RESTRI!TFD I -TLJRN TO Report No. FE-55 I RE+OR>TS IDESKI W1IT-HIN. - .......... This r-eport was prepared for use within the Rank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be publishecl nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTErNATIONAL DEVELOPMENT ASSOCIATION THE ECONOMY OF KOR EA (in eight volumes) 'Trf%T TTMT1I Ir v %'j J-1uħvr-. v MANUFACT URING October 26, 1966 Asia Departmrent CURRENCY EQUIVALENTS U.S. $1. 00 = Won 270 W'on 1. 000 = U.S. $3. 70 Won 1, 000, 000 = U. S. $3, 703. 70 This Report is based on the findings of a Mlission which visitecl Korea in November and December of 1965. Because of technical delays the present Volume could not be circulated together with other volumes of thE Report on the Econoirny of Korea. Notwithstanding developments since the Ecnd of 1965, the Mission believes that the assessments of long-term trends in the past and of the future prospects of Korean Industry could remain basic- ally umchanlged. The Mission was composed of the following members: Ravi I. Gulhati ...... . ... ... ......... Chief Cornelis J.A. Jansen General Economist Oktay Yenal .................. Monev and Public Finance Alexander G. Nowicki .........................Industry M. Shafi lNiaz (FAO) .. Agriculture W.F. Doucet (FAO) . ................... . . ri ..F Robert Ward (Arthur D. Little) . ..... Industry Remedios Crofoot .0.6.0U -£."4.0 ... J..... Secretary vhl"s VJolume was prepared bL-y rAllexar.der G. tTo ,i1ki TABLE OF CONTEIMTS rage No. I. The Status of lndustrialization ... ................. i Inivestmient Goods ................................... 1. Intermediate Goods ....... ......... .. ... .. 1 Consumer Goods .......... . ....*.. * 2 II. Chamges in the Pattern of Output ... ................. International Perspective ....................... 4 Inter-industry Relations ......... ............... 4 Size Characteristi.cs . .......................... . 5 III. I mort Substitution ............ ....................... 7 Restrictive Measures . .......... .... ............. . 7 Promotional Measures .... .... .. .... o....... , 8 IV. Exbort Promnotion Measures . ...................... 13 V. Uses of Capital and Labor in the Manufacturing Indastry ....... .......*.*..foo ............ 18 VI. Financing the Manufacturing Sector ...... *.O ....... 23 VII. Outline of the Future Development of the Manu- facturin- Sector .== ............. 28 A. Development of InYvestment Goods Industries .. 28 B. Intermediate Goods ..... 35 C.C GonOaeOt Goods 4nGdustries a t h a a 4 9 LIST OF TABLES Related to: Table 1 Long Term Growth Trends of Manufacturing Production and Th1ports , . ........... C I 2 Long Ter, Growth Trends of'.Manufacturing Production in Developing Countries. 3 Distribution of Manufacturing Value Added & M.ufL-act ur4-g T-,,por-ts Accorudaug to 7%. u Tse. l oOutput of ~IIainufacturnig 'adustries and Related Macro-Economic Variables 5orriposħuion of value added in Manufacturing by Branch; Comparisons of Actual with Normal Pattern (percent of total value added)...... Chapter II 6 Comparative Analysis of Industrial Structure. 7 Composition of Demand by Branch of Manu- facturing - 1960. 8 Composition of Demand by Branch of Manu- fact;uring - 1963. " 9 Size Characteristics of Korean Manufacturing. 10 Gains Derived by the Manufacturing Sector From the Undervaluation of Foreign Ecchange - 1963 (On Imported Inputs Only) . .... Chapter III 11 Restrictive Measures on Imports. " A. Weighted Average Tariff Rates, 1964 i B. Commodity Taxes, 1964 C. Import Quotas (1965) D. List of Prohibited Items (Prin- cipal Selected Items Only) " 12 Measures of Import Substitution. 13 Export of Manufactures.................... ChaDter IV 14 Major ExDort iJ;arkets by Major Export of Manufacturing. LIST OF TABLES (Cont'd) Related to: Table 14a Calcu'lations of Profitability of Exports of Few - elected Items - 1 f.hatptr TV 15 Ea. gs Per Tin US -rb Branch of Manufacturing. 16 Value-Added Manufacturing Industry 1960-1965 Chapter V 17 Rate of Capacity Utilization (%). " 18 Average Capital - Output Ratios by Bra-rch of ħ.anUufcac U.-Lg.LLI A. EstiMates Based on Survey of Fixed Capital (1963) " B. Estimates Based on Fuinanciai. Statements 19 Role of Manufacturing in Asian Countries. 20 Labor Productivity. 21 Relations Between Wages, Producitivity and Private Consumption Expenditures 22 Productive Equipment in Manufacturing Calculated in Horsepower (HP). 23 Growth Rates i. Employment by Manufacturing Branches. 24 Share of Wages in Total Production Cost. 25 Structure of Development Finances in Korean Indus;try ....... o....o........ Chapter VI AL. 1963 " B3. 1964 26 Korean Reconstruction Bank Financing of Manufacturing Sector. 27 Percent Distribution of Sales, Profit, Loans, Depreciation and Taxes by Branch 28 Korean Reconstruction Bank: Interest Rates on Loans (Per Annum). -3- LIST OF TABLES (Cont d) Related to: Table 29 Financial Position and Financing of Govern- ment-OwuTn.ed TndustrialrEnterprises .-....... . Chanter VI 'An Lin on f *-R.nnsn nn Thitnufactu7ring .. , Ghapter VII A d di+io J-nal Table -s: Tndex TTuber of' Industal PoA,du+cion. PD rofit 4', M.arg4-S 4.. . ,Aa,ufac"4.ng. I. L J.L L'J ħ A ,.LLIO.1.1 ħ.cħAIL A LLR JħikLYor dLd oDL,UJħ,V JA4i .LuLtWies -WU M $. SiLze Characterist-ics of oenMr,fcuig Comparisorn of vvhiolesale Prices of Major Commodities. US Aid to the Manufacturing Industry in Korea. Tcntative Estimate of Gains from Subsidies on Exports of' Manufactures. Price and Exchange Rate Movements. SECTORAL REPORT ON KOREAN NAINUFACTURING INDUSTRY 1. THE STATUS OF INDUSTRIALIZATION 1. I'he manufacturing sector led economic development in Korea throughout the last decade, with an increase in total production of II' a year. The share of value-added in manufacturing in GNP rose from 13.65 to 16.85 during the period. (Tables 1 and 3). W1hen compared to the in- dustrial performance of other developing countries, Korea's achievement is1 inpressive* (Table 2)= Investment Goods 2. The production of investment goods has been growing more rapidly than the manufacturing industry as a whole. This was due mostly to the creation of new, large import-substituting plants for cenent and glass and to the rapid development of transport facilities requiring ship build- ing yards, and factories for bicycles and motor parts. Government industrial policy is mainly responsible for the growth of the cement and shipbuilding industries through loans extended by the Korean Reconstruction Bank, and subsidies paid on the purchase of Korean made ships. 3. The iron and steel industry grew quite rapidly during the first half of the decade as a result of a considerable amount of earlier capital investment. The main raw material used was scrap iron. The supply of scrap metal has dwindled. in recent years and this led to a reduction in the procluction of steel, although the demand for various steel products was increasing rapidly. The need has nowi arisen to consider alternative sources of supply, either of imnorted finished products or of domestic prodluction from new plants. 4. The production of electrical machinery is still quite limited., but growing rapidlv. Relatħvely simlpl items such as fans, radios, and small motors are produced domestically, but more complex items have to he importedc This is partiAcularly true for industrial electrical machinery. The machinery industry has grown slowly. It is composed mostly of small and medium s-izedi nnitS and the present domestiec demand for machinery i9 in most cases too small for efficient production methods. Intermediate Goods 5. The rate of growth of the intermediate goods industry is slowver tharn that of the investme,r.t goods Jndustry b-u higJer than. the average for the manufacturing industry. Import substitution is the main force behind thl.; gro.i;h. TI some branches this process LhLas onl r but in others it has sat;urated the domestic market and has forced the manufacturers cf the proclucts in questi.on tuo seekU I exp.ort4 ou'U'Lteus. - 2 - 6. Thbe cll,e cal industy shows the ighest cont.uous rate of growth in this group. This is largely due to the creation of new, large LLiLzLer pLantus financed tUo a great extenIt from eUternal aid. This has resulted in a reduction of fertilizer imports. The rest of tue CIIemIIcald ildus'ury consists of0 ruri-ierous specialized WnUIt, LicU can be grouped under the heading of medical-pharmaceutical preparations and Uasic industrial chemlicals. 7. The growth of the paper industry has been quite rapid, deriving part of its stimulus from import substitution. In 1955, out of 24.5 thousand tons of newsprint paper consumed in Korea, 72% was supplied from imports, while in 1965, out of 48 thousand tons consumed, only 5% was imported. 8. The petroleum and coal products industries have also developed apace. The petroleum industry started in 196 -with the opening of a refinery in Ulsan. This refinery has caused a considerable change in the pattern of petroleum products imports, the emphasis now being on importing crude products (8o%). In 1963, 97% of petroleum imports were refined products. The use of coal briquettes for heating and cooking has, in the cities, largely replaced rice and barley straw, and iwood, as fuel. The annual rate of growth in the use of briquettes was about 20%. 9. Growth in the use of rubber products has slowed down due, mainly, to two factors: saturation of the domestic market, and reduced replacement demand due to better quality. Textile producers are also facing a fairly slow growth of domestic demand. In 1965 cotton manufacturers were operat- ing at only 66% of capacity, with unsold stocks at the end of the year equalling one month's production. Both the rubber and textile industries re?ied on raw materials wihiiclh were im,ported under U.S. foreimi assistance programls,and were thus not subject to rigid quota restrictions which applied to other rawv material imports. The relative ease of acquiring these iriputs and the low rate of exchange led to considerable over-investment in rubber and cottoin manufacturin;g. 10. The rap:Ld rise in the export demand for plywood and veneer. esDeciall; in the U.S.A., has helped the grow;th of Korea's woodT=s-vy. The industry as a whole exported over LO% of its production in 1965, and plvwood factories, operating at full capacity, exported 75% of their production. Consumer Goods 11. The growth of consumer goods industries has been far below the average. Food constitutes about 52?o of nrivate consumntion exnenditures, and this share has remained relatively constant throughout the past ten irears. The share of the conswimer goods indu.strv in total manufactUrin4y production has decreased by one-sixth since 1960, as can be seen from Table 3. Part o'f +his c Ar dhre cttrrihitedl to the lack of sCope for import substitution in consumer goods, as a considerable portion of demand is met from local production. -3- 12- The relatively slow -routh of consumer goods industres especially during the 1960's is illustrated by Table 4 which shows that the expansion of these industries pro ceded at a slower rate than the growth of private consumption expenditures. By contrast, the local production of invtrn+ment goods was corsiderably more rap- than the increase in gross domestic capital. formation, - 4i - TT C'UAT-TAEA LIT ITMtl' mnATMM=nT Tr OUTTmTTM - U _ ħ _ uuirui 13. To place the sturuture oI Korean inaustry in an international context, a comparison is male in Table 5 betwqeen the actual structure of the Korean Mculufacturing indusTry and thne -rnormaliU pattern of the manufacturing industry, such as exists in countries of compar/able population and income size and degree of industrialization._' The comparison shows that food, wood, leather and basic metal industries are laggirg behind the norm, while textile, paper, printing, chemical and rubber industries contribute more to the manufacturing sector in Korea. than in comparable economies. The offsetting deviation from the norm of textiles on. the one hand and clothing and footwear on the other may partly result from differences in industrial classification. 114. A further comparison of Korea's manufacturing structure with Taiwan and the Philippines (Table 6) shows that the share of textiles in manufacturing is; greater in Korea than in Taiwan or the Philippines, while the share of food, beverages, tobacco, wood products and basic metals is less. These differences point to a certain lack of balance in the structure of' the Korean manufacturing industry, resulting from the stress laid in the past upon the development of the textile industry which has no evident comparative advantage over several other industries, and from the insuff'icient development of especially the food industry and the basic metal industry (which could offer a number of inputs necessary for the engineering industry). Inter-industry Relations 15. I'he patte!rn of inter-industry relations in Korea, as derived from input-output tables, is quite different from the usual picture in developing economies. Intermediate demand in Korean manufacturing absorbs 47% of production, (Tables 7 and B). while in most develo1ping countries manuf'acturing output mostly ccnsists of final products. The corresponding proportion for intermediate demand in India is nearly 50 nercent. in Israel 46 percent, in Taiwran 32 percent, and in the Philippines 17%. 16. A comparison between the distribution of output in 1960 and 1963 shoTs that while intermediite deTmanrd of tev+i1e fabrics was 28.6% in 1960, it had risen to 35.9fo in 1963. The same trend was evident for inter- mediate chemical2s ThoT share diree to f e processing and industrial uses grew f'rom 62.9% to 95.6%. Similar developments occurred in other imnnrtntnt-. bornches with the notable- exrepti of s produ+--I wbere a sizeable share has been diverted to exports to Viet Nam. T71hiS con,cluSoin iS bD;as1ed on Analysis of A. sample of 53 countries (1953) and 42 countries (1958). The coefficient of 1 O Uth "re]ativ degree o. JiUUbU.L ħdLiLo.CUħU.Li oUL nuvuaL in ħIU) is I.LULJ4. Regression equations have also been formlEated for the distribution of value addecl a,among various manufacturing branches. See 1T h A Study of Industrial Growth, 1963. 170 The degree of inter-in dustry dependce "as 4-reat ir,portance for the optimurm location of industry. This was not always sufficiently taken into consideration in the past, with results such as the transporta- tion of pig iron and iron ore around the w^hole Korean peninsula, from Sarnrclok in the northeast to the mills in Inchon in the west, at a cost approximately equa:L to the transportation of iron ore frcm Australia. The sme is true for petroleum, products, wwhere the freight from the refinery in the south (Ulsan) to the major consuming centers in the north is roughly equal to the freight of oil transported from the Arabian Sea to Ulsan. The question of inter-dependence and proper location bIecomes particularly urgent with the creation of new industries serving consumers cpread over a wide area, such as a petrochemical comp:Lex or machi.er-y industiries. Errors in location could destroy many advantages these industries are supposed to bring. Size Characteristics 18. In all three groups of industries a shift to larger manufacturing unit,E; has t;aken piELce. The rubber industry, which produces a rather small variety of products but in very large quantities (78 million rubber shoes, 430 thousand automobile tires) is composed mostly of large enterprises. At the other end of the scale the furniture industry, which is almost a handi- craft industry in Korea, is characterized by a large number of small enter- prises. (Table 9) 19. I'he problem of the optimum size of industrial enterprises is crucial in Korea, as in other economies. Among the recently created large enterprises, a glass factory, petroleum refinery, plywood factories and fertilizer plants appear all to be in the range of optimum size. Production of sheet glass is centralized in one enterprise. It has only three drawing machines per kiln (the usual modern factory has six drawing machines) but the installation of' additional drawing machines in the near future appears likely. In the production of E!ywood, the size of a plywnood mill is influenced by the availabili-. of raw materials. Preferably, these should be of'one species and be available in large volume. Economies of scale relate mainly to power and presses; only mills using large auantities of' homogenous material and manufacturing standard products can profitably use mechanical equipment and some automation. Labor reauirements per cubic metre of output depend upon the degree of mechanization, log sizes, average thickness of veneer used for patching and other factors Another consideratbn influencing mill size is the possibility of exports. In the plywood producing countries of East Asia. average mill size has generally been large. It is generally considered that capacities greater than 8,900 m (15 million sa. ft.)l' are needed if the mills are to engage profitably 1/ Information gathered from the 1963 Consultation on Plywood and Other WIood-based Panel Prod ints (org!anized by FAO) indicates that in Japan, out of the 218 mills engaged in plywood manufacture in 1959, only about 70 were suinplving overseas markets, and mamong these, about 40 large mills with capacities ranging from 8,000 to 20,000 m3 a year (1135 to 159 million sq. ft.) accounted for the bu"L of 'rts. - 6 - in exports, so even the smaller Korean plvwood unitg; one with a capacity of 80 million sq. ft. and another of 60 million sq. ft., together with 3 large mills having a capacity of 250 million square feet each, meet the optimum size for plywood factories. 