South Korea - Fragmentation or Cooperation in Global Resource Governance?

Hanns Günther Hilpert*

Due to its highly specialized industrial production, South Korea is heavily dependent on reliable imports of raw materials. In order to secure supply in the long term, a program for systematic procurement and development of foreign sources of raw materials, with an allocation in the national budget, was initiated in 2001. The development of organizational and indus-trial competence in the raw materials sector, the establishment of a recycling industry, and state-run reserve management and stockpiling of critical raw materials complete the South Korean supply strategy.

Minerals in the National Economy

South Korea is a young, modern, industrialized coun-try with specific competitive advantages in the steel, shipbuilding, plant engineering, vehicles, electronics, and information technology sectors. Due to a lack of domestic raw materials, manufacturing production is heavily dependent on imports for metals (99 percent) and minerals (29 percent),¹

With a share of 0.1 percent of global production of non-energy raw materials (by volume), South Korea is one of the G20 countries with a small extractive sec-tor.

as well as for refinery and industrial supplies, which are primarily obtained from Japan.

2 Raw materials also play a secondary role in South Korea’s national economy and exports. In 2010, non-energy minerals and metals accounted for 6.7 percent of total exports.³

* The author would like to thank Malte Paolo Benjamins for his research and assistance.

1 Data from the Korea Institute of Geoscience and Mineral Resources (KIGAM).

2 Österreichisches Bundesministerium für Wirtschaft, Familie und Jugend (BMWFJ), World Mining Data 2012 (Vienna, 2012), http://www.bmwfj.gv.at/EnergieUndBergbau/Welt BergbauDaten/Documents/WMD2012druckbar.pdf (accessed February 27, 2013).

3 Trade Competitiveness Map, ed., Trade Performance HS:

Exports of Korea, Republic of, 2010 (in USD thousands), http://legacy.

% &%#$ "" &*$'"*#+

2010 (accessed May 9, 2012). The proportion refers to

HS-*$&+QQQQQQQQQQa%#

While the country possesses relatively large depos-its of non-metallic minerals (feldspar, limestone, siliceous earth, quartz sand, sulfur, serpentine, talc, zeolite), it has only limited domestic deposits of metals (gold, iron, lead, molybdenum, silver, tita-nium, tungsten, zinc). In 2010, only gold, limestone, and sulfur exceeded the US$100-million threshold.

On a global scale, South Korea is the second-largest $& $8''4& &%`%d the third-largest of talc (9.6 percent),⁵ although the cadmium originates not from domestic extraction, but from the smelting of imported zinc and lead ores. Otherwise, South Korea produces raw materials in small quan-tities, as evidenced by its small shares of global pro-duction (feldspar 2.3 percent, gold 0.01 percent, iron 0.02 percent, kaolin 3.3 percent, silver 0.01 percent, titanium 1.1 percent).⁶

Mining and production are, however, expanding.

Woulfe Mining, a Canadian-South Korean joint ven-ture, is leading a consortium reopening an abandoned tungsten mine and is prospecting for gold in an aban-doned Korean deposit. Mining and processing of tung-sten is scheduled to start in 2013.⁷ As documented by this and other examples,

The northern part of the Korean peninsula is en-dowed with far greater mineral resources than the South. Although little is known about the size of the deposits or actual production volumes, it is certain that North Korea possesses major deposits of

foreign direct investment in the South Korean raw materials sector is welcomed, as it introduces innovative modern mining and process-ing technologies.

4 Production value according to KIGAM. Conversion into US$

at current exchange rates.

5 Lin Shi, “Republic of Korea [Advance Release],” in USGS, 2010 Minerals Yearbook, vol. 3, Area Reports, International (Reston, April 2012), p. 15.1, http://minerals.usgs.gov/minerals/pubs/

country/2010/myb3-2010-+#84&++&]=Q`#

6 BMWFJ, World Mining Data 2012 (see note 2).

7 Frank Robaschik, “Förderung von Rohstoffen wird in Korea (Rep.) wieder attraktiver,” GTAIQ QQ^""#

#&""!<$%"" &"'& &Q#' (accessed August 15, 2012).

