Korea Introduction

The State of Alaska and the Republic of Korea share a long and rich history of positive and productive relations:

• Alaska was the first American state to open an office in Korea, in 1985.

• Korea has long been Alaska's second largest trading partner.
• Alaska enjoyed the presence of a full time Korean Consulate General from 1982 until 1999, when the Korean Ministry of Foreign Affairs appointed Honorary Consul General Bill Bittner.
• Alaska is proud to be home to thousands of Koreans, who help provide our state its rich cultural diversity.

In the area of trade, Korea has been an important customer for such Alaska natural resources as oil and gas, chemicals, timber, seafood, coal, and minerals.

Korea remains Alaska's Number 2 trading partner. During 2000 Alaska exports to Korea totaled $448.6 million, close to the all-time high reached in 1999. Exports were primarily comprised of seafood, crude oil and natural gas, chemicals, wood products, coal and minerals. Dollar trade in 1999 was up dramatically due to Korea's recovering economy and the strengthening of the won, following the 1997-98 "IMF flu." Higher prices of crude oil and seafood also helped the export picture in 1999 and 2000.

Korea is not only an important export market for Alaska - it is also an important investor. Korea's two international air carriers, Korean Air and Asiana Airlines, are longtime partners in Alaska, providing both passenger and cargo links to Korea and Asia.

Educational and cultural links are stronger than ever. Our countries enjoy many ties -- from sister-city relations to the long established Alaska Korea Business Council, to Governor's missions and Presidential visits. Alaska has a considerable Korean population that is very active in both community life and trade.

The Korean Economy: Background

Korea Economy Update, November 2002

In addition to the Bank of Korea, Gross Domestic Product (GDP)
forecasts are made by various organizations in Korea, government
agencies as well as private research institutes. Among them is the Korea
Development Institute (KDI), an autonomous policy-oriented research
organization founded in 1971. According to the KDI, Korea's economy is
likely to grow 3.3 percent next year, up from 2.2 percent in 2001.

That forecast is broadly in line with World Bank, which said in
mid-October it saw Korean growth in 2002 of 3.4 percent and 2.4 percent
this year.

The International Monetary Fund's more bullish prediction, released two
weeks after the September 11 terror attacks in the U.S., is for 2.5
percent growth in Korea this year, rising to 4.5 percent in 2002. On
November 27, 2001 Korea’s Ministry of Finance, predicted three percent
growth in the first half of 2002, and five percent growth in the second
half.

Best Prospects for Agricultural Products

Alaska-Korea Trade Overview

Alaska's exports to Korea hit an all-time high in 1999, reaching $487 million. In 2000, that number declined slightly, to $448.5 million. Korea is Alaska's long-time Number 2 export market, and the 54% improvement between 1998 and 1999 and into 2000 shows the rebound of the Korean economy, as well as the increase of commodity prices for the products Korea imports from Alaska. However, the economy of Korea has experienced a downturn beginning in the fourth quarter of 2000.

In 2000, seafood accounted for 29% of Alaska's exports to Korea. Oil, gas and coal were second, accounting for 27% of the total. Fertilizer (21%), wood products (8%), machinery and minerals (7% each) rounded out the top export products in 2000.

Alaska's Trade Representative in Korea produces a quarterly energy market report. Click here for the latest quarterly report.

In 1999, the year of economic recovery for Korea, total energy demand grew by 9.1% from the crisis-stricken 1998 levels to completely recover to the 1997 levels.

However, the trend of Korean total energy demand in 2000 revealed how serious the impacts of high oil price and sluggish economy are. The growth rate of energy consumption was 8.9% in the first half and then fell to 3.8% in the second half. In the first half of 2001 the growth rate of energy consumption fell further to 2.3%. Even though the Korean economy and energy demand are expected to recover to normal levels in the second half, the forecast by KEEI (Korea Energy Economics Institute) shows a moderate growth of 3.5% in energy demand for 2001 overall. LNG and electricity demand will still have substantial growth, while relatively weak demand is expected for oil.