20. The petroleum refinery is designed to process 35,000 BPSD of crude oil. W14hile the .share of gaso-I.ne in the product mix ls small, the -'refinery is processing, in excess of this volume, about 39,000 BPS?7 According to international standards this refinery is of average size,- an ivest ment costs are even slightly below the international level of capital expenditure for this size of refinery. 1/ See "A Hilodern Refinery" by C.H. Gamer in "Techniques of Petroleum Developments' UN, Pew York, 1964, page 192. - 7 - III. IMPORT SUBSTITUTION 21. industrialization in Korea has been motivated for the most part by import substitution0 Government industrial policy has taken the following forms: (i) Restrictive measures on imports (customs tariffs, import quot,as, taxes). (ii) Promotional measures for local production (tax exemptions, preferential credit). Restrictive Measures 22. Among the restrictive measures employed, quotas had more effect than import duties, as the latter were not high and the old official rate of exchange chronically over-valued the domestic currency. As shoan in Table 10 traders and direct importers in the manufacturing sector receivecl windfall profits resulting from the difference between the official and the true value of the 1963 won, and the fact that import duties were levied on the goods valued at the official exchange rate. 23. The exchange rate loophole was partially closed with the promulgation, in JuMe 1964, of a mecain imnport duty; levied unon imported items, for which the rate of profits exceeds 30QZ. Further- more the commodity tax (Table ll-B) has become inrstruincntal in partially reducing gains in imports a&fecting in particular plastics and textile fahri-.- 24a IJ1ith the +ntroductJon *n. 1906-5 of a floatng exchar.ge rate, restrictive measures against imports of manufactured goods have changed considerably- Tmort quotas have been abolished except for 16 items which accoLut for 17% of imports financed from foreign exchange earned through exPorts of Korean goods and services. There is however a long list of prohibited items. (Table ll-D) In addition to this, the import of Jrr!vstmcenn+ godS iJs sabjject too governumen.t approva-l. JThe UdeciLsion of' the CGoverrmient depends on the question whether the capital goods (a) are alre ady being mcnulfacted J Ko ba (b)he pri4ce is - confouirmity with world market prices; and (c) the technology involved is not obsolete. 25. Ihe economic rationale behind the screening of investment goods imports is not entirely clear. Generally, the authorities appear inclined to favor local suppliers. This may contribute to a virtual price and quality mijonopoly of local manuLfacturers. There is a widely expressed desire to reduce the level of Korean prices to the international level. A strong niecessity is also felt to improve the quality of Korean. manufactures, which is still low and which incites the majority of buyers of capital goods to look for the required products directly on the foreign market, without any attempt to examine the local possibilities first. A - 8 - too mechannical but restrictive screening of investment goods import may contribute to the unchecked rise in domestic prices for equipment and haL er any drive tc,wards its better quality. On the other side, a complete liberalization of `mports of equlipment, especially considering that, principal installations for key industries are exempted from import duties and also that the tariff rate on general machinery is quite low (IL6.5) may take away the entire potential market from the Korean prodlucers of machinery. 26. The existing and very important list of prohibited imports plays a most decisive role of protecting practically all important branches of" the Korean manufacturing industry. In particular the textile, chemical, and paper industries wihich have been pointed out before as principal import-substitution branches are heavily protected (Table ll-j). If the prohibitive barriers were entirely withdrawn with- out being replaced by a sufficiently high tariff wall, a considerable share of domestic demand would be diverted from locally produced goods -to i.iportec1 items, mostly because of their relatively lower prices and superior quality. There is no doubt that domestic industries generally would suffer severely from the competition and instead of increasing the Officiency of the industry, many firms may be forced out of business. However, substitution of a Tariff structure,which could be gradually lowered,for the prohibited list, would be desirable for the followi-ing reasons: (i) If the height of the tariff wall would correspond to the economically justified differences between the world market prices and Korean domestic prices, it should check any substantial price increases for domestically produced items in the future. (ii) The gradual lowering of the tariffs would give to local producers time necessary to develop better management, hetter qualiatv. and to lower costs of production. (iii) Items entering Korea in spite of import duties would indicate that the corresmonding domestic proniuction i s probably uneconomic. Promotional Measures 27. Among the most important promotional measures in the field of import substitution are credit facilities. The banking system (which is either outright owned by the Government or Government controlled) has to adiuist its credit-granting actility to certain priorities established by the authorities. The lists of priorities contain categories A (abso- lte nriority)j B (second priority) and G (third priority). The follow- ing import-substitution industries have been included into category A, dr 0 dfr. periods: -9- From From From August, 1955 April, 1962 March, 1964 onwards onwards onwards Textile industry A 1/ C or B 2/ A l/ Chemical industry A 1/ A or B mostly A Basic metals A n.a. Metal products A B n.a.. Transport equipment A A A Food industry A C or B n.a. Machine industry A mostly B A Petroleum n.a. A n.a. Wood and cork n.a. B or C A Paper n.a. n.a. A Cement, n.a. n.a. A ETT"Tcepting a few special fancy items. 2/ Except man-made fibre, included in A. 28. rOn nror.ortion of lo.ns received b-T imlDort-substitutin, industries in the total of outstanding bank l;oans to the manufacturino sector has been consider2t)l OnlIy three nrincinal riauort-substitutina industries accomnt for half of total bank loans to manufactuiring. 1 9 6 4 Share of thp Tot-al of % Share in Total Outstanding Loans Output Chemicals (mostly for fertilizers.' 17.3 7.2 Clar.. P1ass. stone (mostly for cement) 8.7 h.1 Textiles 22.8 27.8 48.8 39.1 29. A! fuhther large amou^nt of fuinds for investment in these industries has come from foreign loans. Credits received since the beginnin "of 1906(0 amount to:+ - 10 - (h million $J 196o0-1965 (Sept.) Public loans Private loans Fertilizer plants 48.8 43.9 Cement plants 4.1 17.6 Textil.e industry 3.1 52.5 7Excluding trade credits. Estimate of private loans is based upon the letters of credit opened at the Bank of Korea.) 30. Evidently, the orientation of the public industrial policy has been decisive to the development of import-substitutLig industries not only because priority loans have been extended to them by the Korean Reconstruction Bank, but also because they have received government guaranteed foreign loans in large measure. 31. The combined result of import restrictive measures (reflected mostly in import quotas) and import-substitution promoting measures (reflected mostly in credits) w.,as most spectacuilar. The whole compositlon of imports of manufactures, has changed. The market dependence on imports has fallen very sha:rply in the groun of intermediate goods; while the dependence on imported investment goods remains still very considerable, and has even increased. (Table 12) 32. The reason for this recent. increase in the d vrnldence on investment goods imports lies in the rapid grow.th of investment. As calcu:lated above. the growth of nroduction of investment goods is only slightly quicker than the growth of investment, but as the structure of fixRed c,-pit-aJ is changing in Korean ho;ever s11-jl- and the share of equipment in it is increasing 1/, import of investment goods and the denpendnce on it iS necessarily groWirg. 33. The depenAanna on inrrorted irputs has ircreased mostly in th investment goods sector. This is primarily due to the fact, that local sqnnnl ip i-f' Trnc+~n1 I n- - --SUPf C4 rp . 4 ...C' .-.L 4 . A . 1.- n-u-Alies of ma have b v u ent.Ts is refLJLecUedU i ULle approaching or existing shortages of copper for electrical machinery Jnus 1y beas o:E a x~, more LII-LV PY possibility torecuprIatUe copper from used a:rmy sheLLs. Even more important is the depletion of post war reserves of scrap for metaIU industry. -lsoU ħLIi 'd eel industry, shortages of flat products became quite acute and increased the Ann on -f - ..4- . 1/ The share of machinery and transport equipment amounted to 32.7% ULIU thLeA,U UfdkJħUd ci UħliIIL 0LL I 190uu-u, anCI in the fixed c.;pital formiation of 1963-65, all calculatod in constant prices. 34. As the plywood industry becomes increasingly export oriented, reliance on imported Philippine wood also increases. Considering the difference between the equilibrium and the actual exchange rate, the dependence on imported inputs is actually about one-fourth higher than the figures for this and other industries would indicate. 35. The high dependence of the manufacturing industry on imported inputs renders the economy very vulnerable to any changes in world market prices, and in particular, to any changes in freight rates. Changes in the exchange rate are also directly felt by the producer, and any devaluation of the won is i.mmediately transmitted to the mar- ket through increased prices of those products which have a high import content. 36. Iiany import substitution industries are operating profitably which may be accepted as a measure of their success. The problem of their real profitability (i.e. social marginal productivity) would become, however, less clear if additional economic factors are intro- duced here such as the low interest rates, which the newly created plants pay for Government-sponsored loans. There is considerable difference between the rates charged by Government Banks before and after the revision, of the Bank's rates was introduced. as well as betwreen the Government Banks' rates and the private usury market (curb market). Organized Bankinpg' Curb Market Oli Rates INew Rates Capital loans: Under 2 years 10% 16% 2 - 5 years 97 11% Over 5 years 8% 107 2/ .2pe tional loans: 10% 18 About 50'o Overdue charges on loans 1.h6% 36.5,% T7 Since September 30, 1965. 2/ Average. - 12 - 37. The avera,e effective interest rate paid by import substitution industries on loan capital obtained from the organized banking system .A. l wa s/ Low interest: Textiles 9. Wood and cork 5 3,% Rubber 5 6,"O Chemicals 4.3 Higher interest: Glass & clay 16.0%o Paper 15.4S Other factors explaining the profitability of some import-substitution industries were (i) gains on imported inputs, imported at the actual exchange rate which until May 1964 was far below the equilibrium rate, and (ii) inflationary price increases, during almost the entire post- war era, which were bound to bring increases in profit rates as they were not accompanied by parallel wage increases. Korean prices for manufactured goods were insulated from the world market because of import prohibition amd quotas. 1/ Table 26. - 13 - IV. EXPORT PROMOTION4 MEASURES 38.~~~+V ____hth o+ dri;ve s-tar+ed in Korea l-t-- th-- the drive J~J * Zt.& U4JAJ LUAI~ OS%,J~JWL U .- V ~ a . U1J 4R. -RJ mfl* - _ for irport substitution, its results have been equally spectacular and @ A -_.tP .'.. - 5 --.r,n,4A ,,nrr%nn + o V,n o h nn -liC 0A l aray Uo.L pUL 4 J IIL4OU. .LIjCII -UU WV' III4 UlC UJ na's LJ,1 extensive. Korean exports of manufactures started from a modest $L.5 mili'lion in :L960 (13/.,7 of total -- -- 41,4 --hye) -4 t++-4n- a level of $107 mil:Lion in 1P65 (6o.9% of Korean exports - Table 13). T!Il2n £li1 -' ID o - - 4.t .kL-- _ 1fl4fl W ine uuual eXxpor-ts grew aW a Ea re Uo 4U/0 p.a., ULLIJ btihe peri oUU -L7Ut- 65, exports of manuiactures increased 2hi times. This rapid growth of exports was encouraged by go-vernumIent policy, subsides nd other promotional measures but was also, though to a lesser extent, influenced by transient and a-clciental- demand, created by ex-ra-econurdii circunistaUn1eC such as the war in Viet-Nam. 39. The Governmentts export-promoting policy consisted of tax exemp-tions, credit f-acilities and direct subsidies. Tax exemptions on expor-ted products cover all the main taxes in Korea. (i) Income taxes A tax exemption from the corporate income tax is given for 50% of profits earmed on exports. This exemption benefits, howevesr, only the exporter. The same 50% exemption applies if thes exporter is subject to individual, instead of corporate, income tax. (ii) Other taxes Business activities tax. Exporters are given complete exemption from the business activities tax on gross receipts derived from exports. Commodity tax. Exemption from the commodity tax is given on goads which are exported. This exemption is particularly important for such commodities as cotton yarn, plywvr2d and glass, which together accounted for 70% of total commodity tax exemptions in 196h. (iii) Customs duties Exemption from customs duties and special custom duties is given for imports, other than capital goods, used in the production of exports. 40. The most important credit incentives for exports are: (i) Export loans Credit in the form of 90-dav loans Crenewable to 135 days) at an interest rate of 6.5% p.a., V/up to an amount of 1/ Compare to 50% p.a. on short-term loans, obtained from private money- 1ptndprq in Knrnpn rnd tn 20 n_.- renrpsentina the hiehest interest rate on loans extended by the banking system. 200 won for every dollar of net foreign exchange earned. Export loans are given on the basis of a letter of credit, opened by the foreign importer. In case of non-fulfillment of export commitments a penalty rate of interest is imposed and in case of mala fide the exporter becomes ineligible for further preferential credit. The cost of the subsidy provided by the low interest rates on export credits is absorbed by the Bank of Korea. (ii) Impor-t usance credits Import usance credits at 6% p.a. are given by the banking system to exporters for the goods (inputs) they import for processing in Korea. 41. Other subsidies granted exporters were discounts for railway transportation and electricity used in export production and direct export subsidies. The latter were mainly given to encourage the export of commodities for which the world market prices are below their domestic cost and commodities not exported before or sold in new foreign markets. The average direct subsidy in 1964 was 25 won per dollar, and was directed at such important exports as plywood, iron and steel plates, clothes, rubber tires and footwear, sheet glass and cotton sheeting, which among themselves accounted for 38% of total exports of manufactures. As, however, the difference between the official and tV realistic exchange rate amounted at thiat time to about 48 won/dollar -ldirect subsidies have been filling only a half of this difference. Exporters had an ample chance to make up for the remaining difference through fiscal exemptions and credit facilities, as well as export-import linkages. Out of the remaining 23 won/dollar difference in exnhange rates (official - realistic) existing in 1964, exporters of manufactureg were getting about L. won/doll ar gTain on fiscal and crerdit f2rc.i1it.iPs J nri nd qn a sizeable gain on additional possibilities to import. Direct subsidies were abolicshead at the cnd of 196L. Another incentive was offered in the form of an exoDrt- inport linking system, permitting the exporters to offset whatever losses J;Tih have rensitedF7ronm rPnorting noods at. the raft. of Pxchrin7p belo-7 equilibrium rate by allowing thc-m imports at the official rate of heavily rr1qtrlict,o.r.d items. "'him c a wacs also dis continud t the end of 19)4. 1/ 255 won - 207 won = 48 won 2 As calculated in Peggy B. Musgrave "Trade Targets and Policies in Kovnren Economic Dnvelopment "j Seoul, August 1Q65 p. 53. 