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					  Approaches to the Efficient Logistics Management of Non-Ferrous
                           Metals in Korea


                                 Hee Seok Bang(Professor, Chung-Ang University)
                                 Choong Bae Lee(Professor, Chung-Ang Univesity)


1. INTRODUCTION
  The supply of non-ferrous metals has been increasing to meet the demands associated
with economic development. Since the production and consumption of these metals are
dispersed around world, there are disproportionate levels of supply and demand
inevitably occurring. Therefore, non-ferrous metals move from one country—with a
higher supply--to another—with a lower supply. Due to the time gap between
production and consumption, there is a need for storage. In order to adjust the
differences of supply and demand, efficient logistics systems are required which include
transportation, storage, handling, packaging, and distribution.
  Since the late 1980s, Northeast Asia has been considered one of the most dynamic
economic areas the world, due to its swift economic development and increased trading
with other countries. Korea is located between two economic giants: Japan, the world's
second-largest economy; and China, a rapidly developing economy. In terms of
economic size, China, Japan and Korea together represent one-fifth of the world's Gross
Domestic Product (GDP). Intra-regional trade among China, Japan and Korea is
increasing due to the countries’ economic complementarities and their proximity to each
other.
  There are currently 400 LME-approved warehouses in operation, located in 41 regions
in 12 countries storing non-ferrous metals transacted at the London Metal Exchange.
Singapore and Japan were approved as Asia’s LME warehouse sites in 1987 and 1989,
respectively, and Busan and Gwangyang in Korea were later approved as LME
warehouse locations in 2003. These two locations will house aluminum, nickel and tin.
The approval is expected to play an important role in controlling supply and demand of
non-ferrous metals in Northeast Asia where its rapid economic growth is creating a
large increase in demand for these metals.
  This paper aims to investigate the trade patterns and logistics systems of non-ferrous
metals, focusing on the LME warehouses in Northeast Asia, and will suggest how to
sustain and efficiently manage the LME warehouses in Korea.




                                           1
2. TRADE PATTERNS OF NON-FERROUS METALS IN KOREA
  1) Supply and Demand of Non-Ferrous Metals in the World
In 2000, the supply of non-ferrous metals was 56.5 million tons, compared to 56.7
million tons of demand. The proportion of production and consumption in Asia
accounted for 28.7 and 37.7 per cent of the total, respectively. Of the non-ferrous metals,
copper represented 26 per cent of the total tonnage available, and zinc 16 per cent.




                                            2
<Table 1> Supply and Demand of Non-ferrous in the World
                                                                                        (Unit: Thousands Tons)

                                           1996               1998         2000          2002         Share(%)

                        Production           -                  3,818        4,606          5,018        26.9
           Copper
                       Consumption           -                  4,843        6,025          6,921        29.4

                        Production           -                  1,723        2,144          2,254        12.1
            Lead
                       Consumption           -                  1,768        2,029          2,353        10.0

                        Production           -                  3,161        3,820          4,164        22.3
            Zinc
                       Consumption           -                  3,093        3,694          4,081        17.3

                        Production           -                  4,038        5,188          6,788        36.4
         Aluminum
 Asia                  Consumption           -                  6,991        9,005          9,566        40.6

                        Production           -                       183          219           218       1.2
           Nickel
                       Consumption           -                       377          479           493       2.1

                        Production           -                         -          209           194       1.0
             Tin
                       Consumption           -                         -          131           132       0.6

                        Production           -                 12,924       16,185         18,635       100.0

            Total      Consumption           -                 17,072       21,364         23,545       100.0

                        Difference                              -4,148       -5,179        -4,910

                        Production               12,685        14,103       14,820         15,381        26.1
           Copper
                       Consumption               12,378        13,406       15,176         15,106        26.4

                        Production                5,448         6,123        6,744          6,543        11.1
            Lead
                       Consumption                5,754         5,958        6,424          6,789        11.9

                        Production                7,402         8,095        9,094          9,518        16.1
            Zinc
                       Consumption                7,543         8,019        8,796          9,010        15.7

