Chapter 83
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Though the Story Mecca critics were expensive, that would not be a big problem because they were not hired for monthly payment, just paid for their reviews. Hyunwoo came out the restaurant and called Kyungsu on this, wondering if he knew about Story Mecca. "Didn't you know that?" asked Kyungsu. "Oh, you knew about it already. Did you ever think of using the critics there for your company?" "I did, but their field is different from ours. We're in the animation business, while their major field is novels. In the animation world, there are not many established critics, and the cost is too much. Actually, I once thought about using them but gave up because I felt I might waste money on a wild goose chase." "In my opinion, I think you can give it a try. Just once. At least, you can take cue from them." "Got it. Let me think about it. Thanks for your kind consideration anyway." In the meantime, Hyunwoo's friends began gathering at the restaurant. The alumni gladly greeted each other. Soon, Hyungsun Kim, who was hosting the meeting, arrived. He arrived 30 minutes late. "Sorry, guys. I was so busy even on a Saturday like this. Long time no see! Oh, you did come!" Hyungsoo showed up, patronizing his friends there. He shook hands with them one by one, going around the table as if he was running for the National Assembly elections. He took out name cards from the gold-plated card purse and gave one to each of them. "I'm the president of Sangwon Foods. Just stop by when you can." His friends asked questions out of courtesy, "How is your business doing these days?" "I feel good about it. Looks like I'm going to hit the jackpot this time. I may be able to grow my company bigger than my father's if everything goes alright." He boasted of his business confidently, but Hyunwoo didn't trust him that much. He was such a big talker during his school days. Nonetheless, he praised Hyungsun out of courtesy. In the meantime, it looked like almost everybody gathered, totalling over 20. Obviously, Hyungsun enthusiastically called everybody for this meeting. The alumni meeting was noisy with everybody talking about Hyungsun's business partly because he led the topic in that direction. "It's my goal, but I think I'm going to overtake my father's business in three years." "What kind of business are you dealing with?" "It's food company. The location is terrific! It's located inside a free-trade zone." "Free-trade zone? What's the benefit of having a company there?" "Well, if you're doing business in a free trade zone, you're exempt from taxes. You can make lots of money by making good use of that." "Really? How?" Everyone got closer to Hyungsu, with their eyes popped. Hyunwoo also got interested. But Hyungsun was hesitant for a moment, scratching his head and said, "Oh, I shouldn't share this kind of information with anybody else…" "What is it?" "How dare you treat your alumni like this? Let's share information." His friends pressed him, asking for his tip, but he kept on hesitating as if it's a top secret. At last, he nodded as if he decided to tell them. "Okay. I can't keep it secret to you, friends. Please shut the door. If this is leaked, it could make them change the law." His friends shut the door quickly. Only then did he lower his voice and told them about his business. "Did you ever hear about a bonded factory?" Some of them knew about it, but others didn't. Hyunwoo heard about it when he was doing some research on customs processing at Aurum. If someone imported products from abroad, he has to pay taxes such as value-added tax, but such taxes are put on hold under certain conditions such as bonded warehouses, bonded factories or bonded construction sites. Bonded warehouses were where the raw materials are piled up without import clearance. And when they need the materials, they take out only the amount of what they need and pay the taxes. Bonded factories offer companies an extended window of tax payment. As for the payment of the taxes, they don't pay taxes upfront when the parts are put into the production line, but when the parts are actually used to make products for final sale. In this process, there occured an important change. The product actually imported from abroad and the products actually made at bonded factories that went through import clearance were completely different products. The tariff rate varied, depending on the characteristics of the products. This is how it goes. Let's take the example of Aurum. Assuming Aurum imported wheels and handles of chairs from Taiwan, the HS code for them is 2.20-0000 and 9401.90-9000 respectively, with the basic tariff rate of 8%. If Aurm imported 100 million won worth of materials, it has to pay eight million won in tariff. However, if Aurum was a bonded factory, the imports are the wheels and handles, but the final products that go through import clearance are the assembled chairs. Namely, the customs clearance and tariff are put on hold