8 For example gold mining by the Canadian Ivanhoe Mines Ltd. and the investment in Korean uranium mining by the Australian enterprise Stonehenge Metals Ltd.

spar, gold, graphite, iron ore, lead, magnesium, rare earth elements, silver, tungsten, and zinc. Iron ore, tungsten, and zinc are currently mined. Upbeat esti-mates claim North Korean mining deposits are worth US$6 trillion.⁹

Its large industrial production makes South Korea one of the most important consumers of raw materials and one of the world’s leading importers of commod-ity metals, non-ferrous metals, and rare metals. South Korean supplies of certain minerals are highly con-centrated. In 2011, for example, 99 percent of its

mag%&+'%& &%$8+ && '$ +$ -nated from China, and 91 percent of lithium imports came from Chile.

Foreign investment into the North Korean raw materials sector is almost exclusively in Chinese hands. So far, South Korea has no access to deposits in the North.

Although the state-owned Korea Resource Corp.

(KORES) is the country’s largest and most important raw materials enterprise, the industry is in fact domi-nated by private enterprises, including a number of industrial heavyweights. South Korea is one of leading countries for smelting and metal processing. Posco, the world’s third-biggest steel producer, is active in raw material importation and processing, and par-ticipates in a number of mining projects in Australia and Brazil. According to Posco, raw material inputs today make up roughly 70 percent of the total costs of producing steel. Korea Zinc, which claims to be the largest zinc producer worldwide with a global market + &$8& &%Q &8%&+%Q$& Q gold, lead, and silver in Korea and abroad. Major resource trading companies with an emphasis on metals include Daewoo International, Samsung C&T, and LG Inter-national. Daewoo and LG have extended their port-folios vertically through direct investment in foreign mines (copper, lithium, nickel, zinc). SK Networks and LS Nikko have also invested in mining and processing overseas (copper, gold, lead, nickel, zinc). LS Nikko also operates a major copper smelting and processing

9 Adam Currie, “Could North Korea Be the Next Rare Earth Power House?” Rare Earth Investing News, August 20, 2012, http://rareearthinvestingnews.com (accessed August 31, 2012); Lin Shi, “North Korea [Advance Release],” in USGS, 2010 Minerals Yearbook, vol. 3, Area Reports, International (Reston, July 2012), http://minerals.usgs.gov/minerals/pubs/country/

2010/myb3-2010-kn.pdf (accessed August 31, 2012).

10 Frank Robaschik, “Korea (Rep.) steckt Milliarden in Roh-stofferschließung im Ausland,” GTAI, March 30, 2012, http://www.gtai.de/GTAI/Navigation/DE/Trade/maerkte,did=

#'4&++&]=Q`#

plant in Korea and is expanding its activities into rare earths, deep-sea mining, and recycling.

The recycling sector is in a nascent phase. The recycling rate for electronic scrap rose from 17

per-&%%$& &%%# &=%%+-try association was established in April 2011, and in May 2011 a subsidiary of LS Nikko opened the first recycling smelter for copper, gold, silver, and other metals.¹¹

The Raw Materials Policy

South Korea’s raw materials debate is rooted in a consensual recognition that value creation in manu-facturing is the basis of the nation’s economic growth and prosperity, and that hardly any other country is so dependent on reliable imports of energy and resources as resource-poor and highly-industrialized South Korea. Rising and volatile commodity prices, the growing resource nationalism of certain emerg-ing economies, and concentration tendencies in the global resources industry create an increasing sense of the vulnerability of the domestic manufacturing base. Moreover, major challenges emanate both from China, which has been restricting its raw materials exports and aggressively expanding resource invest-ment overseas, and from Japan, which is a leader in metal production and processing. Sandwiched between these two heavyweights, South Korea’s manu-facturing industry suffers from a lack of raw material resources and a weak supporting industry. Trapped between China and Japan, industrial strategies to escape this position include securing overseas raw materials supplies, stockpiling reserves, technological innovation, and developing a recycling industry.¹²

11 Robaschik, “Förderung von Rohstoffen wird in Korea (Rep.) wieder attraktiver” (see note

In contrast to many other political issues, the raw mate-rials debate is not ideologically driven. There are con-troversies regarding the environmental sustainability,

7).