42. TThere are several reasons why Korean exports of manufactures although making spectacular progress can not be regarded as firmly established.. (i) A thin margin of Drofitabilitv. and sometimes a financial loss, in the export of different items. (para 128) Pro- duction is maintained by e mort subsidies. and justified by the authorities on the grounds that part of productive einaeit,v will othprwi;n hp inllr Thi.s .nms to bn the case in the textile industry, where the utilization of nroducttivep cnapaitv has in crzpd with the inncreas of the share of exports in its total output 1oAn 1OA6 19651 --%- uLltion of capacit,/ A7 A A7 ,* PC *, lWeaving (looms).3/ 645 735 75.4 Share of exports-/ in ou4tput (C) 0p-Lul."I (yarr)57 . 2. Weaving (cloth) 9.2 20.6 51.8 I ) ~~t1.. t I --- 2 - - I/ uIlLy cOutto uexUiles. 2/ Established as relation between the number of spindles operating and tne number of spinales installed. / Riatio of looms operating to looms installed. (ii) The main comparative advantage of Korean production is the low level of wages which constitutes only two-thirds of the wage level in China (Taiwan) and one-fifth of the Japanese wages. (Table 15) However, Korean exports are on the whole not particularly labor-intensive. Imported inputs represent a sizeable share of the costs of production, amounting to 70% of the costs of production of plywood and veneer, 71% of rubber tires, but only approximately 30% of textiles (1965). The full benefits of low wages can moreover only be realized when applied in conjunction with optimum use of fixed capital. If Korea can be justly proud of its manpower, well-trained and well-educated, the uses it makes of its fixed capital are not so impressive. This is well illustrated by a comparison of the costs of production of plywood in Korea and in Japan. This shows that the wage- cost in relation to cost of logs in the Japanese plywood industry is only 40% higher than in Korea, whereas the wage differential in wood industries is more than triple, (9 cents per hour in Korea, as compared to 31 cents in Japan). This points to a very - 16 - considerable difference in productivity. Increase in productivity and better utilization of imported inputs may serve to eliminate losses (or increase profits) of Korean exports. 1/ (iii) Some exports, such as those of galvanized iron sheets for Viet-Nam, are temporary and cannot be consicbred an integzral part of Korea's export potential. (iv) The last factor which should be taken into consideration is quality of exported goods. In some cases, this quali-ty is verv satisfactory (like in exDorts of plywood). In other cases, it depends very much on raw materials used (as in the nxnorts of cotton textiles). Still in others. the small size of producing units (sub-cont;racting plants, executing ordeprs for Pr-mnort- of elothes) is ant to bring the quality downwards. And finally, very often, the low n qu1 i ty of eXmnortedi goods is a result n of ne'glect or of a lack of entrepreneurship (as in case of exports of pnrrrn,p wares 1n tiles).~ W3 Tha l ffac1t1nrrsTh,o orTIl d hclp +.to nut. TCraqn elnort on a firmer footing: (i) Permanent contacts between Korean exporters and foreign r,arkets. TLhiLs has alreadyu beer,OaJ 4 4.1t -Aiat by the Y.orean foreign trade center (Kotra) which establishes contacts abroad. (i)A larger ħnject4no ehnlgcl,oldefor bod \ -14 L1j UħULI UL. Ut-LU1 ħU-L ħUL; dħ;C- rUiUWJt-UUt ħ1 OL U11L CW1JCU. As Korea seems to wish to follow the Japanese path of development of exports, ib iS useful tU recall that the initial steps of Japanese exports were facilitated by uechnlcally- UdVeUlpedU UUIUries (US-A, Ue.I'Iliariy, uleat~ Britain). This is true in Korea only in the radio- exporting enterprises, which maintain contacts with technically advanced producers in W$estern Europe. I/ This necessity seems to be recognized by the plywood industry in Korea, which aims at a 20Fo decrease in production costs. This can be achieved both by a better utilization of raw materials, a decrease of the spread of adhesives, and by a higher productivity per worker. In the textile industry, economical use oI imported inputs de;zends, to a large degree, upon maintenance of looms in a technic.ally efficient condition. - 17 - (iii) Attraction of foreign capital to profitable export ventures. This fiold is somatirmes more attractive for foreign private capitai tnan manu- facturing for the domestic market. Although this kind of arrangement sometimes has a negative effect on the balance of payments through repatriation of profits, it brings with it sales outlets, technical know-how and investment funds. Foreign capital may prof'itably be used to export tiles, lacquer and glass- ware, clothing, silk products and processed food. 44. T'he major export market for Korean manufactured products is the United States, which takes 94% of exported plywood, 87% of footwear, 54% of clothing, 50% of sheet glass and 27% of cotton fabrics. (Table 14) So far Korea's share of total imports into the U.S. is very small, and as it increases, Korea can expect to face stiff competition from other more established exporters. - 18 - V. IJSES OF CAPITAL AND LABOR IN THE MANUFACTURING INDUSTRY I . r To -_ - | - i _ __*t~ - . :_ _ n ~i _ 0 _....................-...-....-...-...................4......- - -4n ..... Svo rea. _r were not very high in the past, the use of factors by manufacturers has been often relatively wasteful. Hachinery and equipment hav_ been i4-orted from abroad, duty-free (if destined for major industries).-LI Moreover, funds necessary to import this equipment have been borrowed at a low rabte of interest, and the won equivalent of their dollar value has been paid at the exchange rate below a "realistic:: level. In the case of medium- term suppliers" credits which have become quantitatively important in recent years, the cost to the borrowers is kept low by government repay- ment guaralntees wh'ich are given without charging a fee. Wages paid to the Korean industrial :Labor have not only been 5C% lower than in China (Taiwan), (Tab:Le 15) and more than five times lower than in Japan, (which can be explained through differences in the respective levels of GNP in these countries and in Korea) but the increase in nominal wages during 1957-65 was Largely offset by the rise in cost of living. Real wages have increased by only l.4 p.a., in spite of substantial increases in the GNP and in the value added per worker. 46. According to official statistics (Table 17) the utilization of productive capacity in manufacturing has, on the whole, been quite low throughout the sixt;ies, in spite of the impressive increase in industrial production. It is difficult, however, to decide how much significance should be attached to this statistical information. In various branches idle capacities are obsolete and inefficient and should really not have been included in the computation of total productive capacity. This is the case in the pig-iron making industry. It is also true for a large part of the textile weaving industry, where a large number of looms were installed a long time ago. Information about the age of machinery and plant is incomplete and it is therefore difficult to judge what part of industrial capacity is obsolete. There are however several instances of idle capacity where equipment has been installed in the recent past and where obsolescence is therefore less likely. Among these are the tire industry, flour milling and sugar refining. These are cases of misdirected investment (mostly before 1962) which went far beyond the capacity of the domestic market or any conceivable ex- nansion of the Pxnort rnarket- h7. Also, the measurement of installd capacnni ty is bounnd to be quite imprecise. Firms have, in general, an interest in reporting ac6urately, because th:is f'acilitates exaggcraterdn+ edtions forv depr,cltn in ci1+.i no taxable income. However> they may also fear that a higher declared value of -II Tn 1963, c tcr.s AA+-Q _-.A as a Ct _. ; r^ +h Q -1 > t) VVV- UUS WMO V _V. " /' W. -'- -s V VZ Vi]V;-V. W W investment goods group of industries, and consisting mostly of items cL ass-if.i .Le4 --- U 7 71 - -3 of4- Q -._ th- VT-G cod U5V s e to 6%o only. This is the result of widespread exemptions; typically, t(L..nr-i ff ltt: rnn> Vt;Z1 A^i- -,n ale nnH yc°0t nn nr+.i;ar item.-.> - 19 - caplJUal -Jould Lma 1.e i 1 t dlf UicU Uo i-LUc effL Utivel thIe real volume. of output and would lead, therefore, to a payment of hi-her taxes. A trade-off potu between gairis in Uterms ofL Ua-I OCIV-1.11 Lfrom1 deprLciatUion allowaInces and gains through evasion of taxable income decides the exactitude of suauGistucaL. ħħu.uiaUħLi1 1ere. 1VULwħu[1buanding these diuslie abouti: the value of the present statistical information, there is no doubt that under- 1~~~~~~~~~~~~~~~~~~~~~~T *n - _ L n - P:-- Trn__. I r utilizablon oI capacity does present a problem in area. Rleceint effo1r1 to assess more accurately the extent and causes of under-utilization may tnaroc:Cre prove highly beneficial in formulating policy. 48. ]n order to facilitate an assessment of the required future investment effort in Korea, the Mission presents two independent series of avera.ge capital-output ratios in branches of manufacturing. (Table 18 - A and, B) The first series is based on a survey aimed at assessing the value of fixed capital, the second on the basis of statements of a purely financial nature. The first series, calculated for main industrial branches, contains a. more detailed breakdowqn. It is interesting that the differences between the two series, are small although they are the result of different statistical investigations. The major exception is the food processing industry, where reliability is low, however, due to an abnormally low capacity utilization rate. 49. Capital-output ratios in the investment goods group are above the overall. averagel, if we exclude non-ferrous metals. Reasons for the low capital-output ratio of the electrical machinery industry have been mentioned before - production concentrating on small appliances does not necessitate the use of costly equipment. In the group of intermediate goods, paper, fiber spinning, wood products, and intermediate chemicals (dyestuffs, inorganic chemicals, paints) have the highest coefficients. These comparisons are of importance as far as assessment of the future investment effort in Korea is concerned. The greatest development effort is expectecd to concentrate on branches which show the highest capital coefficient;s. such as svnthetics (intermediate chemicals), steel products, machinery amd transport equipment. Therefore, either the investment effort will have to increase considerablv. or future increases in industrial production are likely to be much less spectacular than during recent years. 50. The evolution of the capital coefficients in the years 1962-1064 shows. already a steady increase. (Table 18-B) If the year 1964 (when increase of output was significantly lower, which could have influenced the capital-otput ratio up.wards) is disregardedJ com.parisons bet.wep n 1963 and 1962 point to the fact that the increase of the coefficient took place -almost exVd-ucl u;vl yr -j,+i1t,vn t-he -rinvero+rmn+. goaro-d industries, wodTrl anrid cork and textiles.-:7 Nevertheless, this increase has been sufficient to l/ Other industries where the capital-output ratio has increased, namely leather, play an insignificant role in the total. Increase of the ratio :in rubber and petroleum industries is very marginal. It becomes important for petroleum in 1964, when the oil refinery was completed. - 20 _ 5.LTe shLIUe Vo. ħiiVVtjLL1Lt1U IVIIcLhI we.IIUU U-ito the mufact Urn Ll c was higher than the contribution of this sector to the GIP in Korea.-/ This c g, be coonsriade.rehd msore or less n.rm at this U o d.d similar relations can be established for the Philippines and for China (Taiwan). (Table i9) 52. A more detailed comparison between the structure of manufactur- ing sectors in these three countries (Table 5) point also to the following differences in the productivity of capital and labor:.9/ (i) In general, in all three countries, food processing industries are more productive than the manufacturing industry as a whole. Nonetheless, wMhile they are only 25% above the average in the Philippines and 68% in China (Taiwan), they are more than 100%I above the average in Korea. (ii) The inverse relation is true for the next largest branch - textiles. Its productivity lags behind the average industry as a whole by 46% in Taiwan, 36% in Korea and 23% in the Philippines. (iii) The increase in the relative productivity of the chemical industry in Korea, from below the average for all manu- facturing to above the average, is due to the creation of an oil refinery and fertilizer plants. This has brought the comparative productivity of this branch much nearer the respective levels in the Philippines and Taiwan, but there still remains a notable difference between the latter two countries and Korea. 53. Rouzhlv soeakin- industrial develoDment in Korea has. in the past, been achieved by the increase of nroduction through tho creation of new capacity or the extension of old facilities, rather than through a more efficient use of existing capacity. As mentioned before, the corollary has been idle capacity in a number of branches. It is the Mission's opinion that the forthcoming period of industrial development shoul=d follow. cnontrary to the nrevious one. an intensive nattern of indus- trialization where all existing possibilities to increase industrial prcduc- tion are eYn1nited, without automatically reor+tinrY to increases in canital investment. 1/ veage for 196,0=65. 2/ In branches where the share of value added to the total value added is e.qual 4 - 4- shar of emp 4-- to- t4ot -- n,.4nloJ.uen nn onu,n+ 4 -r4 +,r c;. U oJ. l ULAJU QLAC.LOJ. WV V&.L .jJ..LIJJI.a1 UI. UWU~ '44 SlrJ.lJ*'4''01U W iL --~7 worker is at the average level of the whole manufacturing industry. In Lb.ranc,s VLt. ULI thesh Va . VcfLue adUUe il e -Lth. UIiIL ULLe shiare of employment, the productivity is above the average and, inversely, if L,Llth sharde o.f vacueL a dUUU .L s mLaħltr ULIta ULthat V. Uof jJħVyLl1eti1U, prodUUUk., UV.iUj lags behind the average. - 21 - 54. Tiihe main possibility for improvement is management. As explained QULJV~ 'L1~cjJ ħ S LU i0 ULLtħL NJ. 110 U t.A11UUULLJVt: UVO U L VJJlr L%~rUI azbove, ch'eap) faC-ctor;. of productior. werLe not conduclve to- -ti;n,orgo management. Furthermore, the economic chaos of an inflationary period did not permit lorig-termu planning with any degree of' certaitytl. Hopeful:LtL those days are past, and no efforts should be spared to improve the manage- ment of enter-prises.. 5 Another possibiiity for increased efiiciency iies in bettier organization of the relationships between enterprises. In certain branches considerable economies and a better quality could be achieved through standardization of products. This is particularly true for electric machinery, general machinery and metal product industries. A major effort in the fiel(d of industrial standardization may contribute to a reduction in ty)es of products and should bring concentration of production. The creat:ion of pilot p:Lants or technological centers for such industries as ceramics should lea(i to more effective and modern methods of production which are lacking in this particular industry, and several others. 56. Labor productivity in the Korean manufacturing industry has increased by 4.2% per year during the five-year period 1960-65. 1/ This has been accompanied by increases of productive equipment per worker, which,calculated in horsepower per worker, has increased by 9.6% per year over the five-year period 1958-63. (Table 22) 57. ln some industries such as paper, chemicals, textiles, wood and cork, eLectrica:L machinery, stone and glass, increases in capital intensity were accompanied by increases in labor productivity. In others such as tranisport equipment, machinery,metal products and basic metals, while equipment per worker has increased, labor productivity has diminished The first group is composed mainly of industries producing intermediate goods, while the second consists predominantly of investment goods indus.- tries. Employment has increased in investment goods industries during 1960-64 (excepting rmetal products and stone and glass) faster than in intermediate goods industries (excepting chemicals). (Table 23) 1/ 1'960-64 figures are given in Table 20. Estimate for 1960-65 is based on- Juilv 1965 c1ita nn Tmnn1nvYmn+ AQ dat +.u s1ed in +he1 com_ putation were derived from various sources, (employment data from £IB Sample Surveys, vue-2dded etf+.n om National 4ccounts) this calculation may not be absolutely precise. The growth rate of h ..29 per annum differs from that shosia in Table 21 wh4ich uses employment data from the "Survey of the Economically Active Population"- . (E PB) - 22 - 58. These~~ . dfeħ eħces may~~ sħ~iLA.PLy e tLlau ir.du-ltries which have a higher rate of growth (like investment goods industries) have hired additional manpoweir. But it can also i-ply that industr al grotThh in some areas was achieved through a better utilization of employed man- power, as in the case of intermediate goods industries, where the growth of production in 1960-1964 was often twice as rapid as the growth in employment, with a very insignificant icrease inr capital intensity. 