until the chairs are assembled with the parts and transported out of the bonded factory. In that case, the HS code for chairs are 9401.30-9000 with a basic tariff rate of 0% under the relevant clause of WTO. In other words, no matter how high the tariff was when they import materials, they wouldn't have to pay any tariff if the tariff rate of the finished products was zero. Of course, there was one specific restriction that applied to bonded factories. Hyunwoo pointed it out, "As far as I know, you can't have a bonded factory for agricultural products." Snapping his fingers, Hyungsun nodded his head and said, "Yes, that's correct. They don't approve bonded factories for agricultural or livestock products. To the best knowledge, there is not a single bonded factory for agricultural or livestock products, but it's different in a free trade zone." Hyunwoo's eyes became a bit wider as he never did any research on free-trade zones. Maybe he could find an opportunity to save on the production cost. Pricking up his ears, he listened to Hyungsun's explanation. "Bonded factories are controlled by customs laws, but the law on free trade zones is different. As a result, there is no prohibition of agricultural or livestock companies' entry into the free trade zone. My company Sangwon Foods could get in thanks to that." Hyunwoo never heard about it before, but Hyungsun would not lie about something that could be verified anytime. "As a matter of fact, it's little different from bonded factories. Thanks to that, I'm getting enormous tax benefits compared to other companies. When they pay 270% in tariff for their imports, we only pay 54%." Hyunwoo's jaws dropped at his explanation. 270% vs 54%? The difference of the tariff ratio was enormous. Another friend asked, "What are you importing?" "The main product of Sangwon Foods is mixed seasoning. To put it easily, it's seasoned-red-pepper sauce. We import chili, onion and garlic from China and make mixed seasoning at a bonded factory." "Then, don't you pay taxes at all?" "No, we do pay taxes, but much less. The tax rate for import chili is 270%, but 54% for mixed seasoning. That's why we can easily beat other rival companies outside the free trade zone." Hyungsun's explanation was appealing enough. How can a company paying 270% in tariff win against competitors paying only 54%? Namely, it was an unfair competition. Not only Hyunwoo but also some other friends who were knowledgeable about customs clearance were just excited and stunned to hear Hyungsun. They realized how enormous the benefits of the free trade zone were. Hyungsun showed condescending attitude to them again, promising something big for the alumni club if he hit a jackpot. Some of the friends cautiously suggested, "Can I make some investment in your company?" "Me, too. I have about 100 million won available at the moment. I was thinking about investing in stocks." Hyungsun narrowed his brow, looking as if he was calculating the gains and costs of his friends' investment. "That sounds good. Actually, I could not expand my business because of a shortage of funds. If you guys want to invest, I could expand it." "Really? Let me invest about 10 million won." "Let me invest 5 million won." The friends gathered there waved their hands, saying they wanted to invest, too. Hyungsun was too excited about his friends' enthusiastic response. Carried away by the atmosphere, Hyunwoo also wanted to invest, feeling he might miss the lost chance later. In particular, Hyungsun singled out Hyunwoo and asked, "Won't you invest in our company, Hyunwoo? You can join us on this occasion, and then you will lead a luxurious life with lots of staff under your management in five years." Hyunwoo was kind of agonized. Of course, he had no desire to move to Sangwon Foods after quitting his current job at Aurum. No matter how much money was offered to him, Hyunwoo didn't want to work with a guy like Hyungsun. What bothered him now was whether he would invest or not. After a brief but hard thinking, Hyunwoo shook his head and said, "I don't have any intention to invest." In fact, what Hyungsun said was all true, but Hyunwoo just could not trust him. It looked like there was some kind of loophole. If what he said was true, it would be normal that the free trade zone should be full of agricultural and livestock factories, but it was not ture. Hyunwoo was careful because Hyungsun gave the impression that Sangwon Foods had been given special treatment. "Well, I can't do anything if you don't want to invest," said Hyungsun, smacking his lips. Then he began to collect the alumni membership dues. "Ooops, let me collect dues." "Dues? Isn't it that you're going to treat us when you called us to gather here?" "Well, that's what I thought." As if they were reluctant to chip in, the alumni members tried to let Hyungsun foot the bill, but Hyungsun was no fool. "Hey, guys, are you financially pinched these days? Are you still thinking of being treated to meal even these days? Give me 50, 