12 Jung-chan Bae, “Strategies and Perspectives for Securing Rare Metals in Korea,” in Critical Elements for New Energy Tech-nologies: An MIT Energy Initiative Workshop Report, April 29, 2010 (Boston, 2010), p. 129, http://web.mit.edu/miteicomm/web/

reports/critical_elements/CritElem_Report_Final.pdf (accessed August 15, 2012); Stefania Paladini, “Shopping Abroad the Korean Way: A Study in Resource Acquisition,”

in Korea 2011: Politics, Economy, and Society, ed. Rüdiger Frank et al., Korea Yearbook 5 (Leiden, 2`Q#–50; Robaschik,

“Korea (Rep) steckt Milliarden in Rohstofferschließung im Ausland” (see note 10).

The Raw Materials Policy

the relationship between mining and development cooperation, the role of the state, and efficient use of government funds. Raw material supply issues have received even greater political attention since the conservative President Lee Myung-bak (former CEO of Hyundai Construction Corp. and close to South Korea’s business community) came to power in =#

Institutional Setting

Numerous institutions and organizations deal with raw materials policy and the raw materials economy.

The Ministry of Knowledge Economy (MKE) is respon-sible for industry, technology, regional development, trade, international cooperation, energy, and re-sources, and is the central actor designing and coordi-nating raw materials policy. Two units with around twenty staff are responsible for metals and minerals.

Their tasks include monitoring imports, contingency planning, defining criticality (of raw materials) and identifying strategic resources, managing reserves, and raising funds for investment in exploration and resource development overseas. The technology divi-sions of the MKE are responsible for promoting inno-vation and new technologies, including material sub-stitution, recycling, and rare earth processing. A mine registration office and four local mine safety offices are attached to the MKE. The Korea Energy Economics Institute (KEEI), which is answerable to the MKE, analyzes economic, political, and technological trends in the resources sector and provides the MKE with statistical information, expert reports, and advice.

All other ministries play only a complementary or supportive role in raw materials policy. The Ministry of Environment (ME) is in charge of planning in the recycling sector, the Ministry of Strategy and Finance (MOSF) is responsible for approving budgets and managing stockpiling, the Ministry of Land, Trans-port, and Maritime Affairs (MLTM) arranges domestic exploration, the Ministry for Foreign Affairs and Trade (MFAT) is responsible for trade policy and develop-ment cooperation, and the MKE itself is in charge of industrial policy (for example supervising the research programs of the Korean Institute for Rare Metals, KIRAM). Where necessary, the Prime Minister’s Office coordinates the ministries. Legislation is the respon-sibility of the National Assembly (Gukhoe).

The interests of South Korea’s raw materials indus-try are represented and promoted by the Energy and

Mineral Resources Development Association of Korea 4]`Q&+X+&%#+&+&'³$ +&-owned enterprises (KNOC, KOGAS, KORES, KEPCO),¹³

The fully state-owned Korea Resources Corp.

(KORES) plays a central role in the practical imple-mentation of the government’s raw materials con-cepts and strategies. Founded in 1967, its official task is to ensure a stable supply of mineral resources by focusing on three tasks:

virtually all large private sector companies producing or consuming raw materials are members of EMRD, which participates in the drafting of national strat-egies and concrete measures. EMRD takes an active role in policy implementation, for example in infor-mation dissemination, personnel training, and credit risk management.