59. The question of labor productivity is of course most important in the more labor-mintensive branches of manufacturing. Table 24 shows the large degree of variation in labor intensity as between different branches. In such labor-intensive branches as transport equipment or machinery the share of wages in the total cost of production is twice as high as the average in all manulact'uring. It is important to point out, howzever, that exactly in these branches labor productivity was at a rather low level. 60. Although the criterion of labor intensity should be taken into consideratior, in decisions regarding the future of industrial development of Korea, the increase of employment should certainly not be accepted as the sole or even most important criterion. If the future inclustrial development is divided into direct and induced devel- opment, it can be expected that main decisions as to t41e direct developl- ment may :Lead to only a small increase in employmentc' On the contrary, it is the induced development and all complementary capital investment it entails which brings usually an increase in employment. This is true for such branches as the petrochemical industry (where employment is normally rising in man-made fiber plants, plastic factories, and other enterprises induced through the creation of a main complex,whereas the production process of a basic product - ethylene, requires rather small manpower); the iron and steel industry (where employment is induced mostly in the adjacent metal products industry) and others. 1T This has been often the case in the most recent past, whenever investments inm modern technologies were made. For instance, the new oil refinery in Korea, constructed at the cost of $20 million, employs less than 500 workers. - 23 - TTTr "TAI,4Tnpry 1-rn rrn ,n Vr rnr fy VI,. FlZmiwNU Tan DtSLlll4 {1- \( 4- ONV _ 1 4.u - -I r --: __- U __ -.-.11-. _ . 1- -- | J; E Vso CL cII QU C-J,IJ L UJ v A. L -L X-LuJIC Wit ; LCU vt:: Xld C L Lt: U iL1ħI U1:WL&158 CLUZ)Vl J::U by investments in fertilizer plants. An even higher percentage of bank loans wen' ir.to the 'ex'le LJdustry. 68. The 8ihero 0 vħsvxtment goods industries in banK loans was generally higher than their respective shares in total sales. Table 27 points cut some interesting facts regarding profits: (i) The basic metals industry enjoys a percentage share in total profits which is double its share in total sales. As this industry is not particularly profitable, the explanation lies in the small depreciation charges it is allowed to make.l/ (ii) Profits in the chemical industry are falling because of the financially unsound condition of two main Government- owned fertilizer plants, the deficits of which have been growing since 1964. Price adjustments since then may have led to an impprovement in the situation. (iii) The share of profits of the petroleum and coal products industries was abnormally low in 1963. At that time this industry consisted mostly of producers of coal briquets. While the price of briquets is controlled, it was permitted to rise by 9% in 1963. It is true that prices of coal were not increased at this time, but in the presence of a general inflation net profits of this industry as a whole, were low. Profits of the industry increased considerably, however, since the oil refinery started operations in 1964. 69. The Korean Reconstruction Bank has been responsible for the lion's share of development financing in Korea. The KRB was establishedl in April 1954, as a national development bankk,..succeeding the Industria:L Bank of Korea, which had been in existence since 1918. The original law establishing KEB, dated December 20, 1955, was amended on December 27, 1961 (Law No. 873). Article 1 of this law states: "The nrimarv nurpose of the Korean Reconstruction Bank shall be to supply and administer funds, in conform:ity with the Government's Dolicies. for financina necessary industrial projects in order to expedite industrial rehabilitation and economic development of the nation.'! KRB's main function iLS the grantirng of investment (capital) loans to industrial enterprises, both government and private. Onprational (working cnnpi+.tl) loanns anr na+uhnoizdA onlyr +rt 1/ Until December 195-cnly b% per year on the basis of decreasing value of equipnent. This has been recently (as of January 1, 1966) raised by over 2 times, which will bring redistribution between irofits and dePreciationn - 26 _ recipients of capital loans and to government-owned enterprises. The underwriting of stocks and bonds authorized in 1961 is not yet signif- icant. The issuance of guarantees has beccme an important function since KRB assumed won guarantees containing a maintenance of value clause in favor of the Bank of horea, as backing for dollar guarantees this bank assu=es in favor of forei;n creditors. 1/ Furthermore, the 1AB acts as the a-cnt for "Cooley" loans, extends subloans under DLF Loan 1io. 94 (now iiID Loan iNo. 489-A-007), and administers the utilization of i^;on proceeds resulting from develcpmecnt loans repayable in dollars. The KRB also administers housing loans. 1/ The KRB Act authorized the bank "to guarantee the BOK as to the reim- bursement in local currency for foreign credit when the BOK has guaranteed the repayment of the credit in foreign exchange". Ninety- nine percent of all guarantees written by the KRB fall in this cate- gory. Guarantees now constitute by far the biggest single item in the balance: sheet; they comprise more than 5C% of all assets and liabilities, while they were a minor item up to 1962. As the influx of foreign loans became significant, guarantees increased rapidly, amounting to 36% of assets and liabilities by the end of 1963. Since guarantees carry a maintenance of value clause, the adjustment of the W9on/Dollar rate in May, 1964, nearly doubled the amount outstanding. The claims of the KRB against the recipients of the foreign loans are backed by collateral and by a re-guarantee of the Government, in case the collateral is not sufficientħ Fu-rthermore, repay-ents of existing loans and profits will probably exceed in any given period. the recourse on the KRB the BK i9s likely to Tke. f this assumption is correct, the guarantee commitments while impairing the availability of funds to carrv out. the loan program, will probably not impair the bank's liquidity and will not endanger its canital and reserves, In the total of IMBIR guarantees on the repayrments of foreign loans amounting to won 40,915 million, fisheries is the biggest category with 31%, followed by textiles wi-ith 24%. Korea Marine Development Corporation, a Government-owned corporation, is by far the biggest account in the fi shing industry. Al together, tUhree goverrnmaent- controlled enterprises compose 46% of the outstanding guarantees. 27 - 7LL. Therel;irve JIiJUdce of" L-bese 'wmiciols of Uhe lnD is shoti in the table below: 1 _Loans Guarantees and Investments (in million of wonF 12/31/62 12/31/63 12/31/6h 6/30/65 Capital Loans 20,765 23,584 26,o51 26,818 of which, Housing Loans (2,595) (2,966) (3,168) (3,13].) Coo-Ley Loans (65) (71) (51) (56) DLF Subloans-/ (17) (66) (125) (166) Workirng Capital Loans 3,558 4,037 5,679 6,143, Guararitees 2,211 18,136 38,338 40,915 71/on disbursement, basis, which differs substantially from the loan approvatl basis. 71. interest rates charged by the KRB are showm in Table 28. 72. Zn according preference to one grourn of industrial borrowers as opposed to another, KRB is guided by a priority list of loans, where industries are grouped in categories according to the imnortance the Government attaches to their development. This system of priorities, and the inf'luence exerted by different Government agencies on the KRB_ have determined the specific pattern of loans. Often the largest share of bank loans has been channeled to industries showing very -orlow rates of return. This is particularly apparent for industries such as trans- port equipment, fertilizers or tePt i1es. The share of these three industries in the total output for the manufacturing industry is 37.2%, the share of profits however only 26.)4%. and the share of outStandir.g bank loans 44.5%. Within the transpcrt industry, loans extended to the Ko)rea, ';hjnhnjIrdIj- Corporation acco,-,t for 340,<, Mnd ti the che.miLcall (including fertilizers) industry, loans extended to two Government-owned fertilizer plants account for 86% of loans grnted to these branches. (Table 29) 73. Out of the total loans extended by the KRB to the manufacturing sector (outstanding as of June 30, 1965) 24/% are granted to Government- owned enterprises and 76% to private enterprises. The share of Government- o-wnXed enterprises in the total output of industry is much less than its share in credits received, - 28 - VIIL 0DUTLINE OF THE FUTURE DEVELOPMENT OF THR -MANUFACTURING SECTOR 7), At. tho tim.e of the Mission's stay in Korea, thr-e was r.o scto-al breakdown of the draft macroeconomic model for the Second Five Year Plan and no development pplan for the mnufacturing t was Production and investment concepts, put together by the Ministry of Commerce and Industry (MCI), were based m,,ostly ,po. the thinki.g of professional and regional organizations such as associations of manu- factu- rers and l-bso ommere mThe anay Is . w hicu folw is b- vi wsc (: 4 W11LV VIS1tb X dJ l & ' ows i uaseu upon lwhatever development intentions and projections could be obtained, as well as on information collected at the branch level of industry- Mission's projections are outlined in Table 30. A. Deveiopment of Tnvestment Goods Industries ,, T-hiusl u 1 pmen inis industry consists oI two ilain brancies: motor vehicles and shipbuilding. 'rhe existing stock of means of trans- portation is relatively small and faces a rapidly growing demand. Devel- opment plans in this industry are not very clear. The first version of the plan, d;rafted by the ICvIL, aimed at a rather modest increase of produc- tion of motor vehicLe parts, and a rapid increase of the tonnage of ships produced in Korea. A large planned expansion of shipbuilding is based mainly upon three assumptions: (i) That a large part of the rapidly grow- ing bulk of Korean exports shall be carried in domestically built ships, (ii) That the future expansion of fisheries will require sizeable fleet of locally-built fishing boats, and (iii) That steel plates used for construction of sheLls and now imported from abroad will be locally produced. According to the estimates of Korean planners, additional capacity of ships required during the Second Plan will amount to 587 thousand GT, and this production goal has been set before the ship- building industry. Investment in shipbuilding would aim at a tripling of present capacity'-''which incidentally is utilized at present only to the degree of 30%. Shipbuilding in Korea is still unprofitable, Sixty percent of -bhe cost of production consists of imported materials and the Government has to subsidize up to 30% of the sale price to bring it down to the leveL of Japanese prices for ships._/Even if the hypothesis of domestic production of thick steel plates (over 3.75 mm) is accepted as valid, it cannot be expected that their cost will be below the import price. Although the presently under-utilized productive capacity will be better utilized at the planned increased production, economies of scale do not play a major role in shipbuilding (the share of overhead and depreciation in total costs is only 16.7%) and the industry may suffer considerable losses. Moreover, the construction of 300-700 hp marine engines and ships exceeding 13,000 GT, requires specific skills and experieince which presently may not be available in Korea. It is, therefore, suggested that less ambitious goals be set before this indusltry. In particular, it would be desirable to limit the range of production to fishing boats and freight carriers with a capacity below 4,000 GT. Postponing the construction of ocean liners and large oil 1/ Steel-made ships only. 2 Average cost of production of Korean cargo amounts to $400/ton, while it is only $300/ton in Japan. - 29 - tankers wi.ll relieve the industry of the necessity of installing costly special metal-working equipment to process large parts (for large marine engines) which, considering the limited demand for such units, is very likely to remain underutilized. 76. The total tonnage of sea-going Korean vessels amounted to 151 thousand tons in 1965. Average domestic production is only about 10 thousand GT per year (out of which hO% consists of wooden ships). In line with the tentative investment plan of the Bank-sponsored Trans- port Survey in progress at the time of writine. the reauirement for the Second Plan can be estimated at about 1/3 of the tonnage, proposed by Korean planners and. should not exceed 190 thousand. GT, of which more than. half could. be produced domestically. 77. Expansion of the motor car industry is based mostly upon an increase of production of parts, This, unfortumnately, perpetuates the present orientation of the industry on replacing worn-out parts of old motor vehicles. * 'rincinal new parts, such as pistons, are produced frcm imported, metals (aluminum) and these parts have a limited, diversified market. Rationale for such production is doubtfl-. Assembly of foreign- produced automobiles, both trucks and. sedans, will certainly meet a local demand, which should increase bhy 10% p.a. 78_ T1hCtrical machinery. Accordin.g to available plns, +his i..dustry will, develop rapidly. At present, the scope of production is limited-to smr-f electric mot.ors, trar.sfor.ers,, batteries, rados, etc. Considering the low level of income and housing conditions in Korea, there may not - be sufficie' adem..and for a rapid. expansion of dome U C.LLdy producedU cI.nJ.- sumer durables, especially in view of highly competitive Japanese imports. Growth of the electric alr machinery production may becom,Xe, ho-wever, justi- fied providing that the production structure emphasizes to a larger ex- tent th, at p n ' ucton O- investment goods. 79. As econvomies of scale are particularly important in deternining the cost structure here, an effort towards standardization should be iritiated pr-ior 'o any major new investment in this industry. Production plans for this industry may be based on a growth rate of about 15 p.a., provided new products are standardized to allow production in larger series. Production should also be linked to parallel production of such items of general machinery industry as lathes, engines, with which elec- trical machines would. form larger aggregates.l/ 80, General machinery. This branch of industry has been neglected. in the past. Future demand is related to the expected growth rate of fixed capital formation, which will be about 10 p.a. (see Volume I - Main Report, Table 9, page 51). This sets a limit to the expansion of this industry. Allowing for private and public demand for various simple 1/ A lack of consideration given to this obvious principle has been felt in the past. - 30 - machines falling :into the consumption bracket, and also for a certain, but necessaril limited, -A4egree oi mport susitution, growth production may amount to about 15 p.a. This growth should entail an investment of about $60 .,millon, permitting a substantial expansion of capacity in machine tools and construction machinery. The few machi.e tool factories operating in Korea have had reasonable success. A new plant producing heavy construction machinery can incorporate rolling stock into its line of production. Future (1967-71) require- ments of freight and passenger rolling stock are considerable and a sizeableshare of it can be supplied from domestic production (see Korea Transportation Survey, IBRD, Section VI, Chapter 7). 81. Basic rmetals. Production of basic metals is a bottleneck in Korean heavy industry, mostly because of insufficient capacity in pig iron and the limited scope of rolling mills. Importance is attached to the construction of a new integrated iron and steel plant. Various Government agencies as well as several outside teams have surveyed the steel industry ancd made forecasts of steel demand. The Mission is not in a position to resolve the outstanding issues, but a preliminary analysis of this industry highlights the main points. 82. According to the Mission's forecast, based on 1965 production data, the demand for steel should increase in the period 1965-71 at the rate of 9.9% p.a. This projection is more optimistic than that made by the MCI which sets the growth of demand at 8.h% p.a. and the EPB forecast, setting it at 9.2%' p.a. The Mission roughly estimates demand in 1971 to reach about 570,000 MtT of finished products or 680,000 NT of steel ingots. On a per capita basis, ingot consumption will rise from 13 klg in 1965 to 20 kg in 1971. 