000 won each." "That's too much!" "Is the menu here expensive?" The friends were just speechless. They wondered why he was holding such a meeting at a high-end steak house, and it turned out they had to go Dutch. All of them felt as their money was robbed when they took out the money. After the alumni meeting, Hyunwoo looked up the relevant laws on free trade zones. What Hyungsun said was all true, but he thought there might be something he didn't realize because the competitiveness gap between those companies in free trade zones and non-free trade zones was simply too big. In short, it was unjust commercial dealing. Several days later, Hyunwoo stopped by the Ansan Tax Office on his way back from a business trip. Tax Officers Junho Kwak and Yuri Lee gladly greeted him. "Long time no see!" It had been almost one month since they last met. "Yes, I was kind of busy these days. Please help yourself to some watermelon." "Thanks." After exchanging some pleasantries, Hyunwoo asked them about his question about the free trade zone. "Really? An agricultural company was housed in the free trade zone? Which company are you talking about?" asked Junho. At that moment, Hyunwoo suddenly thought he wasn't careful enough. Given Junho's facial expression, he felt he was telling on Hyungsun. Hyunwoo waffled on it, "I really don't know exactly which company it is. I just heard the rumor. I hear the free trade zone doesn't restrict any limits to agricultural or livestock companies. And actually some company was already housed there." "Really? I don't believe so," said Junho scratched his head. Hearing their conversation, Junho's supervisor, sitting quietly in the back, interrupted, "There are not many companies, but surely there are some. It looks like Sangwon Foods was housed in the Pyongtaek Free Trade Zone recently." Junho's eyes became much wider. "Isn't that a big problem?" "Yes, it it. What should we do? We're not the supervising agency. I think they will run into serious trouble if they keep doing business like that." Based on their conversation, Hyunwoo felt there was a big risk in Sangwon's business. The striking example was the smuggling of chili that carried a high tariff. Sangwon Foods imported chili peppers into its bonded factory inside the free trade zone and then transported it out without much surveillance. Then, Sangwon Foods replaced the imported chili with a low quality chili and shipped it back to the import dealer. "There must be someone who watches over them, right?" "Well, ten watchers can't beat one thief. That's why the authorities don't approve any high-risk imports…" In short, this was a institutional loophole in the free trade zone, and there were lots of risks at the state level. It was too obvious that companies like Sangwon Foods housed in the free trade zone could beat its rivals outside the zone. However, the question was whether those companies in free trade zone would play by the rules or not. What the tax officials emphasized was not anything like competitiveness, but such neglect in surveillance could make them arouse greed. That would be same to Sangwon Foods. It would be okay if they were content with the benefits of the free trade zone, but their greed beyond that would bring about the consequences that might make such companies go bankrupt some day. I just wish Hyungsun would not be too greedy.
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Though the Story Mecca critics were expensive, that would not be a big problem because they were not hired for monthly payment, just paid for their reviews. Hyunwoo came out the restaurant and called Kyungsu on this, wondering if he knew about Story Mecca. "Didn't you know that?" asked Kyungsu. "Oh, you knew about it already. Did you ever think of using the critics there for your company?" "I did, but their field is different from ours. We're in the animation business, while their major field is novels. In the animation world, there are not many established critics, and the cost is too much. Actually, I once thought about using them but gave up because I felt I might waste money on a wild goose chase." "In my opinion, I think you can give it a try. Just once. At least, you can take cue from them." "Got it. Let me think about it. Thanks for your kind consideration anyway." In the meantime, Hyunwoo's friends began gathering at the restaurant. The alumni gladly greeted each other. Soon, Hyungsun Kim, who was hosting the meeting, arrived. He arrived 30 minutes late. "Sorry, guys. I was so busy even on a Saturday like this. Long time no see! Oh, you did come!" Hyungsoo showed up, patronizing his friends there. He shook hands with them one by one, going around the table as if he was running for the National Assembly elections. He took out name cards from the gold-plated card purse and gave one to each of them. "I'm the president of Sangwon Foods. Just stop by when you can." His friends asked questions out of courtesy, "How is your business doing these days?" "I feel good about