Various government institutions support South Korean mining investments overseas, in particular Korea Export-Import Bank (KEXIM), which grants loans and guarantees; Korea Trade Insurance Group (K-sure), which insures political and economic risks; and the Korea Trade-Investment Promotion Agency (KOTRA), which provides foreign trade-related information and services in its 111 offices worldwide. The Korea Insti-tute of Geoscience and Mineral Resources (KIGAM) is the country’s leading geological research institute, X&$8Y['$%%Q$8 percent came from government sources. The Institute employs 350 staff, including 302 researchers and engi-neers, to explore and assess mineral deposits in South Korea, abroad, and under the oceans; to develop new technologies for mining, recycling, and waste manage-ment; to supply knowledge and information to Korean

developing mineral re-sources overseas (as consultant, investor, creditor, and consortium leader); supplying technical and organiza-tional support and credit to Korean mining compa-nies; and stockpiling mineral resources itself. To allow it to fulfil these obligations, its authorized capital was +&8 $'$QX$%$%4 $#Y[#

billion) in 2009. KORES aims to become one of the world’s twenty largest mining companies by 2025.

Privatization of KORES is not planned. KORES has com-mitted itself to observing various international stan-dards such as the UN Global Compact, ISO 26000, and the World Bank’s Environment, Health, and Safety Guidelines.

13 KNOC = Korea National Oil Corporation, KOGAS = Korea Gas Corporation, KEPCO = Korea Electric Power Corporation.

14 See article 1 of the Korea Resources Corporation Act,

^""&%#$ &+#$ # ^"'+"&%"'+" &+$ &+"$%"

eng_law1.pdf (accessed August 15, 2012).

businesses; and to teach geosciences to foreign special-ists. KIGAM attaches great importance to international cooperation and invests extensively in exchanges of scientists, engineers, and students, as well as orga-nizing joint international research conferences and projects and conducting joint exploration projects abroad.¹⁵

Concepts and Strategies

Presently, exploration activities focus on the DR Congo, Mongolia, Peru, Uzbekistan, and Vietnam.

Two new copper deposits have been discovered in Peru.

MKE’s Basic Plan for the Development of Foreign Resources contains South Korea’s authoritative raw materials strategy.¹⁶

15 KIGAM, Annual Report 2011 (Daejeon, 2012).

In legal terms, the Basic Plan is not a law but merely a government document, on the basis of which the MKE spends funds for specified purposes and co-operates with the private sector. Since the MKE pub-lished the first Basic Plan in February 2001 it has been revised every three years, most recently in 2010. The basic plan originally named the energy resources of oil, gas, bituminous coal, and uranium, as well as non-energy resources copper, iron ore, nickel, and zinc as strategic. Lithium and rare earth elements were added in 2010. Identification as a strategic resource is a pre-condition for the allocation of budget funding, which in the case of non-energy metallic resources amounted

16 Jisik Gyongje Bu, Je Sacha Hae Oi Ja Won Gae Bal Gibon Gye Hoek 2010–2019 [Ministry of Knowledge Economy, Basic Plan for the Development of Foreign Resources] (Seoul, 2010).

to roughly 90 billion won (ca. US$90 million) annually between 2001 and 2010.¹⁷

The Basic Plan specifies further measures and objec-tives for developing the national raw materials supply, notably, improving the technological and professional competence of the domestic raw materials sector.

Vis-a-vis resource-rich developing countries, the Plan recommends a specific national model based on the South Korean experience of rapid development and industrialization. Further promotion measures in-clude developing a complementary raw-materials-related service sector, workforce training, stockpiling, and stepping up exploration for rare earths in South Korea.

The Basic Plan seeks a grad-ual increase in self-supply rates for the six strategic metals and sets ten-year targets (see Figure 1), which KORES is responsible for meeting. Self-sufficiency rates exceeding 50 percent are the long-term objective.

Although South Korea’s industrial, environmental, and development policies each have their own para-digmatic objectives, they each also have a specific focus on raw materials. For example, MKE introduced industrial incentives to nurture the development of South Korea’s domestic rare metal and rare earths industries. And South Korea’s National Strategy for Green Growth, which seeks to reduce CO2 and encourage green industries, promotes the recycling of industrial and household waste.

17 At an assumed exchange rate of US$#8$ ,000 KRW.

The country’s official develop-ment assistance (ODA) has basic developdevelop-ment

objec-18 For a full description and assessment of the plan see United Nations Environment Programme (UNEP), Overview of the Republic of Korea’s National Strategy for Green Growth (Geneva, 2010).