83. This projection is based on the following assuLmpti ons: (i' The comnosition of demand for steel in 1965 is the same as shown in the 1963 Input-Output Table. (ii) Exports should be excluded fror the base year figure. Present exports, largely to Viet-NamjT are extraordinary in char acter. They may continue and even in- crease, but Korea should not undertake a large investment on the basis of an analysis which assumes that such exports will continue to grow. (iii) Output of engineering industries (machinery, transport, equipment and metal products) will rise at rates shown in Table 30. (iv) The use of steel in construction will increase in line with the growth of fixed investment. 1 9 6 5 1 9 7 1 Share in Share in Total Con- Total Con- 1965-1971 Consuming sumption of Demand Demand sumption of Growth Rate Sector Steel (%) 000 Ml 000 15T Steel (5) Per Year_(%) Engineering Industries-/ 30.2 97.5 195.0 34.3 12.3 Construction 39.1 126.2 218.4 38.5 9.3 Others 18.3 59.0 83.2 14.6 60o Basic Metals 12.3 40.1 71.0 12.6 10.0 100.0 322.8 567.6 100.0 9.9 1/' Marhineryj transport eniuipmnt and finished metal product industries. 84. The present capacity for producing steel is 235,000 MT. If demarnd roTos as forecast by the Mission) to 680jno MT by 1971 then there will be room for an additional plant of about half a million tons. From the standpoint of economi-es f scale a half million +1-n facili+v is acceptable providecd the raw material situation is favorable.- 85. Existing iron-ore reserves with an iron content of more than 25% are estim-ated at abol - 6-18 million MT. However, reserves of relati e1y high grade ore (iron content of more than 40h%) are of the order of 7-10 llrfn u - gl- .-. - 4 ar A ur -e mllion NTlI. If ores -itU Lig d. cortert are exc-ud then the reserve figure is reduced to 6 million 1iT only. Furthermore, the location of the iron mines on 1ihe East coast J1plIes a be3J t-aport cost either 1o Pusan or Inchon - the main steel manufacturing centers. Everything considered, it may prove prefrab:Le to cont-inue to export Iorean ores to Japan where they are blended with other materials. If a new steel plant is established in Korea, it wi-ii probab:ly have to depend on imported iron ore. The 1LLssion could not include into this ostimate the deposits discovered in 1966, as t:aeir extent remained still largely unexplored. It is however, highly mprobable that they will conta:Ln high grade ores. li' ine unit cost of production of a [30,000 ton plant is 8% lower than that of a 250,0o0 ton plant. However, a million ton plant can produce at a unit cost which is 24% lower than a 250,000 ton plant (E.C.L.A.: A Study of the Iron and Steel Industry in Latin America, New York 1964, p. 113). 36. Korea has no reserves of coking coal. The Mission is not compet!ent to judge the probability of success of ex-periments, now being conducted, designed to use Korean anthracite coal for steel making, Even f. Uthese exper=,nerf's estabi'sh thee eS=ia' a.A econo.-c feasibility ofr using anthracite, there will remain the problem that there is not much room for ex-p Ening Korean coal production. Viewed in the perspective of Korea's overall energy balance, fuel for a new steel plant should either be iLmported or anthracite (if technical experimernts are successful) should be diverted from the power oactor by appropriate changes in price policy. Another solution is offered by the electric reduction process; however, under Korean conditions this alternative may prove to be fairly expensive. 87. Domestic collections of scrap have been dwindling since 1962. Even at the present level of steel production, Korea is likely to require imports of about 100,000 tons during 1966, This dependence on imports is likely to increase in the future. 88. Under these rather unfavorable raw material conditions, the Mission suspects that the proposed steel plant will involve rather high cost of pr-duction. Korea can achieve a measure of import substitution with respect to pe.g iron and steel i:igots but only at the expense of rising dependence on Jiports of ircn-ore, coal and scrap. At present, the domestic cost of ste3l ingots is about $74 per ton (open hearth pro- duction). The ex-factory price of 50 mm b-'llet is about $90 compared to a Japanese, f.o.b. price of about $69 and European quotations Y f.o.b. of about $70. The Mission cannot determine the extent to which the proposed plant will succeed in reducing Korean production costs below their present level. 89. The production capacity of the non-ferrous industry is also planned to be expa-Xnded, with the main share of investment going Into aluminum refining and. smelting, The Mdssion feels that the likely growth of demand znd, expected production costs do not support the ten- dency towards investment expenditures of large magnitude. Aluminum is usec. in Korea for a local production of motor parts wnich are used as replacement,of used parts of the existing fleet of motor vehicles. If inlstuallation of orie or two automobile assembly lines in the Korean tranis- port industry would materialize, the future of this type of replacement. may becomeD somehow different in view of an increasing share of standari type vehicles in the whole and, as a result, the domestic uses of alu- minlm may narrow down considerably. In the second place, Korea has negligible resources of bauxite and would have to rely almost entirely on Imports. -What is, however, more important, the country has no cheap sources of electric power, andl this lack vouald render the process highLy uneconomical. At the electricity rate charged to industry, the cost of 17 Low European price of billets has becn influenced by the present recession in the steel production in Eurone. electric power per ton of aluminum would arount to about $lu60' or u/ - of the import price of aluminum. This cost amounts to about $60 in cer- tain countries with rich deposits of bauxite but no sources of cheap electricity2/ and to about $40 or less in countries producing cheap electricity but without baux1te depositis._, rioreover, considering the increasing capital intensity of coal mining in Korea, the cost of electric power m,.ay go up especiaIly as the present supply of electric power is only just ahead of demand. 90. Other investment for the development of non-ferrous metal inius- tries is directed towards the expansion of zinc smelting facilities. Korea's average annual import of zinc is about $3 million. Its application may be as alloy in the production of antifriction metals and brass, as well as for piping and dry-cell batteries. These specific and narrow uses are not ex- pected to increase radically in the future. There is no mine engaged exclu- sively in zinc mining in Korea, as it is associated there with other metals such as gold, silver, copper and lead. The value of zinc ores mined ini 1964L barely reached $300 thousand. 91. The above limitations do not justify important investments in the non-ferrous metals industries. 92. Non-metallic minerals. This industry is divided into three main branches: cement, sheet glass, and ceramics. Demand for cement is expected to rise from 1.3 million MT in 1965 to 3.4 million If in 1971; that is at the same annual rate (17.5 percent per annum) as during 1956-65. There is in Korea, as in other developing countries, a preference for permanent structures which implies a displacement of other building materials by cement, The combined capacity of seven plants operating at present is about 1.7 million IMTl. The industrv nlans to expand canacity to keen up with domestic demand. Limestone of adequate quality is available but gypsun mus-t be imported. Domestic prices are about 18% higher than import pr:inc c.i.f.; however, the industry expects to reduce costs by about 6% through economies in nuarryiwg and in use of power and labor. 93. She-et glass. Both the growth in domestic demand and thne export target are in conformity with the Mission's projections. Investment needed to extend product:Lve facilities in the sheet glass industry are estimFated by lthe Mission at $3.7 million during the period 1967-71. 94. Ceramics. In this field the Mission has doubts as to the targets proPosed bDY the orean planners. The in.dustry has a long tradition. All raw materials are available in Korea. However, the in_lustry cannot claim any success in the fi ld of exports. The degree of waste/ is quite high ( 16A) and export prices are 34% below the production cost. Furthermore, the de- signlS are far from. being able to attract potentrial customriers. The target W~ At 9 mlills (in UJS d) per aKw-h and 18,000 K:wh/ton of aluminum. 2/ Such as Greece, where the cost of electricity charged to new aluminum planv is .37 miils per Kwh. 3/ Such as Norway, at 1-2 mills per Kwh, or Northwest of the United States at 2 mtills/Kwh. 4/ Rejected or broken production. -. 34 - of exporting 42% of production can therefore be attained only after a major changie in the entire cern--4 - indust_ Jbas taker place. The nu1ĥliyIr of -10 cally produzced t`les is quite uneven. Facing tiles seem to possess quite good charac i-e rsi-^ being d-_ A-__U-1_ P4 reproof - 4 mo -stur Uandwa e4s tant; and meet com;truction requirements. A high incidence of idle capacity and the gocd qaliy of UtIV pJrUdUUc IVt hv Ul producers tUo ULI.Lħlu abut -e- possibilities, but; so far with little success. Japanese funds have bee!n al- .leUg y I;LtzUdU 'nt,U io hiJo .LluuUOIy dclu cU-L).LUUUO e^ulouL pjJħdlan sLI1 CU aim a ^- ing a target of US$8 million annually during the 1967-71 period. It is quite difLficult to asse:ss the prospects of reacning thi6 goa-l It has been de- rived from the fact that the USA imports considerable quantities of ceramic tiles lin 1964 US$-29 million wortn, of wnicn h7o came irom Japan). Korea possesses excellent raw materials which when combined with Japanese funds and know-hlow seem to point to an excellent combination. In order to export, in 1971, about US$8 million worth of facing tiles, something like 1,20C),000 pyongs'/ of tiles are to be exported. If we add to this figure 250-300C,000 pyongs to meet domestic demand, the present capacity should increase from 400,000 pyongs to l,500,00u, i.e., almost four times over. This should en- tail investment ouitlays of about $3 million. 95. Vlith regard to the export of pottery and chinaware, the absorptive capacity of the world market remains considerable. United States imports of pottery in 1965 exceeded US$70 million, over a hMf of which came from Japan and 15% from Great Britain. The grow-fth of U.S. impc)rts throughout the period of the last few years amounted to 8% p.a. A sizeable contract for about one million dollars was tentatively concluded between US importers and Korean producers in 1965, but the quality requirements were not met by chinaware factories in Korea and only USQ2() thousand worth of chinawsare are to be exported under this contract. This is an indication of technological ixnprovements needed in industry. 96, To promote exports of Korean chinaware during the Second Five! Year Plan period, three basic steps should be undertaken: (i) Contacts with large department stores or importers in major developed countries should be organized to orient the production of Korean chinaware to a mass consumer market. (ii) Original designs should be found or adoDted from Korea's artistic past. (iii) Technical improvements should be undertaken in the *nd ic+ry.r 97. Korean authorities hope that exports of ceramic products (except4ng tiles) / ,L-ecL.L h ~CLL VLU L U *L) . $20 L'J rI.L..Li.o11 in 1971, i.e., selreral hundred times the present level. If allowance is made for a 14< increase in dom,estic consum.ption, present productive+ capacity wiould have to be increased five times. The estimated additional --est.e+ 4ol d ac odn 4to 4the Mi ssion's 4---+,4-e calulaio, - t~O ~J~JJ~~J U.U, ~ .LJ. UL.J~L.LAS J ULJA AJ ~ ~ J- ~J ILJO IU U4.V ~ ~ LU require about $23 million. This amount of investment would certainly bUe F r em,LauLre atU U Lis-i tULimie. nrl iL.LsLU.ħ ħħIVt:AitiLLnt OLIVL.LU UV Ube direcdU intC) the establishment of a pilot plant, installed within a medium- 5ħzt' ceram_c techniological center, which may induce consu,mer demand abroad through expTorts of experimental samples of chinaware, determine 1/ At the anit price of US$2 per mZ, i.e., US$6.6 per 1 pyong. the optimum. size and technology of future plants, and investigate bus-iness and techbnical problems connect--e with this major venture. The expenditure necessary to create such a center would require a foreion corr;ponent of about USO2.6 million. Construction of the pilot plant may take about 30 months. Exports from it may not exceed US$1.5 million per year. After its initial operations i1 1968, a ItIher in-vestment in about two new regular ceramic plants may be envisaged, before the end of the Second Five 'ear Plan. T U1 investment outlays and total exports may be as follows: 1967-71 1971 Investment Exports Venture ($ million) (i million) Pilot Plant and Ceramic Center 2.6 1.5 iwo Ceramic P (ants (newly built) h.h 440 Existing Plants Nil 1.0 7. f B.. Intermediate Goods 98. Petroleum and coal products. An oil refinery, situated in Ulsan, is operating now at slirht1v over 35;000 BP.SD/ which is its full capacity. Motor gasoline refining amounts to only 10% of this product mix. which mav hp. cnsidered aS relatively uneconomical, but typical for low-income countries with a limited number of motor cars in circiilation 99 The Missi on vpr-ects that the demand for +role -- products will increase at a nrotwth rate of 11.6% per annum.- Underlying the D v (i) Gasoline consumption wiLL rise 50% faster than the fleet of motor vehicles. The latter will increase 10% per amnum. (IBRD Korea Transportation Survey, Vol. I. Section VII, Ch. 9 t. 70.) (ii) The consumption of the power sector will increase at a faster rate than power use. The assumption is that oil will be sub- sti-tuted for coal in the new thermal plants in response to deliberate changes in price relations. (iii) The consumption of the industri;al sector will rise rapidLy on the assumption that a petro-chemical complex and the nitrogen fertilizer plant will be established before the end of the Second Plan. 1/ CLvilian consumption of netrolemn prodnlu-ts inezrPA 12. percePnt pern -- annum from the average of 1956-58 to the average of 1963-65. However, de-- >lnd in-ereased l1- oysly. 5,Q9 pereent+ per wnntu di..in 1962-65. (iv) The bulk of military consumption will continue -to be imported. DEMAlND PROJECTION FOiL PETROLEUl1 PRODUCTS (thousand barrels) 1 9 6 5 1 9 7 1 Consuming Fuel Fuel Sectors Gasoline Oil Total Gasoline Oil Total Transport 812 3,889 4,701 1,876 5,708 7,58L Industry 94 2,095 2,536-; 137 2,735 6,)457{ Power - 52 l,247 - 1,464 2,659 Household - - 427 - - 517 Total 906 6,036 8,911-/ 2,013 9,907 17,217 17TT ncluding Bunker C and otLior derivatives of petroleum. Source: Mission Estimates. 1nn As the refinery is operating now at its ftull canacit.v a further .L~~~~~~~~~~~~~~~~~~~ - ra e_ _ a_ h_d extension seems to be imperative so that the domestic demand for petroleun nroducts is met, at ltasq. during the next few years= The hbaiG intal.ati ns were constructed with a view.^ to future expansion. Wlith crude unit revisiDns and platformer revamn. and an addition of a saturate g2S concentration unit, merox unit, and a cooling towier, the refinery should be able to increase its cap)acitv by about 57'g. i.e.. from 31.000 BPSD to glass, stone 661-02 Cement -11. 0 14.1 (including cement & glass) 16.0 16c5 664-03 Glass gradually eliminated Total, Group A 13.9 18eO Total., Group A 7.0 L9.7 B. Intermediate Gocds B. Intermediate Goods Chem'icals (including 5(_ F6) Chemi.c lEs 8-3 :11.3 fertilizer) 23,0 18.5 5 Fertilizer -o. 5 3.6 Paper 19eG 16,4 64 Paper -0, 3 504 TextiLles 6.2 8.1 T'5 Textiles :L,2 9.6 Rubber 11.3 6.1 62 Rubber gradually elininated Wood and cork 6.1 7e7 63 W,Jood and cork negligible Petroleum 40,0 31(-31101) P etroleum produzts 3.8 3,6 Total, Group 'B 11,4 154 TotaL, Group B 009 5,1 Table 1: LONG I'ERM GROWTH TRENDS OF' MANiUFACTURING PRODIJCTION AND I1POR'PS (contld) M:anufacturing Prcduc tion :Imports of Manufactures Industrial Br-anchLes Rates of Growth a/ Rates of Grc.wtih p.a.- 5-57 9-61 C ode SITC Groups 196 57I 1-963- 65 ]1963- 65 1963-65 1963-65 C. Consumer GoodsQ l C. (Consumer Goods Tobacco 7,1 104,3 1L2 Tobacco gradually eliminated Beverages 6,1 11.9 'L1 Beverages 'H H1 Leather 1,3 1,,9 84 Clothing " Food 5$41 11 Printing 13.0 14,,0 Total, Group C Total., Manufacturing Industries 11.0 12,,C Total, Imports of Manufactures 2Z,7 lO.6 5- 1/ In terrms of physical inc rease of industriLal produc tion. .2/ In terms of dollar value of iimports of manufactu;res. Underlying data is subject to som.e reservations. A s,izeaLble share of imports during the late 1950's and ear:ly 1960!s could not be properly classified. 3/ Rate of growth of clothing manufacturing is not available. 