As the Nagoya Protocol, a global agreement to protect biological resources, will take effect in South Korea from August 17, the cosmetics industry will become vulnerable. The Nagoya Protocol is designed to share profits from approaching and using biological resources fairly between provider countries and user countries. The agreement was adopted in 2010 in Nagoya, Japan, and entered into force in 2014.
According to industry sources on August 13, South Korea will become an official member of the protocol on August 17 as it presented its ratification to the U.N. Secretariat in May.
Under the Nagoya Protocol, companies must seek prior approval for using genetic resources from supplier countries. Accordingly, cosmetics companies, which import 70 percent of raw materials, will face more burden of royalties and supply and demand of raw materials.
In particular, there is growing concern considering the current tension with China over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system. According to a survey conducted by Korea Cosmetic Association in 2015, South Korea imports most of genetic resources from Europe with 35 percent, followed by China with 23 percent.
China, which has put the Nagoya Protocol into effect in September last year, recently announced an ordinance that requires foreign companies to jointly work with Chinese companies when they use Chinese genetic resources and pay an additional 0.5 percent to 10 percent of annual profits other than sharing profits. When user countries violate the law, they will have to pay a fine of 50,000 yuan (US$7,491 or 8.56 million won) to 200,000 yuan (US$29,966 or 34.24 million won).
Domestic cosmetics companies are bracing for it in their own ways, but they leave much to be desired. Some conglomerates, including AmorePacific, have continuously prepared for the effectuation of the Nagoya Protocol but most companies still wait and see regulations and move of the foreign and domestic industry. Some of them are reviewing the origin of genetic resources they are using, the increase of raw material prices caused by sharing profits and possible alternatives made in South Korea but they are seeking to come up with the measures about six months to two years later.