During the first half of 2001, Korea's energy import reached $ 18.4 billion, which is a 3.7% increase over the corresponding period of 2000:

• Crude oil ( 64.4% of total energy imports): $ 11.8 billion, 1.1% increase
• LNG: $ 2.3 billion, 24.6% increase
• Bituminous Coal: $ 14 billion (3.1% increase)

Crude Oil: Korea has imported crude oil from Alaska's North Slope since the North Slope oil export ban was lifted in 1996. Crude oil was Alaska's number one export product to Korea in 1996 through 1999, and was the number two export in 2000. In 2000 Alaska exported $103 million of crude oil to Korea, a decrease of 55% from 1999. North Slope oil producers have announced they will not export crude oil overseas in 2001, but instead will ship all North Slope crude to U.S. West Coast refineries. While this policy will cause a statistical impact in Alaska's export picture, the economic impact will be negligible, as the change is merely in the destination of the crude, and the price at US refineries will be the same as in Korea and other Asian countries.

Major customers for Alaska crude oil in Korea are LG Caltex and Hyundai.

Coal: Alaska has been shipping its coal to Korea since 1984. Korea is the only export market for Alaska coal at this time.

Coal from Usibelli Coal Mine in Healy is shipped via Alaska Railroad to Hyundai Seward Terminal, and sent to Korea Electric Power Corporation (KEPCO). Annual exports from Alaska average 600,000 - 700,000 tons. Alaska coal exports to Korea reached 650,000 tons worth $25.0 million in 1997, declined severely in 1998 during contract negotiations and the economic crisis, and rose to $15 million in 1999. In 2000, Alaska exported $16.3 million of coal to Korea, an increase of 8.4% from 1999.

During the first quarter of 2001, the consumption of bituminous coal decreased by 2.5%. At the same time, Korea's import of bituminous coal reached $500 million in the first quarter of 2001, up 3% from the first quarter of 2000.

There is a new challenge for Alaska coal exporters. After the economic
crisis of 1997-98, Korea’s recovery plan included the restructuring of
the electric power industry, including the privatization of KEPCO. To
introduce competition in the power generation sector, KEPCO has been
divided into six Generation subsidiaries (Gencos), with Alaska’s new
customer now the Korea East West Power Company, KEWESPO. The thermal Gencos will begin to be privatized in 2002, and KEWESPO must make a profit.

Fertilizer: Urea, a nitrogen fertilizer, is a biproduct of the processing of LNG. Fertilizer with a value of $95.5 million was exported from Alaska to Korea in 2000, an increase of 88% over 1999.

Wood Products Exports

Alaska forest products exports to Korea have varied moderately over the past decade. From 1992 to 1997 Alaska's export of forest products to Korea fluctuated between $50 million and $75 million, decreased dramatically in 1998 to $24 million, and increased to $40 million in 1999 and $37 million in 2000.

Tourism, Air Cargo

Korean Air is a longtime business partner of the State of Alaska, contributing the largest single amount in landing and fuel fees of any air carrier operating at the state-owned Ted Stevens Anchorage International Airport. Korean Air provides scheduled nonstop passenger and cargo service between Alaska and Korea. These nonstop passenger and cargo flights are an important year-round transportation link between Alaska and Korea, and between Alaska and Asia.

Asiana Airlines is also an important operator in Alaska, using Anchorage as a refueling stop for both its passenger and cargo flights between the Lower 48 and Korea.

Technical Services

Korea is a promising market for Alaska's expertise in environmental and other technical services.

Environmental Services
Korea has embarked on a new and comprehensive five-year plan to address its environmental problems. Most of its focus will be on water pollution, solid waste, air pollution reduction, and hazardous waste treatment, including oil spill remediation. Building on a solid base of environmental laws and regulations, modeled in large part after those of the U.S., Korea also is showing signs of more vigorous enforcement of its existing environmental regulations, although further progress needs to be made. This in turn is expected to create more demand for imported environmental technology and services. Reflecting Korea's heightened commitment for environmental clean-up, its 2000 budget for environmental projects has been increased 13 percent over its 1999 level, to $1.1 billion.

The U.S. Commercial Service Korea estimates the size of the Korean environmental technology market (public and private sector inclusive) for 2000 at $8.14 billion. Given the country's continued economic growth as well as increased Korean and private sector expenditures in this sector, the market is expected to expand 18% to $9.6 billion in 2001. In accordance with this projection, Korea's 2001 budget for environmental projects has been increased 8.5% over its 2000 level to $1.2 billion.