1955-57 1959-61 1961-65 1963465 G/ Growth in Value added of manufac-turing p,,a. 9.4 12.1 Growth of all sectors of the Korean econorm p.a. 5.3 6,3 c5/ Growth of Total Imports p.a. 1.5 10.0 Table 2: LONG TERM GROWTH TRENDS CFIANUFACTURING PRODUCTION IN DEVELOPING COUNTTRIE', Country Period Growth p.a. Relation between growth of the GNP and growth of mfg, Kore3 l95 1963/65 11i0 1.72 1959/61- Philippines 1957-65 5.5 1.34 /1 196o-65 5.0 1.34 /-I China (Taiwan) 1957-65 13.7 1960-65 14.8 1.24 /2 Spain 1959-65 10.9 UAR 1959/60- 1963/64 9.6 /3 1650 Less indust;ri- ali7;ed cotntries 1956/57- 1963/64 7.2 South East AsaZ /1 1956/57- 1963/64 8.3 /1 1959-6:3 constant prices. /3 Includes mining. /2 1959-63 in current prices. /4 Excluding Japan. Source: Monthly BuLletin of Statistics, UN, New York, 1966. Bent Hansen and Donald Mead; The National Income of the UAR Memo No. 355, The Institute of National Planning, Cairo; July 1963. Table 3: DISTRIBUTION OF' HANUFACTURING VALUE ADDED & MXFC3* I1TCRTS ACCORDING TO 1ND IJSE Manufacturing Production Imports of Manufactures /1l Average Share in Total Average share in total imports of Industrial Branches Value AdLded () SITC Groups manufactures( 1960-61 1963-6', Code l1'97l93=9-65 5 A. Investment Goods A. Investme:nt Goods 'Transport equipment 3.5 4.6 7 3 l'ranSport eqiipmeDnt 4. 1 1.8 6.8 Electric machinery & Appl. 0.9 1.8 72 Elecivric machinery 5.8 7.3 6.8 Machinery 3.c7 3.4 71 Machinery 10.2 14.4 16.8 Basic metal prodLucts 2.5 2.9 67/6 B ]3ase metals 7.8 7.2 11,8 Mietal products 203 2.2 69 Meta-L manufactures 1.0 1.1 2.1 Clay, glass, stcne (561-02 Cement 2.5 0.7 o.8 (including cement) 5>.2 7.6 66)4-03 Glass 0°9 0.3 0.1 Total Group A -2 Total Group A 2-5 B. Intermediate Goods B3. Intermediate Goods Chemicals inecluding 5 (-56TSCTh1emicals 8.1 12.0 1.2.5 Fertilizers) 5.1 7.2 16 Fert:Llizers 27.6 27.3 21.0 Paper 2.)4 3.5 64 Paper 4.9 3.6 0.7 Textiles 18.0 15.9 635 Textiles 10.7 10.0 9.6 Rubber 2.3 2.5 62 Rubber 0.'7 negl. negl. Wood and cork 1.9 2.1 63 Wood and cork 0.1 ne,gl. negl. Petroleum & products 2.5 L.2 31(-31101) Petroleum products 10.0 14.2 10.9 Total Group B 32.2 5.4 Total Group B T21L 67,1 547t C. Consumer Goods C,. Consumer Goods Tobacco lO6 10.0 1]2 Tobacco 1.6 negl. negl. Beverages 9.b 6.2 11 Beverages 2.5 negl. 0.05 Leather 1.2 1.0 84 Clothing 1.h4 0.1 0.05 Food 16.5 1)4.1 Printing ,3.4 3.6 Footwear and clothing L.9 4.3 Furn:iture 1.1 0.7 Total Group C 7 . I 39.9 Total Group C 5.,5 0.1 0.1 1* Other I-4anufacturinR 2.6 2.2 Total Manufacturing 100.0 100.0 Import of M.anufacturcs 100.0 100.0 100.0 Irmnr+n'. {f ITvnnifa,tn,-rPq an Manui facturing as part of' GNP 13.6 16.8 a part of Total Imports 51.4 550)4 56.5 Table :3: DISTRIBUTION OF IMANUFAC'TURING VALUE ADDED & MFG. IMPORTS ACCORDING TO END-USE FOOTNOTE /i The classification of imports sh.own here is subject to serious reservat:ion. A sizeable share of imports during the late 1950s and early 1960s cannot be classified. Therefore, comparisons over time should be iriterpreted cautiously. Sources: Shares of branches in the manufacturinig production calculated from revised National iLccounts (in 1960 prices) prepared by the BOK. Shares in imports based upon statistics contained in the Foreign Tradie Statistics (Ministry of Finance) and jEconomic Statist:ics Yearbooks (EBank- of Korea) for respective years. Table lh: RCERjTH OF OUTPUT OF M/jAidUFACTURDlC- MDUSTRIES MI!D IRELATED HACRO-ZC(GYTOifiIC VARIABLES 1955/57 - 1963/65 1959/61 - 1963/'65 1. :Investrnent goocds industries (outputt) (% p.a.) 13.9 18.0 2. Gross domestic capital formation (in constant prices) (% p.a.) 8.4 12.8 3. Relation between the rates of growth of investment goods industries and of gross domestic capital formation /1/2 (ratio)7 1.65 1.41 4. Consumer goods industries (output) 6.6 5.4 GN p.a.) 5. Private consumption expenditures (in constant n)ricps) (% n.a.) h7 6.. RPIntinn hptwppn the rt-.q of s'ronwth of consumption goods industries and pinnval, e onsnrnnti on meneiit.irps (4/5) (ratio) 1.40 0.93 Snnriiiz!~ Mi so ,-.mn.Q Table 5: COPIPOSITION OF V.ALUE ADDED IN MAIAUFACTURING BY BR1J\TCO4; (or)AP (WDT OF ArMTT AT t1TTrVW Y0f1t^TAT T)ATM1PVD1-TT (percent, of total value added) - …-- [-rI--FTir-"K7-"r-t-r 77T7 0) 0 0 -+- t fl 0 U jo - jP CO 0 -P .H ° p Sz n *H X O O h 'I-d o ( ° P-i C HO~~~~~~0 - $i r ~$ |to o ;q -H P~ 0 Do- || ~~d0) 'd u~~~4d HP-iD _ _ .10 . _ _ __ I _._ A. Value AddLed i.n 1lc65 Actual Li 30.0 16,.6 306 2.7 3.2 3.8 0.9 2.4 11.9 8.3 2.7 11.9) 2.3 Value Added in 1965 "Normal" 33 5 e5 i14 5.7 14.1 1.2 2.1 2.0 0o. 8.7 8.3 3 4,0 11. 9 1,2 Deviation of the actual structuire f- rom tlhe patte:rn -:55 +2.2 -2.1 -1.h +2.0 +1 7 -1ci +1 o 3c2 0 -13 0 +0.8 B3. Valuea Added in 1971- projec-ted Ipattern 31.3 14.5 5.4 4.2 1.5 2c2 1l.8 0.9 9.1 8.0 148 114.9 1.4 Z1 At 1960 prices. Z2 Includ.ing electrical machinery, transport, equipment and general machirny 973 Equations have been taken from "A study of industrial growth," United Nations, N.Y,, 1963 p 13, variables calcu- lated by Mission, on the basis of the latest (February--March 1966) availabLe data and deflat ed to the 'level of 1953 do'llar prices to conform with parameters of the regression equations. Note: Following variables have been introduced into equatic)ns: Sources Mission est:inates. National Income (i965) 688.7'8 billion won (19Tlh) 978.,07 billiLon won Population 29,1149 thousand It 34,091 thousand Per capita income " 87. It $106.26 (1965 prices) Value added. (al.l mfg.) $566,7 millioni " $1,003.1 million Deflation of dollar prices 195-1/1965 = 90.28 1971 v.lues are; )ased on the assumption of 6:1 p,a6 -rowth of the &, P, 2.6/ p.a. growth in the population and 10/ p0a. growth of' the vaoThe acirir- P ' m nlifacturi-ng inidustry, Table 6- COHPARIZ IVE ANALYSIS OF INDUSTRI.L ST?R'UCTURE IC 0~~~~R 4-: Id rI PiHIL-[PPI] E S 0 g 0 0 a) CZ 0) to I ~ fl (10 (I :lC(1 "d PAH 0 bD d co 0 ~~~~~ 4 bL -r-i En-. CU5C D- 0 0) 0)(1J4) a) 4 P 0' r i( ___ L Cl 1.3 Lto.b Oe4 2.1 >.i 3e4 1. 11.2 I i Value added per person - (3 pesos/US$) $tihou 2>.0 2.5) ]Lo6 0.6) 0.e9 3.2 1,8 1.2 3,2 3.2 2.9 2.1 1.9 6.5 CHINA - (TAIWAN4) 1959 c 4 Value added % 100)o0 3602 1207 n,a. 183 l 3.0 n,a 0.1 1.1 16.0 11.2 4hO7 6.1 0.2 Num~ber of engagefd % 100.0 21.6 2:3,5 n.a. 9.1 h.e8 n.a 0.h 3.0 10,2 10.2 7. 3 8.2 1.7 Value added per person - (38 dollars/U';$) $thou 0.o9 1,6S 0e5 n.a. 0.9 0.7 0.3 1,,5 1.0 0.6 0.@7 n.a. KORE,A - 1960 L3 0 C Value added % 100lo 361.6 192 5c1 3.5 2.2 37 12 23 3. 7.0 54. 2.7 9.3 72, Number of engaged % 100.0 157 3 297 5.h5 6.0 2.9 h75 01.3 4h60| 82.8 6.0 21.5 12.1 2.7 Value added per person (127 won/US$) $thou 0.9 2 1.6 0O6 0.9 0.5 0.7 0.8 313 06 0 329 0.8 21. 07 0 69 KCREA - 1965) /h 1 9 / 2 Value acdded % 100.0 3.0 16.6 3.6 2.73 3. 38 o.9 2nh |1 11,9 8.3 2.7 19 2.0 Number of engaged (1964) % 100.0 213.7 25.7 .a8 9.5 3.3 na7 o46 L.7 |9.8 5.09 3c3 168. 2.7 Value added per person (1964 l 255 on/U,S$) $thou 1.1c 1. 0.7 0.9 0.7 15n 0.8 1.9 0.6 1.3 1e5 1.6 0o8 0.9 KOREA - 1960 --. --- - Valie aded 01958) $15. Source9 s 5 Calc ulat;ed on the basis of data taken f rom: 1/ GNbP per head eriag $ The Gro1th of W9orld IndustrO, UN, New York6 1963 pp 152 & 620 / 2?P G11P per head (<1959;;) $;12h. 5/ Including al A St,udy5 of I~ndustrial Growth, UN!, New York, 1963, p. 17 Value/' GMP per head r (1960) $ 75,, kids of mch Datc-a collect;ed by the I3RD Niss:ion while in Korea Nme GNP per head 1(1965) $ 99. ery. (Nat1ional Accounts cvs 6 .7 , of 99anu1actux2 /nk Industries by the GRoN, 196˘ /22w YbDrk , etc., TraLble 7: COMPOSITION OF DThIAND BY BRANCH OF MANUJFACTITRING, - 1960 (percent of total.) Inter-mediate Demand Final Demand BraLnches tcrConsumptionTn.ct_t Branc Branhes Total - xports - - Total Branch Branches ~~~~Private Glovernment Fixed Stocks A. Investment Goads TCransport equipment 1ħ.8 39.ħ ħ1.2 6. 7 5.3 .5.6 35.6 2.6 55.8 Electrical machinery 3.1 2ħ9.0 152.1 Iti.3 L1ħ. 17. 2 11.3 1.0 li 7. 9 Machinery 2ħ.5 25.0 ~ 29.5 3..? . 6 1. 5 61.1 3.7 70.51 B3asic metals: 6.3 78.9 837.2 .7 .7 338.1 12.8 Iron and steel 0.0 82.P 82.8 7. 9.1ħ 7. steel prc'ducts 12.3 83.7 96.0 .ħ1. 9 1.7 h0 Non-ferrcus products 2.6 6o.6 653.2 31.6 2.1 1ħ.i 26.9 36. 8 Fwinished metal products 2.0 69.1 '71.1 18.6 1.6 .6 .2 7.9 28.9 Clay, glass and stone 2.6 71.2 '73.8 1 7.9 .5 :2.8 5.0 26.2 Cement 98.0 98.0 1.3 .7 2.0 Sub-total 2ħ.1 62.4ħ 66.5 8.9 1.7 3.4 21.3 5.2 3 3. B.* Intermediate Goodst Chemicals: 3.3 4ħ1.7 1ħ5.0 37.5 1.8 2.71 13.0 55.0 Basic chemicals 13.7 76.7 9O.2ħ .1 5 6 FIntishmediachemicalprdcs 1.7 59.5 62. 9 1.3 3.5 7.2 25.1 37 .1 Finished chami(al products 1.727.7 29g.2 65.3 1.2 1.1 3.0 70.6 FerLbilizer 25.0 25.0 1.8 73.2 75.0 Plaper .2 86.9 87.1 10.5 2.9 .6 -1.1 12.9 Textiles? 2.2 0ħ.6 1ħ5.8 5c0.5 .2 ~ 2.5 .9 5h .2 Fiber spinning 2.9 91.9 92.8 1.8 2.2 1.2 5.2, Tex-tile fabricsi 2.9 25.7 2?8.6 67.1 .2 ;2.9 1.2 71.1ħ FiniLshed textile products .1 20.0 20.0 76.9 .6 2.2 .1 79.9 Wood anid cork: 0.0 78.2 78.2 11.6 2.9 .3.1 2.7 1.5 21.8 Sawmnills and plywood 0.0 95.7 95. 7 0.0 1.5 .8 2.0 1ħ.3 Woodi products and furniture 0.0 1ħ1.9 111.9 35.6 5.9 '7.8 8.1 .4 56.1 Petroleum and coal. produzcts 1.? 2ħ2.6 5ħħ. 5.1 .1 .5 55.7 Rubber products 5.1 26.9 32.0 51.2 .8 5.8 10.2 68. Sub-total 2.2 0ħ.7 119.9 3ħJ. .8 2?.6 .3 3.0 5. C. Conisumer Goods F'ood Products 6.2 22.2ħ 28.6 66.o .2 2.1ħ 2.8 71.1i Beverages and tobacco 6.6 12.0 1.8.6 731.0 0.0 1.0 7.1ħ 81.)ħ JLeather, and leather products 19.6 5.8 2'5.Lħ 55.3 .2 1.6 27.5 7'[.6 Paper products, printing, and Dublishing 3.5 L1.9 1ħ8.2ħ 36.8 21.2 1.0 - .ħ 5. Sub-total 6.7 20.6 .27.3 6h. 1.5 1.8 2ħ.6 72 .7 3FCLND MUAL 2ħ339.3 h 3 .6 116.1ħ 1.2 2.ħ2.1 11.0 5(6.2 N4ote: Figures may not total dUE! to rounding. Soulrce:, Z ift-Output Table for 1960. TABLE Eli COMPOSITION OF DEMAND BY BRANCH OF MANUFACTURtNG - 1963 (…erc nt O' total) Intermediate Demand Final Demand Orn Oth1er Consumption Investmeerr Branches Branch Branches Total Pvate Government Exports Fixed Stocks Total A. Investment Goods Transport equi ħ - .....m........ ent .48. 1 513.9 53.0 i.L 3.5 2.2 34.7 2.5 47.0 Electrical. machinery 4.8 46.9 51.7 15.7 2.4 3.5 23.6 3.1 48.3 Machinery 11.2 44.6 55.8 3.8 0.9 3.0 35.3 1.2 44.2 Basic metelis 6.2 73.1 79.3 0.0 18.5 2.1 20.7 Iron and steel 7.4 89.4 96.8 0.0 0.3 2.9 3.2 Steel products 6.9 63.6 70.5 0.0 28.0 1A5 29.'; Non-ferrous products 3.3 87.7 91.0 0.2 5.5 3.3 9.0 Finished iTetal products 1.3 72.6 73.9 20.9 2.2 1.7 1.2 26.1 Clay, glass and stone 3.0 78.4 81.L 13.8 0.5 2.0 2.3 18.6 Cement 100.5 100.5 0.2 0.1 -0.8 -0.5 Sub-total 5c7 63a8 69.5 7.4 1.32 6.e 13 . i.9 30.5 B. Intermediate Goods Chemicals 1.5 50.5 52.0 36.9 2.6 0.9 7.6 48.o Basic chemicals 7.5 90.1 97.6 0.2 1.0 1.2 2.L, Intermediate chenmicalas 4.4 91.2 95.6 0.1 1.9 2.5 0.0 4.4 Fertilizer 52.8 52.8 1.0 46.2 47.7 Finished chemicals o.6 37.2 37,8 54.4 3.2 o.6 4-. 62.? Paper 17.6 63.8 81.4 15.6 0.8 0.1 2.? 18.6 Textiles 1.0 43.4 44.4 48.2 0.2 4.7 2.5 55.6 Fiber spinning 1.1 85.6 86.7 3.5 5.5 4.? 1 Textile i abrics 1.2 34.7 35.9 55.8 0.1 5.7 2.4 6L,.1 Finished text.ile products 0.8 18.6 19.4 75.6 0.3 3.4 1.? 80.6 Wood and cDrk 0.0 73.9 73.9 98 1.6 9.6 3.3A 1.7 26.1 Sawmills and plywood 0.2 83.1 83.3 0.4 1L2.6 3.6 16.7 Wood products and furniture 0.0 52.2 52.2 32.6 4.4 2.6 10.9 -2.8 47.8 Petroleum and coal products 0.2 24.8 25.0 73.5 -.5 0.0 1.0 75-G Rubber products 3.7 34.5 38.2 54.5 1.0 3.2 3.1 61.8 Sub-total 2-3 41.9 49.2 42.8 0.8 3.8 0.3 3.L 50.S C. Consumer Goods Food products 8.9 25.2 34.1 60.2 0.2 3.h 2.:! 65.9 Beverages Eand tobacco 6.9 21.1 28.0 71.1 0.0 0.2 n.6 72.0 Leather ancl p.oducts 23.3 8.8 32.1 64.5 0.2 0.2 3.0 67.9 Paper products, printing & publishing 0.6 43.3 43.9 39.1 16.0 0.6 0.14 56.1 Sub-total 8.4 24.4 32.8 62.4 1.2 2.0 1.'; 67.2 GRAM, TOTAL 5.1 41.8 46.9 h4t. 1.0 3.6 2.6 2.- 53.i Notes Figures maiy not total due to rounding. Sources Input, - Output Table 1963 Tbhle 9: STZE G1ARAC'TRITSTTrm; O(F KYREANT vA4I1JFACTt1RTNG, /1 (Per cent Share of Small, Medium & Large Enterprises in Total Employment by Branch) 1 9 5 8 1 9 6 3 Branch Small IMedium Large Small Medium Large ,A. Investment goods Transport equipment 69.o 19.4 11.6 45.2 15.9 3379 E-lectric ma.chin,-ery 677 86 37 3582U2 3 Machinery 66.6 2L.8 8.6 64.0 19.4 16.6 Basic ,r.:etals 45s1 29-6 25* 33c 31. 3 997 ) )) Metal products 72.4 25.9 1.7 72.2 19.9 7.9 Clay, glass, storne 51.9 27w CU,L 4U.4 £o4 342 Total Group A 59.4 25.6 15.0 47.5 26.7 25.3 B. Intermediate Group Chemicals 52.2 34.8 13.0 36.4 29.5 3hon Paper 710 23.0 6.o L700 31IL 21.6 Textiles 39.2 23.7 37.1 2833 22.2 49.5 Rubber 1 lI 23.2 65,7 6) 1 11 A1 829 Wood and cork 79.6 1.024 10.0 59c5 9.1 31.4 Petrn1hiim and e.nal nrnducts 067^ 21Q9 10.8 83R8 10.8 541 Total. group B 44.1 23.2 32.7 34o6 20.9 44-5 C. Consumer Goods Tobacco -- 8.4 91.6 Beverages 83.2 11.6 5.2 80.3 11.2 8.7 Leather 57.4 42.6 4- )5.4 32,8 2108 Food 59.5 28.0 12.5 59.5 22.6 17.9 Printing L6.2 3h.1 19.7 49.0 22.1 28.9 Footuear &. clothing 81.3 13.3 '5.h 70.i 15.7 13.Q Furniture 88.3 lle7 -- 87,0 13,0 -- Total . ('arnun C 67?1 . 22I6 10.3 59.0 18n0 29rO MIanufacturing 53.6 23.6 22.8 44.2 21.7 34.1 /1 Small enterprises -- 5 - 49 workers Medium enterprises -- 50 -199 workers Large enterprises --200 -and over Source: Calculated from the Censuses of Mining and Manufacturing, 1958 and 1963, I.,.e bj t'he~ UL. TABLE l() GAINS DERIVED BY THE MANUFACTURING SECTOR FROM THE UNDERVALUATION OF FOREIGN EXCHANGE *- 1963 (Estimates of the IIRD Mission) Total PRIVATE IMPORTS 5OVERNMENT IMPORTS !,ain on Custom Paid at Real Value Gain Paid at Real Value Gain ::mports Duties 170 won/$ 189 won/$ (3-2) 130 won/$ 189 won/$ (7-6) (L48) Paid Impcrts (million (million (million Imports (million (million (million (million (million Purchasingf Sectors ($ thous) won) won)l/ won) ($ thous) won) won)l/ won) won) won)2/ 2 2 3 4 5 6 7 8 9 10 A. Investment Goods Transport equipment 5,330 906 1,008 102 26,093 3,392 4,932 1,549 1,6liL 79 Electric Machinery & appl. 9,777 1,662 1,848 186 10,516 1,367 1,988 620 Ro6 253 Machinery 11,388 1,936 2,152 216 28,434 3,697 5,374 1,677 1,8914 467 Basic metals 32,678 5,555 6,176 621 9,099 1,183 1,720 537 1,15t8 34i0 Metal products 2.993 509 566 57 3.906 508 718 2R0 087 °2 Clay, glass and stone 5,848 994 1,105 111 2,087 271 394 123 2314 86 GroUP A 68,014 11 562 12,855 1,293 8on135 10,n 18 15,n6 LA ,,27 6,D0 1,317 B. Intermediate Goods Chemicals 32,935 5,599 6,225 626 51,801 6,734 9,790 3,056 3,582 1,021 Paoer 1,850 315 350 35 347 45 66 21 56 65 TextiLes 1,995 339 377 38 35,579 4,625 6,724 2,099 2,137 752 Rubber 598 102 113 11 319 42 60 19 30 22 Wood and cork 519 88 98 10 973 127 184 57 67 19 Petroleum and products 29,298 4,981 5,537 557 2,241 291 424 132 689) 870 Group B 67,195 11,424 12,7(30 1.277 91,260 11,8614 17,214B 5 RI 6,66]. 2 ,749 C. Consumer Goods Tobacco and beverages 95 17 18 1 96 13 18 6 7 0 Leather 7 1 1 0 83 11 16 5 5 1 Food 13,S53 2,321 2,580 259 12,n589 1,637 2,379 743 L,oo2 217 Printing 265 45 50 5 376 49 71 22 27 91 Group v 114,020 2,3814 2,649 265 13,144 1,710 2,h084 776 I,Ohl 308 Total 149,229 252370 28,204 2,835 184,539 23,992 3L,78 10,887 13,722 4,374 1/ Realistic exchange rate. 7/ The Commodity Tax, on imported items amounting to 2,052 million won in 1963 could be subJected to the same anslvsis Ratios (a) Average custom duties ( 1O 4 374 - 8 7g T7F3 14t9.359 (b) Loss on custom duties, due to the unrealistic exchange rate .( .02(9) - 8.7 (13,722) ' 1,194 millLon won Note: The above computation has been made on the basis of the detailed list of imported inputs and their destinaAoiun, prepared for the Mission by the! Research Department of the Bank of Korea. Although the total value of imported -nus,c:cue above corresponds ro-ughly with tne value given in the input-output tables (discrepancy -3') there is considerable difference in the classification of inputs by industrial branches. It is therefore, diff'icult to establish whether gains on imports, calculated by the Mission, correspond to real gains derived by each industrial branch. It is recognized that a part of these gains accrued to traders rather than producers in the manufacturing sector. Table 11: RESTRICTIVE MEASURES ON IPORTS A. W1eighted Average Tariff Rates, 196h Weighted Average Conm.odit-r ]norted Tariff Rate (U) 'P_ * m+ etpe~ 9~n J.9 rasporħ tJ eupmen ,:.9 Electric machinery 24.6 Machinery 16. Basic Metals: Ferrous metals 17.0 Non-ferrous metals 15.7 vieL,al products 29. - Clay, glatss, stone (non-metallic mineral mfg.) 22.h 13. Intermediate Goods Chemicals: Chemical elements 2.1 Mineral tar and derivatives from coal & petro. 