On November 10, 2014 at the APEC Summit in Beijing, President Park Geun Hye and General Secretary Xi Jinping announced that the Korea-China free trade agreement negotiations were “practically concluded.” On November 21, 2014 ISC Policy and Research Coordinator Dae-Han Song interviewed Heo Jeong Moon Chae, owner of a wood recycling business on the impact of the Korea-China FTA on small and medium sized enterprises. *This interview is part 3 of a 4-part expose by the International Strategy Center on the impact of the Korea-China FTA on Korean civil society.*
Can you introduce the business that you operate?
We are a wood recycling business. We take wood pruned from trees in the mountains, or on streets and roads or wood discarded from construction sites. We take all of that and turn it into sawdust. Then, we provide it to organic fertilizer companies where it is mixed with animal manure. Or, we provide it directly to livestock producers to help them dispose of their animal manure. We employ five people in the factory; one in the office; and 4 truck drivers – since we transport materials on a large-scale.
How did you feel when you heard that the Korea-China FTA was “practically concluded”?
When I heard the news, my first reaction was, “We are screwed!” There had been talk about it for a while, but they hadn’t announced that it would be that day. While our direct clients are livestock owners and organic fertilizer producers, the ones that use the fertilizer are farmers. So for us to do well, farmers have to farm a lot.
The FTAs are killing farmers. So crops from the fields will decrease. Then, the amount of fertilizer that is produced will decrease. If fertilizer factories go out of business then we go out of business. When the Korea-New Zealand or Korea-Australia FTAs were being negotiated, the livestock portion was very important to us. That’s because our business is connected to farmers and livestock. Only when they do well, do we do well.
Many people say, “Korea can only survive when our big corporations do well, in particular Samsung.” What do you think of that? Why are small and medium enterprises important?
When we say small and medium enterprises, we are talking about a whole range of businesses. Any business with revenue under 10 billion won (about US$ 10 million) is considered a small and medium sized enterprise. We are a family owned business. In that regard, we are small. Our revenue is 2 to 3 billion won. However, we are big in the sawdust industry: While we are small, there are many other smaller companies.
Samsung, Hyundai, LG – they are big international companies. But in our sector, there are other businesses and self-employed people associated and connected with us. Let’s say there are a hundred of us [sawdust producers] nationally, then us along with all those connected to us, like smaller businesses and truck drivers connected to us, will greatly outnumber those that can be employed at Samsung or Hyundai.
When a large corporation enters a market and starts to gobble us up, then we turn from independent producers to subcontractors. As that happens, more and more of the profits get concentrated in the conglomerates like Samsung and LG; of course, these profits aren’t going to their employees or the small and medium enterprises. They are simply going to the stock holders.
In the news, you hear announcements of various policies that supposedly make Korea a good place to start a business. But in reality, none of these benefits go to small and medium sized businesses. For example, when it comes to taxes, they say that they need to increase corporate taxes. The impact of those taxes on small businesses is great. But, the big corporations get to reap a lot of benefits. For example, if you use more than a certain amount of electricity then the government subsidizes you. Small businesses can’t even apply to this. There was recently an article about how almost all electricity subsidies were going to the top ten corporations. And like we hear in the news, corporations utilize lawyers, exploit the legal structure, and find loopholes to get out of paying taxes. Small businesses don’t have that type of influence.
Just because Samsung, LG, and Hyundai do well does not mean that our people will do well. It just means that the largest shareholders in those companies reap great profits.
What do you think will be the impact of the Korea-China FTA to small and medium sized businesses?
If we look at the Korea-China FTA, the basic premise is that Korea would gain services, finance, and intellectual property from China; in exchange, it would hand over agriculture and manufacturing. If we look at small and medium enterprises in our country, they are focused mostly on manufactured goods and domestic industries. When they talk about intellectual property rights in the Korea-China FTA, they are talking about hallyu [i.e. Korean entertainment (e.g. movie, music, television) industry]. Experts have said that manufacturing is ruined.