Figure 1

Self-supply rates and foreign sources for strategic metals

Metal Self supply rate (%)

2009 2012 2016 2019

Foreign sources

Current investments Planned investments Iron ore .2 17 30 35 Australia, India, Brazil South Africa Copper 5.1 15 33 Chile, Peru, Indonesia,

Australia, Canada

Myanmar, Argentina, Mongolia, Zambia

Zinc 33. Canada, China, Australia, Peru,

United States, Kazakhstan

DR Congo, Iran

Nickel 32.6 29 Madagascar, Indonesia,

Australia, New Caledonia

Lithium – 12 20 26 – Bolivia

Rare Earths – 12 20 26 – Vietnam, Australia, South Africa

Source: Own research, based on data from MKE, KEEI, KORES.

The Raw Materials Policy

tives, but pursues political and economic interests, too. In foreign policy, South Korea is gaining inter-national status as a new donor country taking action in the OECD Development Assistance Committee (DAC) and in the G20. ODA offers an instrument for gaining privileged access to foreign energy and raw materials and creating a favorable investment climate for South Korean companies.¹⁹

Policy Measures and Instruments

Exploration, Processing, and Recycling

Given that increasing domestic production is the simplest way to reduce dependency on foreign sources, the South Korean government is promoting resource-related exploration, research, development, and recycling through various programs.

Exploration, research, and development are fun-damental responsibilities of the KIGAM, which has been compiling geological maps of South Korea by airborne geophysical survey for approximately thirty years. Deposits of niobium, rare earths, and tungsten have recently been discovered.²⁰ Feasibility studies will examine whether these deposits can be developed profitably. If so, licenses will be awarded under the Mining Act and Article 120 of the Constitution of the Republic of Korea. Other activities of the KIGAM include developing geophysical exploration technologies for ore deposits, conducting a feasibility analysis of deep-sea manganese nodule lifting pipes, and developing of new ore processing technologies. KIGAM’s recycling research focuses on carbonation technologies to turn industrial waste into an alternative resource, on the leaching of low grade uranium ore, and on technolo-gies for extracting minerals from seawater. In the lat-ter case, the KIGAM has developed a system for extract-ing lithium and is operatextract-ing a pilot plant with POSCO.²¹

As mentioned above, the MKE’s industrial policy specifically incentivizes rare metal production to create a strong vertical basis in production and pro-cessing for South Korea’s manufacturing industry.

19 Philipp Olbrich and David Shim, Südkorea als globaler Akteur: Internationale Beiträge in Entwicklung und Sicherheit, GIGA >$+$X"4¡'X ^Q`Q#–5.

20 Robaschik, “Förderung von Rohstoffen wird in Korea (Rep.) wieder attraktiver” (see note 7).

21 KIGAM, Annual Report 2011 (see note 15`Q#–59;

KIGAM, ed., Change and Challenges Beyond History (Daejeon, 2012), pp. 19–26.

Between 2010 to 2019, technological capacity and industrial locations are to be established. A budget of US$300 million is available to develop technologies in refining, smelting, processing, recycling, substitution, and reduction, controlled by the Rare Metals Industry Governing Committee comprising the MKE, busines-ses, universities, and institutes. The newly established Korea Institute for Rare Metals (KIRAM) addresses tech-nology issues and manages research and development programs. There are also three local rare metal com-mercialization centers specializing in indium, magne-sium, niobium, platinum, and titanium. KORES is

in-<&+%Y['$%$fund specialist rare metals companies, such as the Kwang-Yang FerroAlloy Co.,²² and in 2011 the MKE announced it would spend 300 billion won promoting rare earths processing tech-nologies.²³ The MKE also funds teaching staff and materials for resource-related courses at South Korean universities, as well as vocational training run by the EMRD. To support domestic copper refining, a 5 per-cent tariff is levied on imports of refined copper.²⁵

The government places increasing weight on recy-cling and “urban mining.” Recyrecy-cling laws and regu-lations for waste separation, recycling, waste man-agement have been tightened up. Increasing recycling rates in order to develop new raw materials sources

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