Samil Spinning, a Korean cotton spinning company signed an agreement to acquire Buhler Quality Yarns, an American yarn manufacturer and subsidiary of Switzerlandâ€™s 205 year old yarn maker Hermann Buhler, said the Korea Trade Investment Promotion Agency (Kotra). The move is taken to tackle recent threats stemming from the protectionist stance of Donald Trump, signaling other Korean companies may also follow suit.
The U.S. withdrawal from the broad international agreement involving 12 countries, the so-called Trans-Pacific Partnership, was a major contributor to the acquisition. Samil was originally considering Vietnam and the U.S., both under the broad pact, as possible options to set up its overseas production base.
As the U.S. takes aggressive moves under its protectionist policies there has been a growing need to secure a production facility in the country, which led Samil to acquire an American company, Koreaâ€™s trade promoter wrote in a statement Wednesday.
The deal allows the Korean midsize company to directly enter American markets without being held back by tariff barriers.
Though the Seoul-Washington free trade agreement currently is in effect, U.S. has been enforcing a protective rule of origin in the textile industry, dubbed the yarn forward rule, which means only apparel using U.S.-produced yarn textiles can be sold in the market free of a 32 percent duty.
The acquisition grants Samil Spinning a U.S.-based facility, thus freeing the company from high tariffs.
Choi Dong-chul, a project manager for global mergers and acquisitions from Kotra said that the acquisition is helpful for local apparel makers attempting to enter the American market as well, because they can now source U.S.-made yarn from the Korean-American company.
Samil Spinning can also make use of the free trade agreement between the Dominican Republic and Central America, to expand its customer base as apparel produced in member countries using U.S.-made yarn is treated equally as U.S.-produced apparel products.
An apparel maker in Guatemala would likely become a customer of Samilâ€™s American unit to import yarns free of duty and also sell apparel free of taxes in America.
Samilâ€™s move is particularly notable as it is a reflection of common challenges faced by Korean textile companies.
Before the U.S. exited the TPP, local textile companies had mostly eyed Vietnam as a feasible destination to place their production facilities to gear up for entry into the American market. However, the U.S. decision to leave the partnership has paralyzed textile companies and apparel brands.
Choi forecast more companies, especially those in textiles, will be making similar moves to pursue stable business in America.
Kotra served as an exclusive underwriting agency for the purchase deal and participated in the process of negotiation from consulting with company managements, conducting due diligence of the on-site facility and offering information related to setting the acquisition price.
Kotra said that Samil after acquisition plans to expand the facility owned by the American company in Georgia to meet increasing demand. Samil reportedly chose acquisition over setting up a separate facility, as the latter option is more costly.
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