it. Looks like I'm going to hit the jackpot this time. I may be able to grow my company bigger than my father's if everything goes alright." He boasted of his business confidently, but Hyunwoo didn't trust him that much. He was such a big talker during his school days. Nonetheless, he praised Hyungsun out of courtesy. In the meantime, it looked like almost everybody gathered, totalling over 20. Obviously, Hyungsun enthusiastically called everybody for this meeting. The alumni meeting was noisy with everybody talking about Hyungsun's business partly because he led the topic in that direction. "It's my goal, but I think I'm going to overtake my father's business in three years." "What kind of business are you dealing with?" "It's food company. The location is terrific! It's located inside a free-trade zone." "Free-trade zone? What's the benefit of having a company there?" "Well, if you're doing business in a free trade zone, you're exempt from taxes. You can make lots of money by making good use of that." "Really? How?" Everyone got closer to Hyungsu, with their eyes popped. Hyunwoo also got interested. But Hyungsun was hesitant for a moment, scratching his head and said, "Oh, I shouldn't share this kind of information with anybody else…" "What is it?" "How dare you treat your alumni like this? Let's share information." His friends pressed him, asking for his tip, but he kept on hesitating as if it's a top secret. At last, he nodded as if he decided to tell them. "Okay. I can't keep it secret to you, friends. Please shut the door. If this is leaked, it could make them change the law." His friends shut the door quickly. Only then did he lower his voice and told them about his business. "Did you ever hear about a bonded factory?" Some of them knew about it, but others didn't. Hyunwoo heard about it when he was doing some research on customs processing at Aurum. If someone imported products from abroad, he has to pay taxes such as value-added tax, but such taxes are put on hold under certain conditions such as bonded warehouses, bonded factories or bonded construction sites. Bonded warehouses were where the raw materials are piled up without import clearance. And when they need the materials, they take out only the amount of what they need and pay the taxes. Bonded factories offer companies an extended window of tax payment. As for the payment of the taxes, they don't pay taxes upfront when the parts are put into the production line, but when the parts are actually used to make products for final sale. In this process, there occured an important change. The product actually imported from abroad and the products actually made at bonded factories that went through import clearance were completely different products. The tariff rate varied, depending on the characteristics of the products. This is how it goes. Let's take the example of Aurum. Assuming Aurum imported wheels and handles of chairs from Taiwan, the HS code for them is 2.20-0000 and 9401.90-9000 respectively, with the basic tariff rate of 8%. If Aurm imported 100 million won worth of materials, it has to pay eight million won in tariff. However, if Aurum was a bonded factory, the imports are the wheels and handles, but the final products that go through import clearance are the assembled chairs. Namely, the customs clearance and tariff are put on hold until the chairs are assembled with the parts and transported out of the bonded factory. In that case, the HS code for chairs are 9401.30-9000 with a basic tariff rate of 0% under the relevant clause of WTO. In other words, no matter how high the tariff was when they import materials, they wouldn't have to pay any tariff if the tariff rate of the finished products was zero. Of course, there was one specific restriction that applied to bonded factories. Hyunwoo pointed it out, "As far as I know, you can't have a bonded factory for agricultural products." Snapping his fingers, Hyungsun nodded his head and said, "Yes, that's correct. They don't approve bonded factories for agricultural or livestock products. To the best knowledge, there is not a single bonded factory for agricultural or livestock products, but it's different in a free trade zone." Hyunwoo's eyes became a bit wider as he never did any research on free-trade zones. Maybe he could find an opportunity to save on the production cost. Pricking up his ears, he listened to Hyungsun's explanation. "Bonded factories are controlled by customs laws, but the law on free trade zones is different. As a result, there is no prohibition of agricultural or livestock companies' entry into the free trade zone. My company Sangwon Foods could get in thanks to that." Hyunwoo never heard about it before, but Hyungsun would not lie about something that could be verified anytime. "As a matter of fact, it's little different from bonded factories. Thanks to that, I'm getting enormous tax benefits compared to other companies. When they pay 270% in tariff for their imports, we only pay 54%." Hyunwoo's jaws dropped at his explanation. 