TED Case Studies

Doosan Oil Spill



           CASE NUMBER:         235  
           CASE MNEMONIC:       DOOSAN
           CASE NAME:           Doosan Oil Spill

A.  IDENTIFICATION

1.  Issue

On March 14, 1991, the Doosan Electro-Materials Inc., a subsidiary
of the Doosan Corporation, dumped 320 tons of phenol waste into the
Naktong River.  The Naktong River flows along the city of Taegu in
South Korea, and supplies tap water to over 10 million homes. 
Taegu city is one of the largest and most populated areas along the
southeast coast of South Korea.  The company was charged with
illegally disposing toxic waste into the river.  In addition,
prosecutors argued that not only did the company illegally dump
hazardous waste into the river, but Doosan also waited hours before
reporting the damage.  Their actions portrayed scandalous behavior,
and hiding the dumping only made matters worse since authorities
were unable to shut off the water supply in time. Eight officials
were fired from Doosan Electro-Materials Inc., and the
Environmental Minister of South Korea, Huh Nam-Hoon, was fired by
the president after the scandal.  Doosan was forced to pay around
$30 million in compensation, and the chairman, Park Yong- kon, was
forced to resign.

2.  Description

 Several issues were presented in this case.  The first and most
important was to determine who should take responsibility for the
damage.  Both the South Korean government, and the company should
assume liability in protecting the environment.  These two
institutions in one form or another, exist to serve the
constituents of South Korea.  The government should enforce
environmental guidelines, and take initiative when outside factors
threaten the environment.  The Doosan Corporation also has a
responsibility to the people since they benefit because the people
are utilizing their goods and services.

Another issue at hand was the compensation to the victims and to
determine the penalties of Doosan.  The company was ordered to
shut-down for a very short period of time.  Since Doosan Electro-
Materials, Inc. has a monopoly on electronic goods, such as circuit
boards, their suspension severely affected other industries in
Korea and abroad.  However, if the company is wrong, shouldn't
their punishment be enforced?  Should the government allow the
company to continue production for the economic benefits of South
Korea, even though environmental measures have not been
implemented?

Finally, the last factor presented was how to clean-up the waste
which contaminated one of the biggest water sources in South Korea. 
Furthermore, another determinant was how could Doosan and other
companies eliminate the possibility of future problems.  This
particular incident shed light on other companies in the area who
were illegally dumping in the river, but the severity was not the
same as Doosan.  Can the constituents feel confident that future
dumping will not happen?  In the case of another environmental
mishap, can the people rely on the industries to inform them of
future problems, or will companies try to conceal future disasters? 

The Doosan Corporation is a trading company in South Korea.  Major
multi-national companies in South Korea are called chaebols, and
usually have an extraordinary diversity of corporate enterprises. 
Moreover, it is not unusual for chaebols to maintain a monopoly on
a certain product or good.  The Doosan Corporation for example,
makes 80% of South Korea's circuit boards, and Korea's most popular
beer and whisky.  Doosan's group of companies is South Korea's
fourteenth largest conglomerate.  The conglomerate owns franchises
for Coca-Cola, Kentucky Fried Chicken, and other foreign consumer
goods.  In 1990, the sales for the fiscal year totaled over $2.9
billion with net profits of $30.6 million dollars.  In 1991, the
profits of Doosan Corporation were affected by a significant
environmental incident which occurred in March, 1991.