Oil spill remediation, a likely market niche for Alaskan firms, is beginning to emerge as a promising environmental subsector. Oil spills are a serious problem in Korea, which the country is poorly equipped to handle. For example, the total number of accidents in Korea increased from 299 in 1995 to 463 in 1999, in reflection of the increased maritime activity along the Korean coast. Given this situation, if an accident on the scope of the Exxon-Valdez accident in Alaska took place in Korea, the level of damage would be ten times that experienced in Alaska.

Competition is fierce among competitors for Korea's environmental technology market. However, the Korean pollution control market continues to expand and there is good potential for sales of U.S. environmental goods, services and technologies. The current market share of U.S. environmental firms among foreign competitors in Korea is estimated to account for 20 percent of the total market, second only to Japanese firms with 40 percent. Sales of many types of equipment and technical expertise, as well as joint venture manufacturing and construction projects, offer the most promising avenues for Alaska participation. In 2000, Korea purchased pollution control equipment and services from foreign companies valued at $2.4 billion, 30 percent of the total environmental market ($8.4 billion).

The Division of International Trade & Market Development, the U. S. Commercial Service Korea and the US-Asia Environmental Partnership (US-AEP) Korea have worked together closely for the past several years. In 1997, Governor Tony Knowles signed a memorandum of cooperation with US-AEP Korea, which recognized Alaska's environmental expertise and affirmed the US-AEP's desire to help Alaska companies to partner with Korean government and industry. Alaska looks forward to continuing to build on this memorandum of cooperation.

Architectural and Engineering Services
According to the U.S. Commercial Service Korea, the architectural/engineering services market in Korea has displayed signs of recovering since the second quarter of 1999. The Korean market for architectural/engineering services is estimated at $5.0 billion in 1999, and is expected to increase to $5.5 billion in 2000 and $5.9 billion in 2001. The import market accounts for 40% of the total architectural/ engineering market in Korea. The import market in 1999 was $2.0 billion, and is expected to expand to $2.1 billion in 2000. U.S. suppliers dominate the import market in Korea, with approximately 40% market share, followed by French suppliers who maintain an average rate of 10% market share. In Korea, U.S. architectural and engineering systems have become a factor in the standardization of the design-build systems. Furthermore, the Korean architecture/engineering firms still require new design and engineering technologies that are unavailable in Korea and are mostly provided by the U.S. suppliers to meet these newly established standards. As the Korean architectural/engineering services market evolves, the demand for better services in both quantity and quality terms continues to rise creating additional demand for foreign services.

In general, the Korean architectural/engineering services sector lags behind foreign competitors. Therefore, the domestic market demand for key architectural/engineering technologies has been met mostly by foreign suppliers. The key architectural/engineering technologies required by the domestic market, according to the U.S. Commercial Service, include the service fields of telecommunication, transportation, water supply, sewage and waste, and industrial processing plants. Even the leading domestic architectural/engineering firms prefer to partner with foreign competitors on the implementation of large public and private projects.

Construction Sector
The U.S. Commercial Service reports the Korean construction industry was severely hit by the economic difficulties of 1998. In order to assist in the recovery of the Korean construction industry, the Korean government raised its budget and eliminated many regulatory barriers related to the construction of commercial and residential buildings. As a result, the new construction permits in 2000 have already exceeded last year's level by 111.8%. In particular, the new construction permits for commercial purposes have exceeded last year's level by 142.4%. The total number of housing units supplied in 2000 was 435,000 across the nation, 241,000 in the Seoul metropolitan area, and 100,000 in Seoul based on the number of construction permits issued by the Korean government agencies.

The housing construction industry will experience gradual growth as the Korean government finances the construction of 500,000 housing units in 2001. While these statistics may be somewhat skewed based on the declines resulting from the Korean fiscal crisis, it cannot be denied that the commercial and residential construction industry is beginning to heat up.

Partnerships with major Korean companies include consulting services for advanced design and technology, and financing packages for construction projects, which are two promising business opportunities for U.S. companies in Korea, according to the USCS. Intelligent Building System (IBS) technology is another opportunity which has a short history in Korea but is increasing in significance. It is anticipated that this sector will generate business opportunities for U.S. companies in Korea specializing in system engineering, and the design of IBS building construction. The best prospects include: - Remodeling Industry - Intelligent Building System (IBS) - Cyber Apartment