12.6 Dyeing, tanning, coloring materials 28.8 Medicinal, pharmaceutical products 18.5 Oils, perfunes 41.U Fertilizers 6.5 ]'aper 360.2 Textiles 45.2 Rubber 39.8 W4ood and cork 47 9 C. Consumer Goods Food Dairy products, eggs 51.3 Meat and meat preparations 66.6 Fish and fish preparations 50.4 Cerea:L and cereal preparations 20.0 !Beveragci3 176,4 Tobacco 139.5 D. Inputs (Unprocessed) Pulp 8.0 Crude fertilizers and minerals 5.7 Petroleum and petroleum products 11.0 Coke, coal, briquettes 10.6 Textile fiber and waste 17.1 Wood, lumber, cork 10.3 Crude rubber 110 7.TiDS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Source: Prepcxed for tho iission by the Customs Bureau, Ninistry of Finance. ^eightied avera;cs calculated by dividing .the .amount of custom dutic.s colLected by the value of taxod inportcd itcms in each Croup. These tariff rates tuould have bDeen rluch smallcer if the va1uc of it-eDns oXeptr-d from import duties (such as in-Vestment goods and rawi materials destined for important industries) were added to the denom inator. m -t. 11 - -1 nT5TI'eMflTr%M T2rr TAT' A OTMV~'el' MTh ,,\,Ir)(yfLm B. Comimodity 'T'axes - Tax Rate ' A. Investment Goods Cement 5 Aluminum and products 10 Plate glass 10 B. Intermediate Goods Textile fabrics, etc. 40 Plastics (resin and imported resin products) 40 Paper and imported paper products 2 Plywood 5 C. Consumer Goods Beverages 20 Sugar Lo /lbs. D. Iputs (Unprocessed) Raw wocil 45 Cotton yarn 10 Raw rubber 20 Raw silk 10 Chemical fiber 10 Source: Tari=ff table. Ren-Ublic of Korea. 196L. p. 321. _- ,- -s - - Tnhl o 11 RE.STR-ITRTT\7T. MP TTRF."EC ONTT TMPfPT. C . Tm,pcrt Quotas (l1965 ) A-mount of" tbhe quota Item (US'l,000) l. Powdered milk 40O 2. Raw ,sugar 2,4h0 3. Molasses 285 4. Coffee 210 5. Raw wool (unwashed) 600 6. Raw7 wool (washed) 700 7. Waste wool 500 8. Acry]ic fiber 2,000 9. Polyester -fiber 7,000 10. Staple fiber l,461 11. Essential oil and perfumes 300 12. Fishirn7 net; yarn 870 13. Filament nylon yarn 400 Total 10, 8262;/ 1/ The total is equivalent to 17% of imports paid from Korea's foreign exchange earnings (i.e. excluding foreign aid, etc.) Source: Bank of KIorea. Table 11: RESTRICTIVE DEASURES ON DfPORTS D. List of Prohibited Items 3ul U-L Wecer,bver, 9 (Principal Selected Items Only) A. Investment Goods Transport equipment: Pistons, brake linings, valves, clutch disks, axle shaft, engibne gear, motorcycle, bicycle. Electric machinery & appliances: Telephoine circuits, electric fans, flashlights, switches, PVC wire, electric motors (different types), transformers (different types), transistor radio, vacuum tube radio. Machinery: Textile weaving looms, sprayers, flour milling rollers, circular saws. Base metals: Lead pipes, aluminum sheets, steel tubes, galvranized iron sheets and wires. Metal products: Shovels, plows, nails, rivets. Clay, glass, stone: Asphalt tiles, color glass, tiles. B. Intermediate Goods Chemicals: Zinc and potassium chloride, sulphuric acid, calcium carbonates, butylacetate. Pharmaceuticals: vitamins, penicillin, quininze, caffein, streptomycin, and other finished pharmaceuticals and raw materials. Paper: 1oodfree printing paDer. tissue. drawing paper. manila Daper board. Textiles: Cotton cloth and yarn, rayon cloth, woolen cloth and yarn, PVC yarn, staple fiber yarn, silk cloth. Rubber: 'Rin.rnblia +.i-rn-- nnrl i Plyooo ha cork: PlywoOd, hard board. ((Gon,+ ued on nex page - 2 - gpablle 11 List ofLProh iubt-ed Iterr,s kLcon!d)I C. Consl.mer GoodLs Food: Condensed milk, beans, oils: soybean, peanut, castor, vegetable seed, cotton seed oil, oleomargarine, sesame. Beverages: Tea Clothing: Socks, stockings, underwear, knitted goods. Source: Trade Plan for the last half of 1965, Korean Traders Associat;ion, Seoul, lKorea, 1965, various pages. Table 12 MEASURES OF IIPORT SUBSTITUTION (&ercent) DEPENDENCE MARKET DEPENDENCE. ON IiPORTTD TNPTTTS /1 ON1 TMPORTS (Share of Imported Inputs (Share of Imports in in Tsta1 Material Trn--.uts) Total Suoply) /2 _1_960 1963 1955-57 1959-6l 1963-65 A. Tnvestment CGoodsi Transp-ort ecquipm.ent 26.0 25.0 . 9 27.3 Electrical machiinery 21.2 29.9 82.0 60.9 44.3 Clay, zlass, stone (including Cement) 21.2 22.0 30.8 5.4 365 Machinery -17.8 21.0 50.1 51.7 5.9 Basic metals (steel and prIcmary -)irUoutS 1J.2 31.5 37.7 35.5 Metal produc.ts 23.O 1.0 _ 10.8 6.6 18.1 Total Group A 20.9 30.7 42.1 30.4 32.8 B. Intermediate Goods Chemicals (including fertilizer) 25.3 34.6 83.5 63.7 48.7 Petroleum & coal *nrod. /3 n.a. n.a. n.a. na. n.a. Pai)er and printing 29.9 28.8 32.4 13.1 2.5 Textiles 33.1 29.1 11.7 7.9 6.5 Rubber 55.2 50.3 8.7 nil nil hood, cork, furniture 19.3 50.2 1.6 nil nil Total Group B 33.5 33.5 38.1 22.0 15.6 C. Consumer Goods Food 21.7 22.2 - nil nil Beverages & tobacco 12.4 5.0 9.3 nil nil Leather ' leather products 8.0 11.4 - nil nil Total Group C 18.6 17.0 Total manufacturing industry /4 25.4 26.2 27.9 19.0 15.4 Table 12: MEASURES OF IMPORT SUBSTITUTION FOOTNOTES /1 To calculate this dependence, the value of imported inputs has been taken at the actual rate of exchange. Considering the dif- ference between the actual and equilibrium rates of exchange, dependence on imoorted inputs could be adjusted upwards, in which case, it would become in 1963: For investment goods 39.1$ in- stead of 30.7'; for intermediate goods 42.3, instead of 33.5,'; for consumer goods 21.3% instead of 17.0%, for the wqhole of manufac- turing industryr dependence on input importe-d at the adjusted rate of ex-change would increase from 20.2,% to 33.3%. /2 Total supply = domestic output plus imuorts. Domestic output hats been calculated as followTs: Gross value of outDut (for 1960 and 1963) has been converted into US dollars at the equilibrium rate of exchange and interpolated for respective 7oeriods by aoplying to each branch separately, its index number of physical production. The only re-Liable out,put data used for the cnlThuhI:;tion were com- puted from the input-output tables (190/ and 1963). The market deoendence on inmports is therefnore hased upon adlusted rates of e!xchange applied to domestic out-puts, both estimated by the Mission. /3 The industry contains two se;parate items: (i) petroleum, the markcet depenldence on imp,orts of TwTh-ich remains high Int +.h J lns+.a- lation of refinery in 1964, (ii) nroduction of coal briquets, whic11 do not depend on -externa -- It was ---, -- fer:red to exclude this industry altogether and to treat its problems eisei-,he-e . ,/)~~~~~~- "---Iin -.troleu cd ucasfe d 4industls -u 4-JiUncluding- consumer goods industry, which brings the ratios of market de-?en dencies downwards considering its + 1 - 1- oo,11 ua absence of im-ports of finished products. Sources: InDut-output Tables and Indexes of Industrial Production suppLied b.y UtIh DBanl of KUor . LIrtl,U1v Udatavd )UppL1U by the Ministry of Finance and the Bank of Korea. TABLE] 13: EXPORT OF MIANIFACTURES Value in :million dollars Percent, share in total exports Ave. Ave. s Ii'C ,57- 1/ 1/ 195' 7- C ocde 1959 1960 1961 196:2 1963 1964 1965 1966 1971 1959 1960 1561 1962 1963 196)4 1965 (5)) Chemic als o0.4 o.6 l.o O.9 0.6 0o4 2.2 15.6 - 1., 1.5 1.8 1.0 0.1 0.2 (6'1 M-cr.ufaictur~ed Coods :'.6 ,.9 '), ,0.1 6.2. 28.1 P|. I6 930 20f. -Is 1 .5 ). 113l 35,3?9 Rubber Manufacture - _ - 0.5 0,9 1.0 1.5 1.7 - Plywood and Veneer - 1.2 2.3 16.3 11.4 18.0 24.0 35.0 - Cotton Fabrics 0.9 2.4 0.8 1.8 4.3 11.1 10.5 20.0 h9.0 - Other Textiles 0.3 - 0.2 o.4 3.5 805 15.8 15.3 44.0 - Cem ent - - - - 0.3 0.9 5.0 4.o - Iron and Steel - 0.1 0.6i 11.7 4.5 12.7 6.5 9.3 - Sheet G:Lass - - .3 008 0.4 0.9 1.7 - (7) M'achinery Equ:ipment 0- .1 0.9 1.14 b4.1 2.2 5.5 8.2 33.7 - 0.3 2.2 2.6 1h.7 1.8 3.1 (q) r1Miscellaneous 0.3 0.1 0.8 2.0 6j.4 13.2 34.5 22.7 74.0 1.5 0.3 2'.0 3.6 7. 4 11.]L 19 .7 Clothing - ll. )4.6 6.6 20.7 11.8 19.0 Footwear - - - 0,2 0.7 0.9 4.1 3.0 12.1 _ _ - Total Exports of Nanifactures 2.9 4.5 6.3 1o06 39.5 58.3 106.8 126.4 328.1 15.0 1307 1C.5 19., L5.5 48.9 60.9 1/ Plarned (EPE) . Source: Economic Statistics Yearbooks of the Bank of Korea, Forei.gn Trade Statistics of the M-iinistrv, of Finance. Table 1L: MAJOR EXPORT MARIETS BY I A,JOR EXPORT OF MANUFACTURES Killion $ Per cent ,ian,-Nov,,, 965_ Jan.-Nov 1965 Commn odityr a t apan Oth]er .MA - Tn nr COther Rubber MaLnufacture 0 0 9 _ _ 0.6 _ _ 66.7 Ply-wood 8t veneer 15.h4 1405 - 94c2 _ - /Z Cott:)n fabrics 904 2.5 203 26.6 _ 24e5 /:3 Irci and steel 11.5 - - lo.( - 87.0C /4 Clothing 18.3 9.9 0.2 2.9- 54°. L. 150& F ootwrear i G 3o5 - 87 -5 Sheet glaLss o.4 0.2 - 50.0 Radio L 3 o,6 0,5 .46.2 38.5 /1 Thailand /2 H-ongkong /3 Viet Nam /4 Sweden Source Ministry of' Finance; Foreign Trade Statistics ħL_1a:' C!' iLl,lt'ii(. OF ( SJZL7KTY 'r OORLATSU O FE4'' S P T mM6 (Estin,.es oDf T]3DPxJ miSiorz aLlteri:al Collected D1;..Lgh IntIrview,s)) Item: PLYWOOD SHEET GLASS, E; B Fl I _ E Unit: oo sq., ft.Wllb (1 c 7se -72) waterproof AUtomobiLe (:L Bicycle) thickness) Huntin: boots Tires Pair (7'50-2012pr) _ _-_ ($) won) ($) (won ) $)on) (won) 1. Costs o; Product;on Ma s tr =wa fuel, packing) 6,300 800 300 9,4!52 2, 205 Wages 900 380 40 998 9145 Depreciattiorn 450 82 2 30 3:L5 Overhead and otl-er costs 1/ 1,350 516 o40 2,712 2 830 Total cost of production 9,000 1,7 0 13,2 836 5 2. Prices Export Price $40 . 10,800 $5.12..1,380 $1 .5C) .405 .$36 .494720 3:9i105.3,9:L5 Domestic market price 9,222 1,990 13,618 7,000 3. Apparent pr(fits Prc1 7 s q;) or lOSS l(-) on: exports (won) +1,8oo -398 +25 --3,56 3 *-1,3802 ( % ) / +16.6% - 20% ;-6.2% -.26.29% *o19.7% domestic sa:Les (rwon) + 222 ,212 + 3-35 + 7(5 ( % ) + 2.4% +10.6% - 2. 5% + 1o% 4. Ex ort Lncentives($ price x 11.3 won) 452 57.8 16.8 4(3 162.h4 5. Shares of ecport in total pIOClU. Textiles 0.07 0.07 0.29 5. ;.wood 0.09 0.10 0.31 6. Pagmer products 0.10 0.10 0.44 7. Printing 0.11 0.11 0.52 B. Leatlier products 0.07 0.12 0.36 9. Rubber procLucts 0.09 0.10 0.35 10. Chemicals 0.08 0.12 0.56 11. Pet,roleum End coal 0.08 0.13 o.66 12. Ceramics 0.09 0.15 0.13 13. Basic metal. industry 0.12 0.11 0.58 14. Met;al products 0.08 0.14 0-38 15. Electrical machinery 0.08 0.10 0.38 16. Transport equipment 0.09 0.16 0.53 17. Miscellaneous 0.06 0.09 0.33 Manufacturing total 0.08 0.12 0.4A2 Source: Calculated from the 1964 labor statistics, published by ILO, Geneva. Values in $ established by using exchange rates from IFS, XVIII volume. Tahle l6^ K FKCR VALJU-ATIDED IN TANUFACTURImI, TLeUSThY 19-60-1965 1/ (At 1960J Cons tat Market Prices) Rate of Rate oi Girowth From Year to Year (S) SihareX in the Total Growth p.a. _-- of Each Item (%) Item 1 960-65 1961/60 1962/61 1963/62 15614/63 1965/614 I96d) l'T 1962 1963 1 Food 7.5 3.3 3.4 22.0 0. 7 9,,7 16.7 16.3 1L4.', 114.9 114.:2 13.1 Beverages 14.9 5.7 -16.6 6.7 3.1 30..9 9.1l 9'.5 6. 8 6S.1 5.9 6.6 Tobacco 12.6 7.7 11.2 11.5 12 .5 204.1 10.-5 10.7 10.2 9.6 10.2 10.3 Textiles 9.7 -7.0 14.7 8.5 10.1 24i.o 19k? lo ' 6 16.2 15.8J 16.) Footwear, other wearing apparel, etc. 5,5 -2.8 33.1 1.5.9 -.18. 7 7J1 5.1 14.7 5.14 5.3 .1.0 3.6 Wood and cork products 10.7 -26.9 145.7 25.2 0.6 214,1 2.3 1.6 2.0 2.1 2.10 2.1 Furniture and fixtures -2.7 -12.6 1i5o6 2.3 -.19.17 5.14 1.2 1.0 1.0 0.8 0.6 0.6 Paper and paper products 22.0 23.5 40.2 38.5 2.1 7.5 2.2 2.6 3.1 3.7 3.5 3.2 Printing, publishing and all:ied industries 1.3.6 -10.14 28.8 11.6 20.'3 21.9 3.7 3.1 3.5 3.3 3.7 3.8 Leather and leather products 7.5 17.14 3 .7 -.8.6 114.5, 12.7 1.2 1.3 1.2 0.9 1.0 0.9 Rubbe:r products 1.3.5 -4.8 15.8 35.6 15.5 9.1 2.14 2.2 2.1 2.h 2.7 2.14 C'hemicals and chemical products 23.0 34.6 35.8 31.3 5. 3 8.6 4., 5.8 6.8 7.5 7.14 6.8 Petroleum ard coal products 30,0 11.3 17.3 L12.3 146.2 37.7 2.5 2.6 2.6 3.2 4.4 5.1 Stone, 4lass and clay products 2P5.0 16.1 32.0 20.3 35. 3 21.14 5.o 5.5 6.3 6.14 8.1 8.3 Dasic metal products 13.1 -6.6 143.1 3314 -3.28 8.2 2.7 2.4 2.9 3.3 3.0 2.7 Mletal products 1.2.8 14.8 15.14 1]8.9 --15.( 36.3 2.2 2.4 2.3 2.3 1.9 2.2 14achinery 13.2 314.3 141.8 -.9.8 -7.8 17.3 3.3 14.2 5.0 3.8 3.3 3.3 Electric machinery, apparatus, appliances and supplies 33.0 51,,4 53.7 33.2 31.3 2.3 0.7 1.1 1.14 1.6 2.0 1.7 Transport equipment 22.0 31.,9 15.3 56.2 416.95 37.9 3.1 3.9 3.9 5.1 4.0 4.7 Other manufacturingj industries 1.14 9.6 27.0 23.9 5e1 14.8 2.1 2.2 2.14 2.5 2.3 2.0 Total 1.2.9 5.14 16.7 'L8.5 6.0 18.5 100.0 100.0 100.0 100.0 100.0 100 1/ 1965 preliminary estimates. SoDurcle: Calculated froom the National Accounts data, revised in December :1965/Januarir 1966. Table 17! RATE OF CAPACITY UTILIZATION4 (%) 1961 1962 1963 1964 1 965 Low Rate: 1/ Steel bars 34.0 hLT57 53.3 22.3 9.1 Worsted yarn 4u5.1 32.9 n.a. 14.1 1.3 Refined sugar 26.1 21.8 16.2 7.0 16.5 Whleat flour 2. P. 07 6..8 2. 1 Bicycles 26.6 41.0 21.0 25.8 24.0 Paint 19.4 27.8 14.6 18.7 2L .1 Ethyl alcohol 35.2 22.0 21.4 17.6 27-5 Pig iron 14.2 00.0 8.4 2.0 28.' Medium Rate: 1/ uaivanfzed iron sheet 8.4 50.8 Steel ingots 67.7 104.5 86.4 43.7 56.6 Cotton cloth, 49.8 56.4 56-5 60.8 66.5 High Rate: 1/ Rubber shoes 58.4 (j.; 74.3 80.3 71.9 Miotor vehicle tires 53.4 59.7 49.9 52.8 74.2 Cotton yarn 66.o 78.2 76.3 77.7 77.9 Plywrood 91.2 80.0 Newsorint 90.8 98.9 78.6 80.8 84.6 Flat; glass 123.9 51.8 97.6 92.6 89.8 Petroleum 43.7 92.1 Ray-on cloth 84.7 93.3 66.8 73.0 93.8 Wooodfree paper 84.8 88.9 87.4 94.2 5,6.3 Fert,ilizer 76.1 95.6 57.5 83.0 96.9 Cement 72.6 109.7 108.1 72.2 57.2 Nylon yarn n.a. n.a. 8.9 7.7 106.3 I/ Classified according to capacity utilization in 1965. Source: Research Department, Bank of Korea. Table 18t AVERAGE CAPITAL - OUTPUT YLATIOS BY BRANCH OF 1IUIUFACTURTING A. Estimates based on survey of' fixed capit;al (196:3) 1. 2 3 4 5 6 7 8 9 Number Buildin gs Machinery Vehicles Tools Stock Value of Value Addeed Average Name of Industry of & other & & & Fixed Assets/ as a % of Capital- Sample Construe- Equipment Other Inst,ru- Gross Outpu)t Gross out- Otptsut Fir 4--tiorn Means of ments put M Ratios Transport A Investment Goods Transport equip:nmnt 36 0.3986 0.2032 0.033 4 0.0185 o.6537 32.7 2,00 Electrical machinery 30 0,1151 0.2012 0.0013 0.0196 0.3'372 28.7 1.17 Machinery (iexcept Electrical)87 0.2750 0.3477 0. 0055 0,0236 0.6518 45.3 L.44 Non-metal lics: Ceirent 9 0.3786 9.4208 Cl0018 7 0.01.19 0.8300 149.0 1. 69 O1her ceramic, clay & Stone products 9CI 0.3132 0al589 0.0066 o ĥ.81 0.4968 112X0 1.21 Basic metals: Iron and steel 24 0.1,439 0.1710 0.0052 0.0111 0.3312 245.1 1.32 St;eel products 12 0.2253 0.1540 0.0118 0.0085 0.35996 2111 1.89 Non-ferrous metals and primary products 8 0.0216 0,0824 Ce0017 0,0018 0.0775 28.6 0.27 Finished metal prioducts 59 02082 0.2531 0.0052 0.0349 0.501T 30.1 1.66 B. Intermediate Goods Petroleum & coal products 21 O.048a 0.0673 0.0094 0.0076 0.13,31 17.4 0.76 Chemicals: Ba3ic chemncals 21 0o15 45 01820 O0.0107 .0C235 0.3707 38.6 o.96 Intermediate dhemrLcals 37 01357 0.2497 0.0071 0.0218 6.4143 28.3 :L,46 Finished chemical prod. 44 0.0o745 0.0837 o.ooi6 0.0124 0.1722 41.3 o.L2 Fertilizer 3 0.0720 0=0197 o R 08v8 - 00 0V0,135 Q'S.8 O.036 P-per ai% paper products 39 01.6DM 0.2,491 0.0014 0,0129 0.2308 30.8 1.40 Table 18. AVERAGE CAPITAI, - OUTPIUT RATIOS BY BRAJNCh OF KINUFACTURING (cont'd) A, Estimates based on sirvey, of fixed capital (:163) l 2 3 4 5 6 7 8 9 Nuiber Buildings machinery Vehicles Tools Stock Value of' Valuae A,dded Average Namei of Industry of & other & & & Fixed Assets/ as a % of Capital- Sample Construc- Equipmeent Ot;her Instru= Gross Output Gross Olut- Output F'irms tion Means of ments put (%) Ratios Transport Textile s: Fiber spinning 18 0.160O 0.328)1 0.0036 0.0117 0.5037 32.8 L,53 Textile fabrics 51 D.1104 0.3285 0.Q004 0.0069 .1.4L462 2:L.3 2(,09 FirLished textile prod. 42 0,0893 0.1534 0.0003 0.00)49 0.2)479 27_)4 0.90 Rubber products 20 0o0670 o0.0994 0.OC48 0 006 9 0.1781 26.1 o,.68 Wood and cork: Sawmills and p:Lywood 17 0,1371 0.1736 0.0139 0.0062 0.3308 29.9 14.10 Wood prod. & furniture 27 0.5978 0,3089 0,2629 0.0211 0(5978 31.3 1,91 C. Consumer Goocds Processed foods 86 0. 2679 0.3328 0.0093 0.0261 0.6381 25.6 2.49 Beverages and tobacco 35 0.13148 (D0.0532 0.0000 0.02L7 0.2127 49.8 0o)43 Printing & publ i1shing 47 0,22!)2 0.20'79 0.0038 0.0146 0.4515 43.3 1.0)4 Leather & leather products 37 0.1503 0,15:33 0.0010 0900113 0.3159 27.5 1215 Source: Coefficients calcuIated by IndustriaLl 14anIng6ne3nt. Research Center, Yonse:i University on the basis of survey data, collected in may 196)4, by the Research Departnent, Bank of Karea, Share of value added in gross outDut and capital/outputt.ratios estiru,:ted by the I7RD I iso:ion cn t]he basis of input-cutput tables f or 1963. Note: Implicit stock figures, derived from the above sub-branch capital c oefficients are close to those obtained lby applying the implic-.t 159,5-63 net TWOR of 1.lS to e, 4te '196,3 49pum s. The difference of results obtained Dy those Lwo methods, is only 1 3%. Table ;L: AVERAG3& CAPITAL-OUTPUT RATIOS BY BRANCH OF MANUFACTURING D. jsUj-l-ates L)a5ed on "r1arincħa s'aemfen's Average Capital - Output Ratio 71i. 1962 1963 196L A. Inivestment Goods Transport equipment l.10 2.12 2.24 Electric :iachinery n.a. 1.53 1.09 Clay, gla3s,s stone 1.65 2.03 2.52 Iachinery n.a. 1.53 1.09 Basic metals 1.17 1.63 1.47 Metal Droducts n.a. 1.11 1.20 . Intermedi) 38.92 Foo-d 5.1 577 12.1 9.6 ) -7 Beverages 6.1 4.8 6.7 5.1 ) 31.3 - Tobacco 7.1 5.8 6.3 5.1 ) Clothing n.a. 8.0 4.1 3.6 5.4 1.2 Printing &- Publishing 13.0 7.0 4.9 4.2 2.2 - Total Manfacturing 11.05) 99 9 o.o6) 100.06) 10.0 06) lQQ O Total ;ianwLfactu. ing (billion won) (153.0) (268.8) (183.0) S/See paragraph 13, Chapter II. 21 Includin.,:, leather, furniture etc.. 3/ Based on BOK Index Numbers. v4/ 1959/61 to 1963/65. >>i Corresponds to growth rate of value added of 9.4 percent per year. ~/ Includin,, miscellaneous industries not listed on the table. 