Increased Import Requirements
Last year, South Korea’s cosmetics exports to China fell for the first time in five years. Amid the ongoing slowdown in the Chinese market, concerns about the leakage of business secrets of domestic companies have increased due to the Chinese government’s intensified cosmetics regulations since 2020. The burden on the domestic cosmetics industry is assessed to be greater than ever.
According to the “2022 Cosmetics Production, Import, and Export Statistics” announced by the Ministry of Food and Drug Safety on July 10, last year’s cosmetics export performance to China was approximately US$3.6 billion (4.7 trillion won), a 26% decrease from the previous year’s (US$4.88171 billion). This marks the first decrease after a growth trend that started in 2018, which had a record export performance of US$2.65616 billion. South Korea’s total cosmetics export performance in 2022 also decreased by 13.4% from US$9.18357 billion to US$7.95320 billion, and production performance also recorded US$10.4908 billion, a decrease of 18.4% from the previous year.
The industry’s analysis points to the downturn in domestic cosmetics exports, including China, as a result of the economic slump caused by the spread of COVID-19, the Chinese government’s cosmetic regulations, and the trend of preferring domestic products.
Furthermore, companies are required to disclose their business secrets, including cosmetic manufacturing methods and ingredient mixing, to the Chinese government and provide safety evidence for the ingredients. This intensifies the burden they feel. To meet the stricter safety assessment report submission standards that will be implemented in May next year, they must undergo toxicity and hazard assessments of the ingredients. However, the industry forecasts that the domestic ingredients that can meet these standards will be very limited, and the range of choice for ingredient suppliers can only be limited to some domestic companies or global corporations.
This could lead to a decrease in negotiation power over ingredient prices, product diversity, and market competitiveness. An industry official said, “From May next year, each company must provide safety evidence for each ingredient. It is a situation where we have no choice but to follow, although it is a heavy financial burden.” He also mentioned that “there are also some companies that have decided not to supply ingredients for products exported to China.”
In response, domestic cosmetics companies are diversifying their export targets, such as the Southeast Asian market, reducing their focus on the gloomy Chinese market. According to the Ministry of Food and Drug Safety, the number of cosmetics exporting countries increased by 10 to 163 last year. In particular, influenced by the Korean Wave, exports significantly increased in Southeast Asian countries such as Vietnam (23.4%), Taiwan (21.1%), and Thailand (13.2%). Also, market diversification is already underway, with exports increasing in advanced countries such as France (5.8%) and Canada (40.8%), and Central Asian regions like Kyrgyzstan (33.2%) and Kazakhstan (11.2%).
Meanwhile, the Ministry of Food and Drug Safety and the Korea Cosmetic Association are continuously raising issues with the Chinese government, after collecting industry opinions on cosmetics regulations. A Ministry official said, “We have been continuously raising issues through the WTO Trade Technical Barriers (TBT) Committee since 2020 by collecting industry difficulties through company meetings and public-private consultation bodies. We have requested protection of corporate information and easing of various systems at bilateral meetings in the Korea-China Free Trade Agreement (FTA).” He added, “Recently, we held a ‘Regulatory Authority Cooperation Meeting (R2R)’ with the Chinese government to discuss the difficulties of exporting companies in each country and agreed to regularize high-level meetings in the future.”
An official from the Korea Cosmetic Association also said, “We have raised issues with the Chinese government about the safety assessment report to be implemented in May next year, but so far there has been no mention of easing regulations in China.”