Apr 25, 2012

Treksta to Move Production of Some Footwear to South Korea to Gain Duty-Free Access to US Market

South Korea’s Treksta will likely shift much of its production of the outdoor footwear it distributes in the United States from mainland China to South Korea in the coming two years to gain duty-free access to the U.S. market, the president of Treksta USA said last week.

Treksta USA pays duties of between 5.75 and 20 percent on the four models of light hiking shoes and trail runners it imports from China, and most of these will qualify for duty-free access under the recently ratified United States-Korea Free Trade Agreement, or KORUS, said Bryan Dingel, president of Treksta USA, which is owned by the paddlesports company NRS.

“Virtually all of what we are importing we are considering bringing back to Korea for production,” said Dingel. “The question is how fast can they ramp up full capacity?”

Dingel anticipates most of Treksta’s U.S.-distributed line, which currently includes light hikers and trail runners, will be Korean-made by 2015.

While South Korea’s labor rates are many times higher than China’s, the move makes sense for Treksta because its Chinese factories still import many components from South Korea, including soles Treksta makes in its home town of Busan. Moreover, as a premium brand that commands retail prices of $120 and higher, Treksta is adequately positioned to absorb higher labor rates. By comparison, many athletic and other mass market footwear brands have been shifting production from China to Vietnam and Indonesia in search of lower wages.

Whether Treksta’s decision signals a trend or is merely an expression of patriotism by its founder and president, Kwon Dong-chil, is unclear. As the creator of one of the country’s few global brands, Kwon has emerged as an important supporter of government efforts to boost South Korea’s manufacturing sector.

Footwear manufacturing largely left South Korea for mainland China more than 20 years ago, but Busan remains an important source of premium components such as rubber outsoles, uppers, foot beds, mesh fabric and even shoelaces, used by many outdoor footwear brands.

“We will actually be reducing lead time and, in theory, we would have better quality control because all the engineers are right there on site,” Dingel said referring to Busan.

Under KORUS, most outdoor footwear manufactured in South Korea will be eligible for immediate duty-free treatment, according to an analysis prepared for Outdoor Industry Association® (OIA). Moreover, South Korea’s trade agreements with the European Union, Peru, the ASEAN countries, Chile, India and Singapore mean many of its footwear products also enjoy duty-free access to these markets. The country is negotiating new agreements with Australia, Canada, Colombia, New Zealand and Turkey, and is considering launching FTA negotiations with China.

Given China’s steadily rising labor costs and the fact all outdoor footwear made in South Korea will have duty-free access to the U.S. market within 12 years, South Korea may deserve another look from companies as they review their Asia sourcing strategy.

Editor’s note: Under KORUS, U.S. tariffs on 18 types of Korean-made outdoor footwear will remain at Most Favored Nation rates for the first eight years of the free trade agreement and then begin phasing out, according to a 12-page memo outlining the impact of KORUS. To request a copy of the memo, please contact OIA Trade Director Alex Boian.