270% vs 54%? The difference of the tariff ratio was enormous. Another friend asked, "What are you importing?" "The main product of Sangwon Foods is mixed seasoning. To put it easily, it's seasoned-red-pepper sauce. We import chili, onion and garlic from China and make mixed seasoning at a bonded factory." "Then, don't you pay taxes at all?" "No, we do pay taxes, but much less. The tax rate for import chili is 270%, but 54% for mixed seasoning. That's why we can easily beat other rival companies outside the free trade zone." Hyungsun's explanation was appealing enough. How can a company paying 270% in tariff win against competitors paying only 54%? Namely, it was an unfair competition. Not only Hyunwoo but also some other friends who were knowledgeable about customs clearance were just excited and stunned to hear Hyungsun. They realized how enormous the benefits of the free trade zone were. Hyungsun showed condescending attitude to them again, promising something big for the alumni club if he hit a jackpot. Some of the friends cautiously suggested, "Can I make some investment in your company?" "Me, too. I have about 100 million won available at the moment. I was thinking about investing in stocks." Hyungsun narrowed his brow, looking as if he was calculating the gains and costs of his friends' investment. "That sounds good. Actually, I could not expand my business because of a shortage of funds. If you guys want to invest, I could expand it." "Really? Let me invest about 10 million won." "Let me invest 5 million won." The friends gathered there waved their hands, saying they wanted to invest, too. Hyungsun was too excited about his friends' enthusiastic response. Carried away by the atmosphere, Hyunwoo also wanted to invest, feeling he might miss the lost chance later. In particular, Hyungsun singled out Hyunwoo and asked, "Won't you invest in our company, Hyunwoo? You can join us on this occasion, and then you will lead a luxurious life with lots of staff under your management in five years." Hyunwoo was kind of agonized. Of course, he had no desire to move to Sangwon Foods after quitting his current job at Aurum. No matter how much money was offered to him, Hyunwoo didn't want to work with a guy like Hyungsun. What bothered him now was whether he would invest or not. After a brief but hard thinking, Hyunwoo shook his head and said, "I don't have any intention to invest." In fact, what Hyungsun said was all true, but Hyunwoo just could not trust him. It looked like there was some kind of loophole. If what he said was true, it would be normal that the free trade zone should be full of agricultural and livestock factories, but it was not ture. Hyunwoo was careful because Hyungsun gave the impression that Sangwon Foods had been given special treatment. "Well, I can't do anything if you don't want to invest," said Hyungsun, smacking his lips. Then he began to collect the alumni membership dues. "Ooops, let me collect dues." "Dues? Isn't it that you're going to treat us when you called us to gather here?" "Well, that's what I thought." As if they were reluctant to chip in, the alumni members tried to let Hyungsun foot the bill, but Hyungsun was no fool. "Hey, guys, are you financially pinched these days? Are you still thinking of being treated to meal even these days? Give me 50, 000 won each." "That's too much!" "Is the menu here expensive?" The friends were just speechless. They wondered why he was holding such a meeting at a high-end steak house, and it turned out they had to go Dutch. All of them felt as their money was robbed when they took out the money. After the alumni meeting, Hyunwoo looked up the relevant laws on free trade zones. What Hyungsun said was all true, but he thought there might be something he didn't realize because the competitiveness gap between those companies in free trade zones and non-free trade zones was simply too big. In short, it was unjust commercial dealing. Several days later, Hyunwoo stopped by the Ansan Tax Office on his way back from a business trip. Tax Officers Junho Kwak and Yuri Lee gladly greeted him. "Long time no see!" It had been almost one month since they last met. "Yes, I was kind of busy these days. Please help yourself to some watermelon." "Thanks." After exchanging some pleasantries, Hyunwoo asked them about his question about the free trade zone. "Really? An agricultural company was housed in the free trade zone? Which company are you talking about?" asked Junho. At that moment, Hyunwoo suddenly thought he wasn't careful enough. Given Junho's facial expression, he felt he was telling on Hyungsun. Hyunwoo waffled on it, "I really don't know exactly which company it is. I just heard the rumor. I hear the free trade zone doesn't restrict any limits to agricultural or livestock companies. And actually some company was already housed there." "Really? I don't believe so," said Junho scratched his head. Hearing their conversation, Junho's supervisor, sitting