                        Production               20,864        21,808       24,465         26,099        44.3
         Aluminum
 World                 Consumption               20,753        21,993       24,874         24,862        43.4

                        Production                 953          1,078        1,102          1,174         2.0
           Nickel
                       Consumption                 927               988     1,172          1,206         2.1

                        Production                 225                 -          264           267       0.5
             Tin
                       Consumption                 233                 -          276           274       0.5

                        Production               47,577        51,207       56,488         58,982       100.0

            Total      Consumption               47,588        50,365       56,716         57,248       100.0

                        Difference                  -11              842      -228          1,734
* Excluding aluminum alloy
Source: WBMS, World Metal Statistics, each year.




                                                          3
     2) Supply and Demand of Non-Ferrous Metals in Northeast Asia
  The production of non-ferrous metal in Northeast Asia in 2002 was 13.3 million tones,
compared to the consumption of 18.2 million tones, resulting in a 27 per cent shortage
of the total consumption. In particular, the production of aluminum in Asia accounts
only for 40 per cent of the consumption in the world. This shortage is expected to
increase with the rapid industrialization of China. Therefore, volumes of trade for non-
ferrous metals will also increase.

<Table 2> Production and Consumption of Non-Ferrous Metals in Northeast Asia
                                                                                                (Unit: Thousands Tons)
                       China              Japan                 Korea               Taiwan               Total

                    Prod.   Cons.    Prod.       Cons.       Prod.       Cons.   Prod.       Cons.   Prod.    Cons.

         Copper     1,211   1,397      1,277      1,255        369         560           -     584    2,858      3,796

          Lead        757      530      302        327         234         260       41        133    1,334      1,250

          Zinc      1,486   1,128       608        659         390         302           -     240    2,484      2,329

 1998   Aluminum    2,035   2,425        17       2,080              -     506           -     301    2,052      5,312

          Nickel       48       42      127        151               -      72           -      80     175        346

           Tin         61       32           1      28               -      11           -      10       62        81

          Total     5,599   5,555      2,332      4,500        993       1,711       41      1,348    8,964   13,114

         Copper     1,580   2,684      1,401      1,164        499         936                 656    3,480      5,440

          Lead      1,288      907      281        298         229         321       40        140    1,838      1,665

          Zinc      2,106   1,676       640        603         603         461           -     302    3,348      3,043

 2002   Aluminum    4,358   4,152            6    2,010              -     921           -     407    4,365      7,489

          Nickel       54       85      156        171               -      96           -     104     210        456

           Tin         75       47           1      27           1          18           -      10       77       101

          Total     9,461   9,551      2,485      4,273      1,332       2,752       40      1,618   13,318   18,194

Source: Korea Nonferrous Association


  The total trade volume of non-ferrous metal was 2.8 million tons in East Asia (Korea,
Japan, China, Taiwan and Singapore) in 1996. Korea exported 394 thousand tons to the
other East Asian countries and imported 343 thousands tons. Singapore was the largest
trader in East Asia, accounting for 48% of the total trade. This was because it has an
LME warehouse. The main importer from Singapore was Taiwan because it is very
close to Singapore.
  In 2000, the demand volume of non-ferrous metal in Northeast Asia was 5.6million
tones. Excluding their own production, Japan recorded a demand for 2.2 million tons,


                                                         4
China: 0.5 million tons, Taiwan: 1.56 million tons and Korea listed a demand for 1.33
million tons.

<Table 3>Distribution Structure of Non-Ferrous Metals by Commodity in East Asia (1996)
                                                                                                                       (Unit: Mt)
                                                                                 Imports
                               Korea                 Japan              China              Taiwan         Singapore     Total
            Korea                          -         205,117              63,888               84,438        49,656    394,098
            Japan               112,728                        -          18,204           100,005            4,017    234,954
            China               219,147              139,771                       -       109,918           76,375    545,212
Exports
           Taiwan                  9,650             101,751                   722                   -     159,378     271,502
          Singapore                2,052                   1,096          33,434         1,345,823                -   1,382,405
             Total              343,577              447,735             116,248         1,640,184         289,427    2,828,170
* Figures of exports and imports from Korea to others are data of 1998
Source: KIET Database and KOTIS


