Stone & Glass Products           o.85           6.22            2.55          0.63           1.92
Plywood & Lumber                       0.19           2.00           0,74                         0074
Paper & Pulp                           0.48           5.64            2.02                         2X02
Fertilizer                             0.51                           0.51                         0.51
Chemical Products                      1.03           5.00            2.39                         2.39
Petrochemical & Coal Products          6.25          40.43           17.29          0.10          17.19
Consumer Goods
Food, Beverage, & Tobacco              2,09           5.04            3.46          2.55           0.91
Textiles                               lc45          15.12            5.58                         _558
Manufacturing, specified by industry
and projects                              19.75         132.09           55.82          4.48          51.34
Other non-specified investments
(including promotion of medium and
small industry, stocks and some
mining investments)                    20.84           20.00          26.30           2.30         24.00
Total Manufacturing                       40°59         152.09           82.12          6.78          75.34
Source: Investment Program in 1968 by Sources of Funds. EPB.