Politicians use economic indices to fool people. When our country’s GDP goes up, we still have to investigate where that money goes. The direction the government is going is scary. Agriculture and manufacturing provide the basic goods in people’s lives: They are the essential goods; Stocks are just paper. Yet, the ones with the stocks keep making more money.
What would you say is the character of small and medium sized businesses?
Well, as I said before the designation comes from your level of revenue. Many small and medium sized corporations are playing the role of subcontractors for big corporations. But if the government continues to only help and support big corporations, then more of these small and medium sized enterprises will become subcontractors to the large corporations.
Companies produce goods. They also hire workers. These workers use their wages to consume goods. If we continue down these pro-big corporation policies, they are going to destabilize this circulation.
Is there a possibility that large corporations will start subcontracting Chinese companies?
Now, with tariffs gone, they will probably examine that possibility. If before we used raw materials from our country, now we start to import them. There’s a lot of propaganda saying that this FTA will benefit small and medium sized enterprises. From the point of view of a corporation, the FTAs can be profitable. For example, when we sign FTAs with Europe or Japan then we can acquire cheap machinery that they specialize in. Then, the domestic company that produced this machinery goes bankrupt.
Already, we import refuse from Japan. Even in my instance, because prices in Korea are more expensive, I start to wonder if I should produce sawdust with cheaper materials from China or Russia. This doesn’t allow for circulation within our own country. However, when we look at it from the perspective of profit, we can’t but consider these things.
Why is domestic circulation important?
Because we are living in this country. If we just calculate in terms of money, then through the exchange rate maybe we can get cheaper materials or cheaper labor. But, this is our country. I live in this land. The number of jobs here will decrease. Maybe tourism from China will increase. But what is someone like me supposed to do? The only type of job I would be able to get will be at a tour agency, or selling tourist goods, or learning Chinese and becoming a guide. The food we eat, the clothes we wear – they won’t be produced by us. I can’t work in those companies nor would I be able to start such company. I would only be able to work in a big corporation or at welcoming tourists. Wouldn’t the structure of a country become strange? Can that still be considered a country? I think it distorts its character as a community that is economically and culturally independent.
What can the government do to protect small and medium sized enterprises?
They have to change the direction of its policies. Korea is calling itself a business friendly environment. But, those benefits do not apply to small businesses. It is just a country where it is easy for big business to succeed and foreign companies to invest in. If we keep going in this way, only retailers will remain. We will not have people that produce and create value, but simply ones that exploit the exchange rate. The structure of our country could potentially change from producing to simply being consumers and retailers.
During the Lee Myung Bak Administration, as part of his green energy plan, he started to burn tree and wood refuse for energy. Companies like ours and the ones that use saw dust to make wood planks had a fit. The materials that would have gone to assembling wood-planks were now going for use as alternative energy. As the supply of materials shrinks, the prices increase. To deal with this, we created the Association of Recycled Wood.
When the government set a specific percentage of discarded wood to be used for altnerative energy, the big corporations started to enter. Previously, the companies that turned this wood refuse into saw dust and recombined them into planks were all small companies. As we started to produce woodchips, big corporations came in. Dong Suh Foods would create a corporation that would produce wood chips. Because they have a lot of capital, they would create huge wood chip processing facilities. In that process, many of the small companies went out of business. So through our Association, we are working to limit the entry of big corporations and designate this sector to be friendlier towards small and medium sized companies.
Is there anything you want to say to people abroad?
People abroad also have to live and survive day by day. So, some of them will eat Mac Donald’s hamburgers even though they know it’s not good for them. It may be healthier to prepare food at home; but because there isn’t time or money, they do not. I wish those living abroad would examine their lives in a larger perspective: “What are you eating? How are you living your lives?” Instead of just being, “I can’t help it, I don’t have any money.” I wish they would ask themselves, “What are the connections? Why don’t I have money in my pocket? What is the impact on my health? Who is taking my money?” Then it will become clear how we need to transform society to create true peace and fairness for ourselves, our neighbors, and posterity.