<Figure 1> Trade of Non-Ferrous Metal between East Asia and Singapore


                                                           Japan

                                                   196,117         112,728
                                                                                                100,005
                                                                             101,751
                     18,204
                                 139,771
                                                         Korea
                              63,888                                                   9,650
                                               219,147
                                                                        72,990

                                                            109,918

                        China                                                                  Taiwan
                                                              722




                                               1,382,304                289,427




                                                      Singapore


  3) Supply and Demand of Non-Ferrous Metal in Korea
  Korea consumed 2.5 million tons of non-ferrous metals and produced 1.2 million tons
in 2000. Korea is highly dependent on non-ferrous metal imports, except zinc. In
particular, all aluminum consumed in Korea is imported. Korea is able to produce only


                                                                    5
24 per cent of the nickel it needs and 55 per cent of the copper. In 2000, Korea imported
1.6 million tons and exported only 0.27 million tones of non-ferrous metals. The Korean
economy is highly dependent on non-ferrous metals imports. Therefore, importing and
storing these goods are crucially important to Korea's economy.


<Table 4> Production of Non-Ferrous Metals in Korea
                                                                                (Unit: Thousand Tons, %)
                                                                              Average growth rate (%)
                       1980       1985       1990       1995       2000
                                                                              '80-'90   '90-'95   '95-'00
           Copper          64          130    183         233        471        11.1       4.9      14.1
          Aluminum         17           17      4              -          -    -13.5          -         -
            Zinc           76          114    256         285        473        12.9       2.2      10.1
Produc-
            Lead           15           27     75         175        222        17.5      18.5       4.8
  tion
           Nickel             -          -          -      19         22            -         -      2.9
            Tin               -          -          -          -          -         -         -         -
            Total         172          288    518         712      1,188          28      25.6      10.2
           Copper          92          207    342         528        862          14       9.1       9.8
          Aluminum         81          177    365         691        823        16.2      13.6       3.5
 Con-       Zinc           75          126    228         350        419        11.8       8.9       3.6
 sump-      Lead           34           69    138         272        309          15      14.5       2.6
  tion     Nickel             -          -          -      48         90                            12.6
            Tin               -          -          -      11         15                             6.2
            Total         282          579   1,073      1,900      2,518          57      46.1       5.6
     Difference          -110      -291       -555      -1,188     -1,330
Source: Korea Nonferrous Association




                                                    6
<Table 5> Imports and Exports of Non-Ferrous Metals (1990∼2000)
                                                                               (Unit: Thousand Tons)

                        1990       1992       1994       1996       1998        1999       2000

             Copper      138         161        264        346        462          455        391
           Aluminum      362         426        689        724        584          880        890
              Zinc        25          25           72       91         71          113        131
Imports       Lead       107         143        136        160         99          113        120
             Nickel        7              6        13       15         21           29         25
                  Tin      6              7        11       12         12           13         16
            Sub-total    645         768      1,185      1,365      1,295        1,603      1,573
             Copper        1          14             7          8     292          139         24
           Aluminum        6          16           59       43         70           31         12
              Zinc        56          58           85       25        167          163        196
Exports       Lead         5              9        17       10         45           31         36
             Nickel        1              -          2          -          -           -          -
                  Tin          -          -          1          -          4           -          -
            Sub-total     69          97        171         85        584          364        268
          Total                      865      1,356      1,450      1,879        1,967      1,841
Source: KOTIS DB


   4) Stock of Non-Ferrous Metal
  Judging from the data from the last decade, the average price of non-ferrous metal was
high owing to excessive demand while the stock level was low. In other words, the
stock level of non-ferrous metals is responsive to changes in the supply and demand of
these metals.