quietly in the back, interrupted, "There are not many companies, but surely there are some. It looks like Sangwon Foods was housed in the Pyongtaek Free Trade Zone recently." Junho's eyes became much wider. "Isn't that a big problem?" "Yes, it it. What should we do? We're not the supervising agency. I think they will run into serious trouble if they keep doing business like that." Based on their conversation, Hyunwoo felt there was a big risk in Sangwon's business. The striking example was the smuggling of chili that carried a high tariff. Sangwon Foods imported chili peppers into its bonded factory inside the free trade zone and then transported it out without much surveillance. Then, Sangwon Foods replaced the imported chili with a low quality chili and shipped it back to the import dealer. "There must be someone who watches over them, right?" "Well, ten watchers can't beat one thief. That's why the authorities don't approve any high-risk imports…" In short, this was a institutional loophole in the free trade zone, and there were lots of risks at the state level. It was too obvious that companies like Sangwon Foods housed in the free trade zone could beat its rivals outside the zone. However, the question was whether those companies in free trade zone would play by the rules or not. What the tax officials emphasized was not anything like competitiveness, but such neglect in surveillance could make them arouse greed. That would be same to Sangwon Foods. It would be okay if they were content with the benefits of the free trade zone, but their greed beyond that would bring about the consequences that might make such companies go bankrupt some day. I just wish Hyungsun would not be too greedy.
Though the Story Mecca critics were expensive, that would not be a big problem because they were not hired for monthly payment, just paid for their reviews. Hyunwoo came out the restaurant and called Kyungsu on this, wondering if he knew about Story Mecca. "Didn't you know that?" asked Kyungsu. "Oh, you knew about it already. Did you ever think of using the critics there for your company?" "I did, but their field is different from ours. We're in the animation business, while their major field is novels. In the animation world, there are not many established critics, and the cost is too much. Actually, I once thought about using them but gave up because I felt I might waste money on a wild goose chase." "In my opinion, I think you can give it a try. Just once. At least, you can take cue from them." "Got it. Let me think about it. Thanks for your kind consideration anyway." In the meantime, Hyunwoo's friends began gathering at the restaurant. The alumni gladly greeted each other. Soon, Hyungsun Kim, who was hosting the meeting, arrived. He arrived 30 minutes late. "Sorry, guys. I was so busy even on a Saturday like this. Long time no see! Oh, you did come!" Hyungsoo showed up, patronizing his friends there. He shook hands with them one by one, going around the table as if he was running for the National Assembly elections. He took out name cards from the gold-plated card purse and gave one to each of them. "I'm the president of Sangwon Foods. Just stop by when you can." His friends asked questions out of courtesy, "How is your business doing these days?" "I feel good about it. Looks like I'm going to hit the jackpot this time. I may be able to grow my company bigger than my father's if everything goes alright." He boasted of his business confidently, but Hyunwoo didn't trust him that much. He was such a big talker during his school days. Nonetheless, he praised Hyungsun out of courtesy. In the meantime, it looked like almost everybody gathered, totalling over 20. Obviously, Hyungsun enthusiastically called everybody for this meeting. The alumni meeting was noisy with everybody talking about Hyungsun's business partly because he led the topic in that direction. "It's my goal, but I think I'm going to overtake my father's business in three years." "What kind of business are you dealing with?" "It's food company. The location is terrific! It's located inside a free-trade zone." "Free-trade zone? What's the benefit of having a company there?" "Well, if you're doing business in a free trade zone, you're exempt from taxes. You can make lots of money by making good use of that." "Really? How?" Everyone got closer to Hyungsu, with their eyes popped. Hyunwoo also got interested. But Hyungsun was hesitant for a moment, scratching his head and said, "Oh, I shouldn't share this kind of information with anybody else" "What is it?" "How dare you treat your alumni like this? Let's share information." His friends pressed him, asking for his tip, but he kept on hesitating as if it's a top secret. At last, he nodded as if he decided to tell them. "Okay. I can't keep it secret to you, friends. Please shut the door. If this is leaked, it could make them change the law." His friends shut the door quickly. Only then did he lower his voice and told them about his business. "Did