Doosan Electro-Materials Inc., located in Kumi, is an electronics
factory owned by Doosan Corporation.  Kumi is close to Taegu city
which is the third-largest city in South Korea about two hundred
miles southeast of Seoul.  The reservoir system in the area
provides water for over ten million homes.  On the morning of March
14, South Koreans turned on their tap water and were overcome by a
repulsive stench.  The stench was caused by a highly toxic form of
phenol, a chemical used for processing circuit boards.  Phenol
leaked overnight from a storage tank in the Doosan Electro-
Material's electronics factory.  An underground pipe leading from
an outdoor tank to the Doosan factory burst causing pure
concentrated phenol to leak into the river.  The toxin traveled
through the reservoir system of Taegu.  It was estimated that
hundreds to thousands of people became violently ill from the
contaminated water.  Doosan Group had been previously dumping small
amounts of phenol into the water which caused these people to
become sick.  When the pipe burst, large amounts of phenol dumped
into the river.  Luckily the aroma of the water was so strong, that
many other people were reluctant to use or drink the water the next
morning.  Thus, had the smaller amounts of dumping continued, more
people may have become seriously ill.  Phenol is a highly toxic
chemical which is known to cause cancer or damage to the nervous
system.  Perhaps constant dumping over the years, may have resulted
in another Minamata crisis, but this time in South Korea.

In South Korea the motto, "Growth First", has been characterized to
encourage industrialization.  The event alarmed the people because
politicians had been promoting industrial growth and economic
development as tenets of faith.  Therefore, the occurrence of such
a scandal which potentially affected millions of people was
horrifying to South Koreans.  The public outcry against the
government and the company intimidated both parties.  Hundreds of
people demonstrated in the streets shouting anti-government
slogans.  The protesters marched toward the headquarters of Doosan
Corporation and demanded the resignation of the Environment
Minister, Huh Nam-hoon.  They considered the scandal an "act of
homicide" and almost seemed intent on lynching seven local
government officials who were arrested for trying to conceal the
actions of the company.  Another demonstration in Pusan provoked
one hundred people to dump sixty bottles of OB brand beer into the
streets.  OB beer is a very popular beer in South Korea
manufactured by Doosan.  In addition, on March 28th, consumer
groups began a boycott of Doosan products as well as their
international affiliates of Coca-Cola, Nescafe, and Kentucky Fried
Chicken.

Government and executive officials who participated in the scandal
were arrested right after the dumping was discovered.  They were
indicted on charges of industrial pollution negligence, and forging
documents to conceal their involvement.  Approximately 12,000
citizens and 30,000 grocery stores filed compensation against the
Doosan Corporation.  The Taegu city government filed suit against
Doosan Electro-Materials for remuneration of its losses in tap
water charges.  Consumer groups also demanded the resignation of
the Environment Minister, Huh Nam-hoon, and the Ministry of
Environment ordered a thirty day suspension of Doosan
Electro-Materials Co.

The Doosan plant was allowed to reopen for production only a couple
weeks after closing.  The Ministry of Trade and Industry (MTI)
asked the Ministry of Environment (MOE) to allow Doosan to continue
production due to a severe shortage of the cooper-clad laminated
substrates that the company produces.  MTI predicted that other
technological companies, who were dependent on this product for
their production of instruments such as computer-related projects
or semi-conductors, could suffer setbacks of more than $400 million
if Doosan had to close for the entire period.  Many foreign buyers
rely on Doosan's specialized electronic exports making it difficult
for them to replace the product.  Officials argued, "if suspension
of Doosan's factory operations drags on, 883 firms are expected to
face operations cutbacks.  They include 38 PCB processors, 60
consumer electronic makers, and 785 other firms".(1)  Citizens were
outraged that Doosan did not have to suspend their operations for
the entire time sentenced.  Government actions illustrated
their economic priorities over environmental interests.  

Furthermore, other industries dependent on Doosan's electronics
pointed out the hazards of having these oligopolistic production
systems which in emergency situations, can have a dramatic impact
on the Korean economy.  Even more astonishing was that thirteen
days after the plant was allowed to resume operations, a second
phenol spill occurred into the Naktong River.  This simply
reaffirmed the carelessness of both government and company
officials.         

Despite the atrocity of the phenol leak, one good factor which
resulted from the scandal was the public participation and
awareness toward environmental issues.  South Koreans are becoming
increasingly cognizant of the environmental damage caused by their
country's rapid and largely unregulated industrialization. 
Organizations and constituents are demanding action by their
government, and industries are being forced to update or install
anti-pollution devices.