                                               7
<Table 6> LME Daily Stocks Levels and Price
                                                                           (Unit: Tons, Thousands US$)
                                                                                            Total/
                    Copper       Lead      Zinc       Aluminum    Nickel         Tin
                                                                                           Average
         Volume     296,425      132,250   664,700     584,425     44,892        12,005   1,734,697
 1995
          Price       2,935         630      1,031       1,806      8,228         6,210       3,473
         Volume     125,350      118,800   506,825     951,275     48,900        10,610   1,761,760
 1996
          Price       2,294         774      1,026       1,506      7,501         6,162       3,210
         Volume     337,550      111,300   491,575     622,025     66,522        13,040   1,642,012
 1997
          Price       2,272         624      1,309       1,599      6,927         5,644       3,063
         Volume     592,425      108,350   317,050     635,525     65,964         8,180   1,727,494
 1998
          Price       1,654         528      1,024       1,358      4,630         5,537       2,455
         Volume     790,225      176,425   278,850     774,500     46,962         9,155   2,076,117
 1999
          Price       1,573         502      1,076       1,362      6,015         5,402       2,655
         Volume     367,225      130,650   194,775     321,850      9,522        12,885   1,036,907
 2000
          Price       1,813         455      1,128       1,549      8,640         5,435       3,170
         Volume     799,225       97,700   433,350     821,250     19,188        30,550   2,201,263
 2001
          Price       1,578         476       886        1,444      5,945         4,478       2,468
         Volume     855,625      183,900   651,050    1,241,350    21,972        25,610   2,979,507
 2002
          Price       1,559         452       779        1,350      6,772         4,058       2,495
 2003. Volume       665,650      172,450   695,575    1,142,200    24,468        20,595   2,720,938
  06    Price         1,645         455       778        1,384      8,254         4,580       2,849
*Levels at the end of the year
Source: www.lme.co.uk


3. LOGISTICS HUB OF NORTHEAST ASIA AND LME WAREHOUSES IN KOREA
   1) Logistics Hub of Northeast Asia
  Korea has a strong potential to become a Northeast Asian hub for both freight and air
passengers since it is well positioned geo-economically. The recently opened Incheon
International Airport serving Seoul not only serves 43 cities with populations of over
one million within a three-hour flight radius, but it also serves a number of industrial
areas in closer distances, including the Koreas, China and Japan.
  In terms of maritime transportation, Korea is a strategic point, connecting Southeast
Asia and North America. The Trans-Continental Railway that is expected to run through
North Korea and Siberian to Europe can terminate or begin at the Busan and
Gwangyang ports. Busan is already the world's third-largest container port. With further
expansion, Busan, along with the Port of Gwangyang, will become major trans-
shipment hubs and distribution centers in Northeast Asia with 63. by the end of 2011.
Provided that these ports are developed on schedule, they will grow to be mega-hub-
ports that can handle an additional 17 million TEUs containers per year.


                                                  8
  Furthermore, in the near and far future, the Trans-Continental railways, including the
Trans-Siberian Railway and the Trans-China Railway, will provide Korea with a good
opportunity to expand its influence in China, Mongolia, Russia, Central Asia and
Europe.


<Figure 2> Conceptual Scheme of Northeast Asian Logistics Hub


                       Northeast Asian Business Hub


                                        Logistics Hub



               Central Harbor                               Central Airport

                                           -Development of Incheon
                                            International Airport
                                           -Expansion of Busan Harbor and
                 Hardware                   Gwangyang Harbor
                                           -Construction of Eurasian Silk
                                            Road

                                           -Building efficient domestic and
                                             International distribution network
                                           -Implement distribution related
                  Software                  laws and system(Establishment
                                            of customs free zone,
                                             international distribution
                                             support center


                 - Establish facilities for a distribution base
                 - Improve distribution industry and distribution systems to
                   world-class levels
                 - Eliminate and ease restrictions to comply with market
                   Principles
                 - Create an environment friendly to foreigners and
                   Foreign businesses
                 - Foster expert human resources and international
                   cooperation



Source: Ministry of Finance and Economy, "Korea's Blueprint for a Northeast Asian business Hub," June 2002


                                                    9
  In order to become a hub-port for Northeast Asia, Korea must attract direct foreign
investment by establishing infrastructures such as ports, railways, roads, distribution
centers, and improving external conditions such as laws, regulations, and human
resources.
  The approval as LME listed warehouses provides a good chance for Korea to become
a logistics hub in Northeast Asia. The Busan and Gwangyang ports, having LME
warehouses, will handle non-ferrous metals trading around world and within Northeast
Asia. This will not only increase the cargo volumes of both ports but also contribute to
the development of related industries such as logistics, assembly, and finance.
Furthermore, Korea can save on logistics costs related to handling non-ferrous metals
needed for Korea's economy.


