Korea’s hobbled furniture industry

Korea’s furniture industry is at bay. Hobbled by listless demand and import tariffs that raise raw materials costs, domestic furniture makers are fighting for their lives while global giants flood the local market, unfettered by tariff-free entry.

Sweden-based Ikea, the world’s largest furniture maker, is seeking a large plot of land for a warehouse store in the Seoul metropolitan area as it seeks to directly enter the Korean market.

Nobilia, a German kitchen furnishing brand that’s No. 1 in Europe, has opened a store in Nonhyeon-dong, southern Seoul, while Gautier, the top high-end furniture brand in France, recently opened a store in Bangbae-dong, southern Seoul.

Global leader Ikea has gained its status from competitive prices through vertical integration spanning everything from raw material production and design to distribution. But domestic furniture makers say that they cannot even dream of competing on price due to restrictive government regulations.

Korea imposes a high tariff on imported particle board - the material most affordable furniture is made of - that raises raw material prices and undercuts competitiveness.

Most particle board is subject to a tariff of 15.67 percent, composed of a basic duty of 8 percent, plus an additional 7.67 percent anti-dumping tariff the government imposed on particle board from Thailand or Malaysia, because it was deemed a threat to local particle board manufacturers.

There are, however, no tariffs on most furniture imports due to WTO agreements. “As local production costs increased drastically, most domestic furniture companies have turned to importers, rather than making their furniture in Korea,” said Hong Byung-ki, executive director of the Korea Furniture Association.

The anti-dumping tariffs will be in place until April 2012 but can be renewed by the Ministry of Knowledge Economy if an industry makes the request by November. And the Korea Wood Panel Association (KWPA), comprised of particle board makers Dongwha Co., Daeseong Wood and Sungchang Enterprise, intends to do so.

The KWPA says that extending the anti-dumping tariffs is necessary for its survival.

The furniture industry isn’t happy about it. Industry sources say particle board takes up 60 to 70 percent of the production costs of some items. On top of that, Korean furniture companies say that only 60 percent of local particle board demand is met by domestic manufacturing, making imports essential.

The high cost of environmentally friendly raw materials has proven to be an additional burden. The government requires all brand-name furniture to only use environmentally friendly materials, but nonbrand furniture is excluded from the requirement, forcing manufacturers to limit production and keep costs high.

“If the government barred manufacturers from making low-grade materials that are not environment-friendly altogether, it would be good for public health and drop the price of environment-friendly materials,” said an official at Hanssem, the No. 1 domestic furniture company in terms of market share.

The KWPA, meanwhile, isn’t apologizing for limiting Korean furniture makers’ access to foreign-made particle board. “Because a domestic particle board industry exists, the furniture industry can have a reliable source for its raw materials,” said KWPA official Jeong Ha-hyeon.

By Choi Ji-young [joyce@joongang.co.kr]