3.  Related Cases

     SALMON case
     CANCOD case
     UKCOD case
     EXXON case
     TURBOT case
     DONUT case
     SELLA case
     MEDIT case
     MINAMATA case

     Keyword Clusters

     (1): Product                   = CHEMicals
     (2): Bio-geography             = TEMPerate
     (3): Environmental Problem     = Pollution Sea [POLS]

4.   Draft Author:  Angie Littlefield


B.   LEGAL FILTERS

6.   Discourse and Status: DISagreement and COMPlete

The people of Taegu city joined with grocery stores and sued Doosan
Corporation for compensation.  Among the 12,000 citizens who filed
suit, six hundred of them were pregnant women.  Doosan Corporation
was allowed to resume production after a small suspension of
operations, but they had to clean up their operations and pay
compensation to the people. 7.  Forum and Scope:  Korea &
Unilateral Forum:  Taegu District Environment Administration
handled the case.  The people of Taegu were the plaintiffs, and
Doosan Corporation was the defendant.  The national government was
also involved in the scandal, and the Ministry of Environment found
the Doosan Corporation guilty of environmental negligence. Scope: 
Unilateral National organizations were the only ones involved which
included both state and local governments.

8.   Decision Breadth: 1


9.   Legal Standing:  Law

The Ministry of Environment ruled a one-month suspension of
operations.  The Minister of Environment, Huh Nam-hoon, was ordered
to resign by President Roh of South Korea, and was replaced by
former health minister, Kwon E-hyock  Also, seven government
officials and eight company executives were arrested and charged
with negligence and forging documents in connection to the scandal. 
The chairman of Doosan Corporation, Park Yong-kon, stepped down
from his position, and Doosan Corporation was forced to pay around
$30 million in compensation to the victims.  

The government was presented with two challenges in the decision of
this case.  First, the Water Quality Preservation Law and related
legislation is vague and limited in its retribution toward those
who damage the environment.  Under this law authorities can only
suspend operations of a company or fine them for dumping untreated
toxic waste into a country water supply.  Thus, the government and
executive officials who were arrested and charged for illegally
participating in the dumping, did not have spend any time in jail. 
The company was charged fines, but the people were not held
responsible.  The second challenge the government had to confront
related to the thirty day suspension of the Doosan factory.  In
early April 1991, Deputy Prime Minister Choi Gak-kyu argued that
the electronics plant should be allowed to resume production, and
not serve the entire thirty day suspension.  Gak-kyu claimed that
Korean business was suffering because the company supplies 80% of
the phenol copper clad laminate required by Korea's electronics
industry.  The plant was allowed to resume production, and shortly
thereafter, another incident of illegal waste disposal was
discovered.  South Koreans are losing faith in the industrial
enterprises as well as the environmental management skills of the
Korean government.

The Doosan Electro-Materials Inc. scandal had a dramatic impact on
South Korea's environmental law.  In mid-May of 1991, the Ministry
of Environment began drafting the Environment Improvement
Expedition Law which would allow the government to impose fees on
polluters.  In addition, in June of 1991, a bill went before the
Korean parliament which stated that individuals who break
environmental laws will be jailed for life.  Finally, in August of
1992, President Roh ordered for the development of an
interministerial commission to tackle environmental issues.  The
commission's job is to, "coordinate government measures for
sustainable development and environmental protection".(2)  South
Korea has made efforts in environmental awareness since the March
14, 1991 incident.  The four broad trends in the environmental are
in Korea include:

     o  "First, the government is becoming more cooperative in
     complying with international conventions on the
     environment while searching for an appropriate political
     role in regional environmental issues. 
     o  Second, the government is taking preventive measures
     at home to reduce carbon dioxide emission levels and
     increasing investment in such areas as developing
     environmentally friendly technologies. 
     o  Third, the government is reorganizing its executive
     branch and certain ministries to allow for greater
     consensus and cooperation in solving environmental
     problems. 
     o  Fourth, Korean citizens are becoming more aware of and
     active about air and water pollution, waste disposal, and
     recycling".(3) 

C.  GEOGRAPHIC FILTERS

9. Geography

   a.  Geographic Domain:     Asia
   b.  Geographic Site:       East Asia:  South Korea
   c.  Geographic Impact:     Korea

10.  Sub-National Factors:  No

11.  Type of Habitat:  TEMPerate

D.   TRADE FILTERS

12.  Type of Measure:  Regulatory Standard [REGSTD]

The Korean Ministry of Environment and the Taegu District
Environment Administration presided over the case.  Both followed
regulatory standards according to the Water Quality Preservation
Law, and both are considered administrations.