  2) Condition of the LME Warehouses in Korea
  Korea is the third Asian country to have an LME warehouse and the thirteenth
country in the world to do so. The total space in the Busan and Gwangyang ports is
68,681m2, holding approximately 200,000 tons of non-ferrous metals.
   With the LME warehouses, it is easy for the Korean government to obtain non-ferrous
metal in emergencies. This is because the stock-holding capacity is equal to the stock
indirectly for the Korean government for more than one month at a time. In addition,
transportation and insurance costs might also be reduced, resulting in a total cost
savings of around US 12 million dollars.


<Table 7> LME-Listed Warehouses in Korea

                                     Busan Port               Gwangyang Port

      Total space            16,034m2 (4,850 Pyeong)      52,647 m2 (16,000Pyeong)

   Warehouse space            5,721 m2 (1,731 Pyeong)     19,614 m2 (6,000 Pyeong)

      Yard space                      9,880 m2                   32,744 m2

  Stock capacity a day          Approx. 20,000 Tons      Approx. 80,000-90,000 Tons
 Handling capacity of             100,000 Tons             350,000-400,000Tonnes
      warehouse                 (Assumed 4 cycles)           (Assumed 4 cycles)
 Total cargo handling
                                   100,500 Tons              80,000-100,000 Tons
        volume
 Current Stock volume         16,570 Tons (July, 2003)    7,400Tonnes (July, 2003)

   Alliance company              Henry Bath & Son        Henry Bath & Son/Cornelder

Source: Global Enterprise Inc., Seoul, Korea.



                                                  10
   3) Economic Effects of LME-Listed Warehouses in Korea
   The LME warehouses are expected to positively affect the Korean economy on a
regional and national scale, particularly in areas of production and employment related
to non-ferrous metals. It will also contribute to development in additional non-ferrous
metal-related industries that will in turn have positive effects on the regional economy.
In addition, the metal cargoes handled by the LME warehouses will have positive
effects on the competitiveness of the ports and related logistics industries as transporting,
warehousing, materials handling, and assembling will be further developed.

<Table 8> Economic Effects of the LME-Approved Warehouses
                                                                                  (Unit: Mil. Won)
                                       Standard      Production       Income       Employment
                                       Turnover       Creation        Creation       Creation
             Turnover       2001            6,757            10,540       2,429            191
             Creation       2004            9,277            14,471       3,335            263
 Busan
           Construction                     7,069            13,266       3,200            147
               Total
                                          16,346             27,737       6,535            410
             (In 2004)

             Turnover                       4,582             3,763       1,476              33
             Creation                     18,325             15,048       5,902            130
Gwang-
yang       Construction                   15,809             13,866       6,213            135
               Total                      34,134             28,914      12,115            265
Source: The Daewoo Economic Research Institute, KIET, 1999


4. EFFICIENT LOGISTICS MANAGEMENT OF NON-FERROUS METALS IN KOREA
     1) Competitiveness of the LME-Listed Warehouses in Korea
  The LME does not own or operate warehouses, nor does it own the metal the
warehouses contain. It approves warehouse locations with the objective of having a
widespread network throughout the world in important net consumption areas. The
locations must meet appropriate criteria to become LME-listed warehouses.
  First, the warehouse locations must be in proximity to major consumption areas.
Korea is ideally positioned geographically with adjacent countries such as Japan—the
second-largest world economy, and China--the fastest growing economy.
  Second, efficient logistics infrastructures must be established for delivering various
commodities dealing with the warehouse, including the non-ferrous metals. The ports




                                               11
must have appropriate facilities to accommodate large ships, with diverse and good
transport networks around the world.
   Third, the location must have enough additional space that can be used for value-
added logistics activities such as storage, sorting, and labeling.
   Fourth, it must have the facilities to store goods without payment of duty, i.e.: a
designated customs-free zone. It also needs appropriate fiscal and regulatory systems
and to enjoy political and economic stability.