you ever hear about a bonded factory?" Some of them knew about it, but others didn't. Hyunwoo heard about it when he was doing some research on customs processing at Aurum. If someone imported products from abroad, he has to pay taxes such as value-added tax, but such taxes are put on hold under certain conditions such as bonded warehouses, bonded factories or bonded construction sites. Bonded warehouses were where the raw materials are piled up without import clearance. And when they need the materials, they take out only the amount of what they need and pay the taxes. Bonded factories offer companies an extended window of tax payment. As for the payment of the taxes, they don't pay taxes upfront when the parts are put into the production line, but when the parts are actually used to make products for final sale. In this process, there occured an important change. The product actually imported from abroad and the products actually made at bonded factories that went through import clearance were completely different products. The tariff rate varied, depending on the characteristics of the products. This is how it goes. Let's take the example of Aurum. Assuming Aurum imported wheels and handles of chairs from Taiwan, the HS code for them is 2.20-0000 and 9401.90-9000 respectively, with the basic tariff rate of 8%. If Aurm imported 100 million won worth of materials, it has to pay eight million won in tariff. However, if Aurum was a bonded factory, the imports are the wheels and handles, but the final products that go through import clearance are the assembled chairs. Namely, the customs clearance and tariff are put on hold until the chairs are assembled with the parts and transported out of the bonded factory. In that case, the HS code for chairs are 9401.30-9000 with a basic tariff rate of 0% under the relevant clause of WTO. In other words, no matter how high the tariff was when they import materials, they wouldn't have to pay any tariff if the tariff rate of the finished products was zero. Of course, there was one specific restriction that applied to bonded factories. Hyunwoo pointed it out, "As far as I know, you can't have a bonded factory for agricultural products." Snapping his fingers, Hyungsun nodded his head and said, "Yes, that's correct. They don't approve bonded factories for agricultural or livestock products. To the best knowledge, there is not a single bonded factory for agricultural or livestock products, but it's different in a free trade zone." Hyunwoo's eyes became a bit wider as he never did any research on free-trade zones. Maybe he could find an opportunity to save on the production cost. Pricking up his ears, he listened to Hyungsun's explanation. "Bonded factories are controlled by customs laws, but the law on free trade zones is different. As a result, there is no prohibition of agricultural or livestock companies' entry into the free trade zone. My company Sangwon Foods could get in thanks to that." Hyunwoo never heard about it before, but Hyungsun would not lie about something that could be verified anytime. "As a matter of fact, it's little different from bonded factories. Thanks to that, I'm getting enormous tax benefits compared to other companies. When they pay 270% in tariff for their imports, we only pay 54%." Hyunwoo's jaws dropped at his explanation. 270% vs 54%? The difference of the tariff ratio was enormous. Another friend asked, "What are you importing?" "The main product of Sangwon Foods is mixed seasoning. To put it easily, it's seasoned-red-pepper sauce. We import chili, onion and garlic from China and make mixed seasoning at a bonded factory." "Then, don't you pay taxes at all?" "No, we do pay taxes, but much less. The tax rate for import chili is 270%, but 54% for mixed seasoning. That's why we can easily beat other rival companies outside the free trade zone." Hyungsun's explanation was appealing enough. How can a company paying 270% in tariff win against competitors paying only 54%? Namely, it was an unfair competition. Not only Hyunwoo but also some other friends who were knowledgeable about customs clearance were just excited and stunned to hear Hyungsun. They realized how enormous the benefits of the free trade zone were. Hyungsun showed condescending attitude to them again, promising something big for the alumni club if he hit a jackpot. Some of the friends cautiously suggested, "Can I make some investment in your company?" "Me, too. I have about 100 million won available at the moment. I was thinking about investing in stocks." Hyungsun narrowed his brow, looking as if he was calculating the gains and costs of his friends' investment. "That sounds good. Actually, I could not expand my business because of a shortage of funds. If you guys want to invest, I could expand it." "Really? Let me invest about 10 million won." "Let me invest 5 million won." The friends gathered there waved their hands, saying they wanted to invest, too. Hyungsun was too excited about his friends' enthusiastic