13.  Direct vs. Indirect Impacts:  IND

14.  Relations to Trade Measure to Resource Impact:

   A.  Directly Related to Product:  No
   B.  Indirectly Related to Product:  YES CHEMical
   C.  Not Related to Product:  No
   D.  Related to Process:  Yes Pollution Sea [POLS]

Doosan Corporation was ordered to fix the pipeline that burst and
caused the phenol to leak.  Nothing however, was mentioned about
implementing new technology which would prevent future dumping.

15.  Trade Product Identification:  Circuit Boards

16.  Economic Data

Fiscal year sales were $2.9 billion (2.12 trillion won) with net
profits at $30.6 million (22 billion won) in 1990.   

17.  Degree of Competitive Impact:  High

Doosan Corporation was severely affected by the rulings of the
court.  The thirty day suspension which turned out to be about half
the time, still caused Doosan to fall behind in production, and
also limited other South Korean industries who depended on their
product.  It was estimated that major electronics makers like
Samsung Electronics, Goldstar Co, and Daewoo Electronics would
suffer export setbacks of more than $400 million if Doosan had been
suspended the entire thirty day duration since they depended on
Doosan's circuit boards for productions.  Moreover, the boycott of
related goods by the constituents was very costly.  Sales of Doosan
products decreased 70% in Taegu due to the boycott.  The chairman
of Doosan promised to contribute 20 billion won to projects aimed
at purifying the contaminated water. 

18.  Industry Sector: MANUFactures

19.  Exporter and Importer: South KOREA and MANY

E.  ENVIRONMENT FILTERS

20.  Environmental Problem Type:  Pollution Sea [POLS]

21.  Species

The phenol poisoning caused hundreds to thousands of people to
become violently ill.  Phenol poisoning can cause cancer and or
damage to the nervous system.  Also, the Naktong River provides
habitat for a variety of wildlife.  For example, there is a
wild-bird sanctuary located on the Naktong River, and the river
delta provides a wintering ground for migratory birds.  There were
no reports available with the numbers of animal species affected by
the phenol leak.

     Name:           MANY
     Type:           MANY
     Diversity:      NA

22.  Impact and Effect:  HIGH and SCALE

23.  Urgency and Lifetime: LOW and 10-20 years

The problem has been solved through Doosan Corporation's efforts in
fixing the pipe that caused the leak. and checking their
anti-pollution devices.  The chairman of Doosan also promised that
the company would contribute 20 billion won to Taegu city for
various projects aimed at purifying the tap water its company
contaminated.  

In 1993, Doosan sponsored a project which would purchase an
incinerator able to handle 100,000 tons of waster per year.  This
waste treatment center costs between $27-62 million to install. 

24.  Substitute: Biodegradable [BIODG]

Multi-national companies including Doosan, has made more effort in
implementing conservation methods.  For example, the occurrence
provoked Samsung, Hyundai, Lucky-Goldstar, Daewoo, and Doosan to
organize meetings and discuss their anti-pollution facilities. 
Some companies also ordered their plants to check anti-pollution
devices and conduct vocational training programs for officials in
these anti-pollution facilities.  The environmental policy of South
Korea was also evaluated because of the environmental mishap.