<Table 9> Criteria for the LME-Listed Ports

        Factor                                      Criteria
                            - Proximity to an area of net consumption
      Geography             - Far from production areas for particular metal
                            - Position in main trunk route
                            - Efficient transport infrastructure
    Infrastructures         - Road connection to major highways
                            - Rail loading facilities adjacent to the warehouses
                            - Water loading facilities adjacent to the warehouse
                            - Establishment of international infrastructure
                            - Efficient cargo handling
      Operation             - Efficient warehouse management
                            - Operation know-how
                            - Free logistics and trade moves
                            - Political and economic stability
         Other              - Sound financial and regulatory stability
                            - Advanced financial system

  Considering the criteria for LME-listed warehouses, Korea’s current positions are
shown in Table 10. Two Korean ports approved as LME storage locations have strong
advantages in terms of geographical location, infrastructure, costs and other facilities.




                                           12
<Table 10> SWOT Analysis for the LME-Listed Warehouses in Korea

                     Strengths                                        Weaknesses
 - Proximity to big markets                            - Excessive demand area
 - High variations of gap between supply               - Less comparative advantage of port
    and demand of non-ferrous metal                    - Lack of warehouse operation know-how
 - Low port charges                                    - Disadvantage to attract cargo as late-
 - Large hinterlands in port                              participant
 - Appointed Customs-Free Zone
                Opportunities                                          Threats
 - Continuous port development            - High comparative between the two ports
 - New participants in LME warehouses       within Korea
 - High economic growth rate of Northeast - Possibility for Chinese ports to apply for
    Asia                                    LME warehouse locations
 - Connection of Inter-Korean Railways


  In terms of handling cargo in the LME warehouses, the storage rate of the two ports in
Korea are slightly higher than those in Singapore, while Korean ports charges have an
advantage over other competitive ports.

<Table 11> Rates per ton per day
                                                                                         (Unit: US Cents)

Country Location          Warehouse Company            Copper Lead    Zinc       Alum Nickel      Tin
                      Henry Bath Singapore Pte Ltd        24      -          -     26      29       23
                      C. Steinweg Warehousing(FE)
          Busan                                           24      -          -     26      30       27
                                 Pte Ltd
                       Cornelder Metals(S) Pte Ltd        22      -          -     24      28       26
                      C. Steinweg Warehousing(FE)         24      -          -     26      30       27
 Korea                           Pte Ltd
          Gwang        Cornelder Metals(S) Pte Ltd        22      -          -     24      28       26
           yang
                      Metal Terminals International
                                                          23      -          -     27      29       24
                                  NV
                         Sub-average                    23.2      -          -    25.5   29.0     25.5
 Japan      All        All Warehouse Companies             -      -          -     29        -          -
         Locations
                      C. Steinweg Warehousing(FE)
                                                          24     22     24         26      30       27
                                 Pte Ltd
 Sing-                 Cornelder Metals(S) Pte Ltd        24     23     23         25      28       26
         Singapore
 apore                Delivery Network Singapore
                                                          21     20     22         25      27       23
                                Pte Ltd
                      Henry Bath Singapore Pte Ltd        22     21     21         24      28       23



                                                  13
                     Mac-Nels Warehousing Pte Ltd          22     22     22     25     27     25

                        Sub-average                       22.6   21.6   22.4   25.0   28.0   24.8
                      Average                             22.9   21.6   22.4   25.6   28.5   25.2


<Figure 3> Port Charges of Major Ports in East Asia




Source: Korea Maritime Transport Policy Institute, 1999


     2) Logistics Management Problems in LME-Listed Warehouses
      (1) Lessons from Japanese Locations
  Japan was approved as an LME-listed warehouse location in 1989, the second country
in Asia to do so soon after Singapore. Japan’s stock commodity was limited to
aluminum, which is stored in 6 warehouses around Japan, but the stock level is no more
than 1,000 tons. There are several reasons for Japan’s failure to attract LME cargo. First,
Japan has a weak comparative advantage over Singapore in terms of geographical
location, port charges, and storage rates. Second, the Japanese warehouses are managed
by the subsidiaries of trading corporations and are less efficient due to a lack of
warehouse management know-how. Third, Japanese warehouses only deal with one
metal in its six port warehouses, compared to six metals in Singapore.