response. Carried away by the atmosphere, Hyunwoo also wanted to invest, feeling he might miss the lost chance later. In particular, Hyungsun singled out Hyunwoo and asked, "Won't you invest in our company, Hyunwoo? You can join us on this occasion, and then you will lead a luxurious life with lots of staff under your management in five years." Hyunwoo was kind of agonized. Of course, he had no desire to move to Sangwon Foods after quitting his current job at Aurum. No matter how much money was offered to him, Hyunwoo didn't want to work with a guy like Hyungsun. What bothered him now was whether he would invest or not. After a brief but hard thinking, Hyunwoo shook his head and said, "I don't have any intention to invest." In fact, what Hyungsun said was all true, but Hyunwoo just could not trust him. It looked like there was some kind of loophole. If what he said was true, it would be normal that the free trade zone should be full of agricultural and livestock factories, but it was not ture. Hyunwoo was careful because Hyungsun gave the impression that Sangwon Foods had been given special treatment. "Well, I can't do anything if you don't want to invest," said Hyungsun, smacking his lips. Then he began to collect the alumni membership dues. "Ooops, let me collect dues." "Dues? Isn't it that you're going to treat us when you called us to gather here?" "Well, that's what I thought." As if they were reluctant to chip in, the alumni members tried to let Hyungsun foot the bill, but Hyungsun was no fool. "Hey, guys, are you financially pinched these days? Are you still thinking of being treated to meal even these days? Give me 50, 000 won each." "That's too much!" "Is the menu here expensive?" The friends were just speechless. They wondered why he was holding such a meeting at a high-end steak house, and it turned out they had to go Dutch. All of them felt as their money was robbed when they took out the money. After the alumni meeting, Hyunwoo looked up the relevant laws on free trade zones. What Hyungsun said was all true, but he thought there might be something he didn't realize because the competitiveness gap between those companies in free trade zones and non-free trade zones was simply too big. In short, it was unjust commercial dealing. Several days later, Hyunwoo stopped by the Ansan Tax Office on his way back from a business trip. Tax Officers Junho Kwak and Yuri Lee gladly greeted him. "Long time no see!" It had been almost one month since they last met. "Yes, I was kind of busy these days. Please help yourself to some watermelon." "Thanks." After exchanging some pleasantries, Hyunwoo asked them about his question about the free trade zone. "Really? An agricultural company was housed in the free trade zone? Which company are you talking about?" asked Junho. At that moment, Hyunwoo suddenly thought he wasn't careful enough. Given Junho's facial expression, he felt he was telling on Hyungsun. Hyunwoo waffled on it, "I really don't know exactly which company it is. I just heard the rumor. I hear the free trade zone doesn't restrict any limits to agricultural or livestock companies. And actually some company was already housed there." "Really? I don't believe so," said Junho scratched his head. Hearing their conversation, Junho's supervisor, sitting quietly in the back, interrupted, "There are not many companies, but surely there are some. It looks like Sangwon Foods was housed in the Pyongtaek Free Trade Zone recently." Junho's eyes became much wider. "Isn't that a big problem?" "Yes, it it. What should we do? We're not the supervising agency. I think they will run into serious trouble if they keep doing business like that." Based on their conversation, Hyunwoo felt there was a big risk in Sangwon's business. The striking example was the smuggling of chili that carried a high tariff. Sangwon Foods imported chili peppers into its bonded factory inside the free trade zone and then transported it out without much surveillance. Then, Sangwon Foods replaced the imported chili with a low quality chili and shipped it back to the import dealer. "There must be someone who watches over them, right?" "Well, ten watchers can't beat one thief. That's why the authorities don't approve any high-risk imports" In short, this was a institutional loophole in the free trade zone, and there were lots of risks at the state level. It was too obvious that companies like Sangwon Foods housed in the free trade zone could beat its rivals outside the zone. However, the question was whether those companies in free trade zone would play by the rules or not. What the tax officials emphasized was not anything like competitiveness, but such neglect in surveillance could make them arouse greed. That would be same to Sangwon Foods. It would be okay if they were content with the benefits of the free trade zone, but their greed beyond that would bring about the consequences that might make such companies go bankrupt some day. I just wish Hyungsun would not be too greedy.