7/ Gros investment estimated as 252 billion won. Source: Mission estimates. IN:DEX I.R3ER OF INDUSTRIAL PRODUCTION L955 19516 19157 1958 1959 1960 15961 1962 1963 1964 19?65 Food 1 6.7 81.0 86.9 102.9 95.2 100.0 109.9 105.7 115.() 84.,2 97.7 Beverage 65.7 76.2 69.2 79.5 94.5 100.0 105.1 919.2 90(0 94,4 12504 Tobacco 88. 0 88c 7 91.2 98.2 101.5 100.0 108.6 121.2 134.6) 148.,5 176.6 Textiles 6D7.8 79.2 96.5 99.5 103.2 100.0 91.2 105.6 109.7' 127.,0 15523 Wood ard cork 72.4 80.1 89.8 9f6.2 99.6 100.0 93.5 111.5 132.6 108,,7 127.9 Paper & Paper Products l41.0 46.4 49.7 56,9 76.7 100.0 122.3 145.4 176.8 178.1 189.1 Printing & Pub:Lish-Lng l48.8 54e:2 57.9 80.3 86-5 100.0 8C.9 99,7 106.2 131.9 176.6 Leather & its products 103.6 :133,1 128a2 155.8 113.9 100.0 123.0 126c2 .14.0 130.6 142.9 Rubber products 145.7 45.14 61.7 66.9 104.0 100.0 94.7 99.9 117.2 135.8 135. 8 Chemicals 35.2 40.1 38.9 47. 8 74.5 100.0 120. 2 l42.1 177.1 182.,4 205.)0 Petroleum & coal producCtS - - - - 100.0 137.3 160.9 178.C) 257.,9 389.9 G7lass, clay & stone prode 143.8 59.2 67,1 88i2 97.6 100.0 99.8 130.6 40.C) 193.2 222.8 Basic metal 29.7 45 -3 53.7 65,7 89.3 100.0 85.6 119.2 134.4 155.,7 12i7.4 Metal products 142.7 63.7 93.4 89.8 92.5 100.0 107.7 134.1 178e4 111.3 159.39 Machin ery lL5.9 :165.f3 136.1 14.3.3 134.1 100.0 145.9 199.7 147.13 134.7 150.9 Electrical machinery 21.6 52.3 59.8 79.9 111,3 100,0 134.9 248.8 325.0 361..6 346.5 Tramrport equipmenti 105.2 :115.f6 144.7 113.1 79c4 10.O 146.8 1i48.2 275.6 286.4 422.5 Miscellaneo)us 89.9 98.)4 102.7 99.4 105.2 100.0 101.2 144.0 188.2 153,3 158.7 kiarLufacturing 29.8 38.6 52.2 54.-7 76.1 100.0 113.4 134.6 153.6/ 169,,1 175.0 %ource: BaLnk of Korea, Research Departnmnt PROFIT _ T. . iiI- LJiKCTURIWr Gross Profit Margin on Sales (c,) /] Net Profit Margin on Sales (%) /2 ___ l91M 1962 1963 l9_ _] ~ -196 Total manufacturing 26o00 24c01 214.11 24.22 11.63 12. 07 ]Food 20,06 22.08 22. 85 22. 81 19.22 13.16 :Beverage 36,22 40.94 38.915 42.1-4 5.10 6,e60 Tobacco - - - - Exc:Luded Excluded Textiles 23.68 16.97 2 1.13 19.65 9.28 9.66 .Footwear & clothing 240C8 27.27 23,148 n,a, 10.39 12.91 Wood 25.16 30C.07 211 41. n.a. ) ) .Furniture 24.17 17'.71 22.31 n.a. ) 7.09 ) 13.148 Paper 31,11 20.75 29.61 21t. 2 Printing 25.36 23,65 29062 30063 5 12 .42 3 1)4,36 Leather 1h,66 14. 92 13.58 3.9S6 10.52 10.89 Rubber 260,92 21,86 16.82 16.69 5.38 10.01 Chenicals 2)4.95 31,60 31.69 26.05 13.03 15.77 Petroleum 18.48 22.23 14.40 34.27 7. 08 8.55 Clay, glass & stone 42.20 35.08 34.90) 390C)0 16.32 20.38 Basic metals 17.81 16,84 15.76 9.97 ) ) Metal products 26.86 130.48 22.55 10.73 ) 6t61 ) 11.06 Machinery 29.73 16.)44 22.81 2)4-91 15.51 24.36 Electrical machi.Lery 26o01 25.o74 125.5-3 21,20 13.95 11.31 Transport equipment 31,05 25,05 15143 14.29 11.85 10.03 Miscella:neous 2817 17o,61 23.33 20.21 22088 101.4 Sources and methiods: /1 Gross profit margin on sales: Value added and gross output (sa.les) were dejrived from the sample survey cc -ducted by the KRB (Conditions of Minirng a-id Manufacturing). ,iTages have been calculated by mu:ltiplying the number of workers (derived fromTi the abc.ve saiple by monthly wages calculated by the BOK Monthly Statistical Review) and subtracted from value acdded to obtain gross profits. /2 Net profit nargin or. sale s: Calculated from input-output tables for 1960 and1 19630 Capital consumption allowances indirect taxes and compensation of errploy-ees have been subtracted from thle value added. Remark: Considering the diversity cf statisticaL sources utilized in the calculation, above data cannot be considered as eUcnlW.>-c K-.i:-Lt; or accuJliteo EXPORTS OF DEVELOP:ING C NTRIES - MILLION $ 1953 1954 :1955 1953-55 1962 1963 1.964 1962-64 1. TotaL to all regions 2040LO 21hz30 22880 21571 27100 29540 32040 29560 2. Chemi.cals t! 1'3G 200 210 200 330 360 370 353 3e Machi.nery it :LO L10 120 313 260 280 290 276 4. Other Mfg. " 21!50 2;250 2620 2340 3500 4l10 4390 39066 5. Mfgv Exports " (2it 3&) 6. Total to developed areas 153(0 16:100 17080 16160 20760 22930 24.980 22890 7,. Chemicals " 120 :L30 130 127 190 180 190 1.87 8 . Machinery :30 30 30 30 70 70 80 73 59o Other mfg0 " 1380 15 00 :1820 1567 2560 2970 3300 295h3 10. Mfgo Exports (7, 8&9,) 15'30 1660 :1980 1723 2720 3220 3570 31.70 11. Textiles and clothingr to Developed Areas 55 70 75 175 198 222 Volume 1958 -- 100 Source: UN Monthly Bulletin of Statistics, INTov. 1965. SIZE C HARACTERISTICS OF KOREAN MANIJFACTURING 1 9 95 3 _c 19 5 Enterprises Enterprises Enterprises Enterprises Enterprises Enterprises 4 - 49 50 - 199 above 200 _ 4 - 109 50 - 1599 above 200 Value Value a- Value Value VValue 1- Lev alue Workers Akddeid Workers Addeid Workers Added Workers Added Workers Added Workers Added (%) 10(0.00( 10D0.0lD 1000.00 100000 100.00 100.00 100.00 100.CO 00. 00 100. 03.C) 00. 00 100.00 Food -L1.71L :L1.714 9.L8 11.141 L473 5.78 10.87 10.70 11.5L4 10.79 5.50 7,39 Beverage 7.1'7 14.147 2.11 LO.9'7 1. 014 4.81 8.66 14,99 2.72 8.79 1.21 6032 Tobacco - - .827 .37 5.841 28.68 - - - - - - Textiles 17.03 10.53 28.415 L4.65 140,08 23.10 24.15 15.49 32.85 23.89 55.33 45.564 Footwear & clothing 6.6i7 5.88 3.16 1 51 1,77 0.48 6.53 8.05 2.40 1.8 0 1.03 o.25 Wood & cork 3.97 4.60 1.29 1.72) 2.81 3.32 6.53 6.55 1.92 2.56 2.C)6 1.414 Furniture 2.514 1.683 .82 .818 - - 1.99 1.83 r0.48 0.33 - - Paper 2,92 2,8'5 4.010 5.73 1.77 3.32 2.63 1.51 1.912 2.34 0051 2.04 Printing 4.35 5.3'7 4.22 14,47 3.47 3.33 14.33 L4.17 7.21 6.78 4.147 4.97 Leather 0.1414 0.142 070 .66 0 29 0.014 0. 36 0,71 0648 1G28 - Rubber 0.72'' 0,6i4 2.L46 1.145 I1.53 5.22 o.85 6.70 4.01 3.43 12,03 80143 Chemicals 5.18 8.5 8 9(0 L5.62 6.50 7.96 4.015 6.58 6.09 5.80 2.58 3.82 Petroleum 6.814 5.80 1.87 2.1:L o.60 .27 3.015 3.92 2.414 2.13 1.20 0. 35 Glass, clay & stone 6.314 6.22 7.814 6.0:3 4.0'7 6.00 7.Q3 4.516 8.49 7.43 6.63 114 149 Basic metals 2.4 3 3.08 4.80 7,9:L 3,148 1.80 2.49 3.50 3.68 7.25 3.44 2086 Metal manufacturing 5.90 4.98 3.51 2.114 0.88 0. 73 3.97 3.82 3.21 3.11 0.34 0.13 Nviachinery 5.1'3 4.57 3.293 2.22 1.77 0.78 3,62 3.89 3,04 4.17 1003 oc6 5 Electrical mrachinery 26014 2.8'7 3.5:L 3.8:L 2.66$ 1.43 1.06 1.86 0,80 2.02 0.34 0.09 Transport equiprmnt 4.96 4.008 3.75 3.3'7 5.76 2.61 4.54 4.85 2.88 3.38 1.89 1.11 Miiscel1aneous 3.53 2.7:L 5.2'7 2.97 0.81L 0.37 2.69 2.92 3.84 3.38 0.34 O.C6 _ource: Calculated from the 1958 and :L963 industrial censuses. Shares of value added established from data in cttrrent prices. COrM-unS-N OF ITT l rn' ISTT' ?fThet ^'.' RICE A TO,nR nnAWOTnT TMTL TJUi"i I OħU1'J url I.M Lu~IJinoilli rl~.lWajo ur ritut l ku'.iVji~urI ..dJ ħħ .u (as of Oct., 1965) -unit Korea Japan unrited States Dollars Cotton yarn 400 lb. 209.9 153.9 256.8 Rayon yarn 200 lb. 180.4 51.7 56.0 Cement 1 ton 19.5 16.5 Arrmoniin sul-phate 1 ton 56.1 50.1 Coal dust 1 ton 5.5 13.4 4.79 (screening, industrial use) Gasol-ie 1 kl. 71.1 111.6 Copper ingots 1 ton 1,116 919.4 809.0 Galvanized steel sheet 1 sheet 0.92 0.78 Steel bars 1 ton 118.4 87.5 Steel sheets 1 ton 152.2 140.3 Newsprint paper 1 ton 172.8 170.8 132.4 (short ton) Raw silk 1 kg. :12.3 15.0 Sources: MIonthly sta-tistical review of the BOK, November 1965, p. 45, 46, M4onthlv Statistics of Janan, Bureau of Statistics, Office of the Prime Minis-ter, November, 1965, p. 86, StrvRv of Cirrent Busines US Denartment of Commerce, February 1966, p. 32, etc. UTS A. TO T0 T AN TTUP CT 1TC '. T.TG (Basic Projects) A. AID (Defense Su2ort) $ dollars 1. Coded projects Straw Pulp Plant 61.0 Caustic soda Plant (Korea Agr. Chemical Co." 7.6 Caustic Soda Plant (Korea Explosive Co.) 7.6 hrard Board Plant 499.9 F'aper Mill 500.0 Silicon Carbide Plant 170.0 Special Earthenware Plant 469.9 Pharmaceutical Plant (Taehan) 50.0 Rubber Hose Plant 255.5 Dyeing & Finishing Plant for Knitted Goods 250.0 Wire Rope Manufacturing Plant 121.3 Pharmaceutical Plant (Shin-A) 52.3 Pharmaceutical Plant (Taeyang) 50.0 Fishnet Making Plant 100.5 Textile Parts Plant (Cheil) 202.0 Chain Manufacturing Plant 111.5 Textile Parts Plant (Koryu) 214.3 Hwachon Dam & Power Plant 3,281.5 Ice Plant and Quick Freezer 100.0 Pharmaceutical Plant (Bumyang) 50.0 Synthetic Fiber Plant 673.6 Paper Mill 420.0 Spun Rayon Yarn Spinning Plant 1,000.0 Textile Mill 500.0 2. Non-coded Pro,jects Chungju Urea Fertilizer Plant 33,948.5 Auto Tire Plants (2) 819.6 Pesticides Plant 110.0 Rubber Reclamation Plant 1Q2.R A'luminum Sulphate Plant 99.6 Pusan Iron Works 1,995.0 WI;aste Silk Processing Plant 470,0 Limestone Crushing Plat 4199,9 Glass Bottle Plant 335.0 Starch Plants (4) 260.14 Auto Spare Parts Plant 174.6 F:Lour MifJq (3) 509.8 Leather Plant 220.0 (Continued on next page) US; AID TO THE MAIUFACT1JRING INDUSTRY IN KOREA (cont'd) $ dollars White Pigment Plant 10h.3 Asbestos Plant 305.0 Silk-Weaving Plant 376.0 Agar-agar Plants (3) 63L|.9 Marble Plant 150.0 Fi.lature M:'11 Rehhailit2tion 7)44 9 Rubber Accelator Plant 107.9 Potnasiim G.hlor2te Plv, 7 224. 7 Three Wheel Truck Plant 400.0 Pharm~~acui+al Plan.tS (5) IL 64.9 Metal Products Plants (2) 378.1 ROIKA Glo+t4wng, Fco 27.2 Paper Mills (3) 1,271.0 Noln=Ferrous Metal qke-t P'DI 26- 147.0 ~ '..iiLi *S~ .. a v idU V .W V rI.jf*. Printing Plant 193.1 4 .L.CL O U., Ai~.UJL - J.~.LU .LIU .V Communications Equipment Plant 50.0 S.all Shipyards (",), 414* I TnA/VTO 3 e. utstard'ing Loans IyIon Yarn Cement Manufacture 4,031.9 Fertilizer Plant - Chinhae 24,600.0 Fertilizer Plant - Yong Nam 24,200.0 L4. Loan Applications Straw Pulp Plant 8,447.9 Cement Plant Expansion 2,500.0 Polyester Fiber Plant 1,600.0 Nylon Plant Expansion 5,810.0 *5 bully Repaid Loans Cement Manufacture 2,139.6 6. Cooley Loans - Fully Repaid Won Beer Brewery 10,000 Cotton Spiining 20,000 Soy Sauce Brewery 10,000 (Continued on next nage) US AID TO THE PIMAUFACTURING INDUSTRY IN KOREA (conttd) Outstanding WIon Bread and Biscuit 10,000 Soap Manufacture 22,000 Soap Manuf,acture 27,300 Nutritive Noodles 9,900 Starch, Glucose, Etc. 20,000 Mink Ranch 39,000 Feed Additive Mfg. 12,750 Yarn Sizing 30,000 Total Cooley Loans Authorized 210,950 TEENTATIVE ESTIKATE OF GAINS FROM SU3BSIDIES 5N'y EXPOnTS OF I"ANUFACTURES (1965 - Estimates of the Mission) A. Gain on Fiscal Charges 1st VJariant: 1/ 1, Reported Corporate Income Tax exemptions in 1964 3/ (million won) .2. Reported Individual Income tax exemptions in 196L 3/ (million won) 18.1 73;.1 3. Increase of exports in 1965 (as compared with 196h) b7% 4. Probable amount of tax exemptions in 1965 (million won) 107,4 5. Share of manufactures in 1965 exports (%) 60.9 6. Probable amount of income tax exerptions (net) on exports of manufactures (million won) 65.4 2nd Variant: 2/ 7. Export of manufactures in 1965 - $107 million (billion won) o2.9 8. Profit on sales 2L.3% 4/ (billion wion) 7.0 9. Corporate and individual incom.e taxes - (avervgu 25% of profits) (billion won) 1.75 10. Probable amount of income tax exemptions (gross) on e)worts of manufactures ( of corporate and indiv.idual taxes) (million won) 875 11. Difference between 1st and 2nd Variant .. 875-65 = 810 (million won) TENTATIVE ESTDvIATE OF GAINS FROM SUBSIDIES ON _ Ar UniTS OFr MAINUFCT'uuRES /ont',d) B. Gain on Loan Service Charges :12. Neti foreign exchange earnings on exports of manufactures:: - E&port dependence on imported inputs 26.2% 5/ - Net export earnings (100 - 26.2) ($107 million) $79 million or (billion won) 21.3 13. Credits extended - 74% of net export earnings (billion won) :t5.8 6/ 14. Gains on interest rates charged for three-months Credit: - Preferential rate of 6.5 p.a. on 15.8 billion won (for three months) (million won) 257 - Highest Bank rate of interest of 26% per year on 15.8 billion won for three months (million won) 1,027 - Gain: Difference between the rezular and the preferential rates .. (million won) 770 15. Gains on foreign payment guarantees: - inported inputs (28.9-21.3 billion won) (hillion won) 7.6 - Payment guaranitees covering QUI of this amount (billion won) 6.8 - Interest rates on the payment guarantees 3 p.a. for -35 days 7/ (million TTOn) '5 lnterest rate -bic. - -uld hvee rbee paid efec- tively - 18 p.a. for 135 days 8/ (million won) 4'52.7 - Gain: difference between the regular and the preferential rates (m,.illion won) 3''7.3 - 3 - TUhTATIVE ESTI=ilA-T OF GAflIS iROM SUBSIDIES ,vrrIXvmr~nS nTr, "rA.7JTTfl'ArIrVTTD t?C- ( r,.4..i. 3 ON4 EAr0R Ur MA .UFhCIUPS (Cont'd)i rD ~ ~ ~ ~ U~ A UlJ. J U1 ħI~ 1UII..,L)~.U ,U C. TotalCost- of Export Incentves `7u196 1st variant 2nd variant Fisca:L gains 65.h million won 875o. millicn won Export credits 770.0 million won 770.0 millicn won Payment guararntees 377.3.million won 377.3 million won 1,212.7 " " 2,022.3 " Gain per 4 of exports won 1,212.7 million = 11.3 won won 2,022.3 mi lion = $ 107 million $ 107 million won 17This variant is calculated on the basis of tax exemptions on income from exports, as reported by the Ministry of Finance for 1964 and adjusted by increase of exports in 1965. 2/ This variant represents a "direct" calculation of tax exemptions on. income from exports. Export exemptions receive only a third priority after tax exemptions on income derived in major industries (first priority) and on income on goods produced by new or expanded facilities (second priority) were granted. The gain of 875 million won of tax exemptions on income from exports of manufactures is therefore calculated for situations in which all other tax exemption would not apply. This may become true in a very near future, when the weight of first and seconci priority tax exemptions would shift to industries participating very little in exports. IThen the overlapping of priorities will phase out, the total burden of tax exemptions would become even heavier. 3/ Peggy B. Musgrave: Trade Targets and Policies in Korea's Economic Development, 'eoul, 1965, p. 53. 4/ In 1964, for all manufacturing, there is no possibility to distinguish between profits on sales and profit on exports. 5/ This dependence has been calculated by the Mission for 1963 on the basis of unadjusted exchange rate and for all manufacturing. As, however, exports of manufactures is predominantly taking place in investment and intermediate goods groups, which show a higher than average rate of dependence on imported inputs and, as these inputs were imported in 1965 at the adjusted rate of exchange, the real depenclence on imports was evidently, substantially higher in 1965 than the Mission's calculation shows. It may be, therefore, that gains on export credits were lower than shown above, but, on the other hand, gains on pavment guarantees (granted for a larger mnoiint, of imports) were higher, which largely compensates the shortcomings of the Mission's assumntion, 6/ On the assumption, which has been checked and proved correct by the Mission. that everv exporter avails of this facility. 7/ As of September 30, 1965. - h - TENTATIVE EST DIATE OF GARIS FROM SUBSIDIES ON EXFORTS OF YINUFACT-uRES (Cont'd) 8/ As it can be assumed, that foreign exporters would have granted a credit on payment for their deliveries anyway, it was considered mo;-e justified to apply here a new annual interest rate on operating funds loans charged by the KRB since the new credit policy, effective fromn Sep-tember 30, 1965, and amounting to 18 p.a. only, which is considerably lower than the rate of 26 p.a. applied to show gains on export credits. Sources: Calculated from data derived by the Mission from Foreign Trade Statistics (Ministry of Finance), new laws concerning interes-t rates (Korean Reconstruction Bank and the Bank of Korea), proCit rates (Financial Statements of Industrial Enterprises, BOK) and dependence on imported inputs (input-output tables, BOK). PRICTE ARM E'VC' IJET'Tl D AM1 I7OTfl (As Cor,pared with Preceding Year) 1962 1963 1964 1965 A II 1/z A. Pruice increases for imported inputs: / (Lncrease in % of prices in w-on) Metal and metal products 0.7 13.5 47.7 8.6 Fuels 11.7 6.5 29.1 26.0 Cnemical pro(iucts 11.3 13.0 39.0 313.5 Pulp and paper 0.4 36.0 60.1 10,4 Text1ile fibers and products 4.3 48.3 43.2 8.1 All commodities 8.4 19.6 40.1 20.6 B. Price increases for domesticallY produced (corresponding) items: Metal and metal products 5.7 9.5 37.2 25.5 Fuels (and power) 9.4 2.5 11.2 17.3 Chemical proclucts 8.1 12.8 45.8 23.2 Pulp and paper 3.7 19.3 h2.0 17.5 Textile fibers and products 6.5 14.4 41.9 21.8 All commodities (excluding grain) 8.4 26.8 29.8 8.5 C. Exchange rate 1. Effective (won/$) -/ 130 136.5 207.2 272 (since 5/65) 2. Increases (%) 12.8 5.0 51.8 31.2 3. Fealistic (wTon/$) 157 189 255 272 4. Increases (%) 9.0 20.4 34.9 6.7 5. Differences in absolute values (3-1) (gain of won/$) 27.0 52.5 46.8 0 6. R.ealistic Rate; Effective Rate = 100 120.7 138.5 123.1 100.0 l/ Selling (wholesale) price charged by importer. 2/ Average for merchandise imports. Source: Price movement calculated from the Monthly Statistical Review of the BOK, Ot-ober, 1965, p. 39-41, data for 1965 estimatedd. Rea:Listic exchange r.ate - Mission estimate.