       (2) Efficient Management of the LME Warehouses in Korea
  There are several problems with logistics management of Korea’s LME warehouses.
  First, an LME warehouse is generally required to be adjacent to main ports in order to
lower logistics costs. However, the Port of Busan is 8 kilometers away from the LME


                                                  14
warehouse, and the Port of Gwangyang is a specialized container terminal and therefore
has some constraints in using the terminal. The shortage of space in the Busan port also
is an obstacle to increasing its LME cargo.
   Second, an LME warehouse is required to be within a customs-free area wherein any
LME-listed brand of metal may be stored without liability for duties prior to customs
clearance. Since the customs-free zone in Korea is designated in a particular area within
each port, taxes may be considered imposed by the Law on Customs Duties and Law on
Value Added Tax when metal cargoes go through customs lines. Incentives for free
direct tax and rent are also restrictive to attracting foreign companies because the
amount of investment regulated is greater than US $30million for tax exemption.
  Considering these problems, new resolutions, regulations and improvements need to
be instituted for vitalization of the LME warehouses in Korea as follows.
  First, the construction of specialized LME terminals must be planned, which will
contribute to speedy cargo handling and cost-savings. Kamcheon terminal in the Busan
port and Jungma terminal in the Gwangyang port need to be reserved for LME cargoes
only.
  Second, the current laws and regulations on customs-free zones need to be revised, or
there need to be amendments to the Law on Free Trade Zones. Currently the customs-
free zone does not offer any incentives to manufacturing companies. The Law on New
Free Trade Zone, reflecting both the Law on Free Customs Zone and the Free Trade
Zone, currently being discussed, need to be introduced as soon as possible. Third,
economic and financial incentives must be developed and the bulk of tax advantages
must be provided for LME cargo. For example, the incentives for direct taxes and rent
should be developed, lowering restrictions to US $30 million. Incentives for domestics
companies to attract more business within the zone should also be provided. Other taxes
and commission fees must be exempt for LME cargo, i.e.: exemption from direct tax for
exports and imports; commission fees for Bill of Lading in case of separate
warehousing; and B/L for warehousing in and out. Container taxes being imposed in the
Busan port should be removed for LME cargo.
  Last, public and private government and regional organizations need to make efforts
to strengthen public relations and market activities to customers such as: major trading
companies; option dealers; and producers and importers of non-ferrous metals with
long- and medium-range plans and strategies.


5. CONCLUSION




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  The LME warehouses not only play a crucial role in adjusting demand and supply of
non-ferrous metals around world but also contribute to revitalizing ports and developing
regional economies.
  The Busan and Gwangyang ports have great advantages to become LME locations not
just because they are well positioned in trunk shipping routes, but also because
aggressive investments were made for Korea to become a logistics hub of Northeast
Asia. As a result, the two ports were approved as LME-listed warehouse sites in 2003.
  This approval is expected to contribute to attracting cargo and foreign investment by
multinational corporations. It also will assist Korea in becoming a logistics hub of
Northeast Asia, revitalizing port-related industries such as logistics, finance and
manufacturing.
  Nevertheless, cargo volume at the LME warehouses is not satisfactory so far. There
are many reasons responsible for this, such as: a long distance between the terminal and
the LME warehouse; no specialized terminal for LME cargoes; restrictive regulations of
the customs-free zone; and inappropriate incentives for foreign companies, especially
for the LME dealers.
  Therefore, it is recommended that further expansion of port facilities; amendments of
laws and regulatory systems; maintenance of comparative prices for storage and port
handling; and connection of the railways between North and South Korea are needed in
order to stimulate the LME warehouses in Korea.




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posted:4/13/2013
language:English
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