F.  OTHER FACTORS

25.  Culture:  Yes

John Merson demonstrates the changing mentality toward the
environment in his article Korea Wakes Up to the Environment. 
Merson argues that Korea's industrial revolution was under military
rule which accepted industrial conditions, environmental damage,
and levels of pollution.  After the 1960's, during the decade of
development, the political power rested on economic growth, and "it
was common practice to consider political interests in
environmental policy as a drag on economic growth".(4)  The 1990's
has brought a new view toward environmental policy.  The political
character of South Korea's government has shifted from a military
dictatorship towards a pluralist democracy.  The South Korean
government is facing challenges and dilemmas as constituents and
other international organizations are demanding stricter
environmental controls.  South Koreans are more likely to express
their opinions toward environmental preservation, particularly if
their livelihood is being threatened.  

The phenol poisoning affected South Korea's administration.  The
incident happened the same night as South Korea's first local
elections in thirty years.  President Roh Tae-woo's electoral and
political base included the Taegu region.  The political timing was
bad for President Roh, and firing the environment minister gave his
constituents some faith in his policies.  The South Korean
government has accommodated environmental conservation by changing
the legal guidelines and policies of environmental law.  If the
phenol leak had happened during the 1960's, the response would have
been completely different.  People most likely would not have
received the same compensation if any, nor would they have been
able to demonstrate and criticize the government the way they did. 
The events would probably have been much different.
 
26.   Human Rights:  Yes

The rights of the people of Taegu city were defended.  The scandal
can still be viewed as a human rights issue, because their health
should never had been threatened deliberately.  Officials were
accused of participating in the phenol leak, and forging documents
to cover the damage.  The dumping was not only negligent, but
deliberate.

27.  Trans-Boundary Issues:  No 

28.  Relevant Literature

"South Korea:  Environment Minister Fired After Tap Water Pollution
Scandal", author unknown.  Asian Wall Street Journal, April 26,
1991.

"Chemical Leak in Korea Brings Forth a New Era" by David E. Sanger. 
The New York Times, April 16, 1991.

"South Korea:  Doosan Closing Raises Fears of Printed Circuit Board
Shortage", author unknown.  Korea Economic Daily, April 8, 1991.

"South Korea:  MTI Urges Resumption of Operations Doosan Plant",
author unknown.  Korea Economic Daily, April 8, 1991.

"South Korea:  Chaebol Scared Into Action By Contaminated Tap Water
Incident", author unknown.  Korea Economic Daily, April 1, 1991.

"South Koreas March After Anti-Pollution Rally", author unknown. 
The Reuter Library Report, March 30, 1991.

"Water Shocks Rouse South Korea" by Clayton Jones.  The Christian
Science Monitor, May 29, 1991.

"Korea Wakes Up to the Environment" by John Merson.  New Scientist,
June 8, 1991.

"South Korean President Seeks to Quell Anger over Environment" by
Shim Sung-won.  The Reuter Library Report, March 25, 1991.

"Pollution Good News for South Korean Water Bottlers" by Kim Chang
Young.  Japan Economic Newswire, May 11, 1991.

"Society and Environment:  Doosan Company Contaminates Water Again"
by Yonhap News Agency.  BBC Summary of World Broadcasts, May 1,
1991.

"South Korean President Sacks Minister Over Pollution Scandal". 
The Reuter Library Report, April 25, 1991.

"Boycotts Follow Waste Scandal in South Korea", author unknown. 
Business Asia, June 17, 1991.

"Environmental Trends in Korea", article based on a report from the
U.S. Embassy in Seoul.  East Asian Executive Reports, August 15,
1992.

"South Korean Firm Again Accused of Leaking Toxic Waste into
River", author unknown.  The Reuter Library Report, April 23, 1991. 
       
                           References

1.   "South Korea:  Chaebol Scared Into Action By Contaminated Tap
Water Incident", author unknown.  Korea Economic Daily, April 1,
1991.

2.   "Environmental Trends in Korea", article based on a report
from the U.S. Embassy in Seoul.  East Asian Executive Reports,
August 15, 1992.

3.   Ibid.

4.   John Merson, "Korea Wakes up to the Environment," New
Scientist, 1991.





Go to Super Page 1/11/97