Don`t blink, or you might miss the latest trade concession made by the East Asian dynamo that hauled home a $7.5 billion trade surplus from the United States last year.
After July 1, South Korea–the country that brings you Hyundai cars, Daewoo computers and Samsung video recorders–will drop its import ban on cranberry juice, lemon juice and, partially, on alfalfa pellets.
In case that`s not enough to mollify trade warriors in Congress, South Korea is throwing in an extra, opening its doors to foreign automobiles over 2,000 cubic centimeters. The only catch: Tariffs and taxes will add about 200 percent to the price of an imported car. And any South Korean rash enough to buy one, say newspapers in Seoul, can expect a thorough government tax audit.
Welcome to ”market liberalization,” South Korean style.
For decades, no one much cared about South Korea`s array of clam-tight import restrictions. Now, suddenly, they are moving center stage, right alongside the $170 billion U.S. trade deficit.
The technocrats who guide South Korea`s low-wage, high-export economy make no apologies for their ”Korea-first” approach. Their country, they say, is hard-working and debt-burdened.
It has needed market protection, they say, but is now moving in the
”right direction” on trade.
But the view from Washington is a cold-eyed one these days, with South Korea increasingly lumped, along with Japan and Taiwan, into an Asian troika of trade pirates that sell but don`t buy–a threesome that last year toted up an $80 billion trade surplus with the United States.
”It doesn`t take an economist to see what`s going on here,” said one U.S. official, launching a fashionable broadside at Seoul`s trade policy. ”It doesn`t take a genius to see we`re getting shafted.”
With the Congress forging ahead on trade legislation that is almost certain to make tough new demands on South Korea and other ”unfair traders,” Seoul is loudly protesting its new pariah status and U.S. demands for faster market opening.
Compare South Korea to Japan and South Korea`s technocrats heatedly reply that their trade account has had only one year of surplus–$3 billion in 1986 –after decades of chronic deficit.
South Korea spends 6 percent of gross national product on defense, they point out, while Japan spends a fraction over 1 percent and has a $58 billion trade surplus with the United States.
Compare South Korea to Taiwan, and Koreans launch into a tirade about how Taiwan`s $15.7 billion trade surplus with the U.S. is twice as large as Korea`s–and that Taiwan is awash in foreign exchange reserves while South Korea is the world`s fourth largest debtor, with $45 billion owed abroad.
”The majority of Koreans feel the pace is already too fast,” moans a glossy government propaganda brochure rushed out last week in response to the heat from Washington. ”Many Koreans still see the United States as a kind of perennial benefactor because of its role during and after the (Korean) war. It is, therefore, difficult to conceive that the United States is pursuing its own self-interests so aggressively.”
Tougher U.S. measures look likely to come anyway. ”There really is an outcry,” says Thomas M. Brown, president of Westinghouse Electric (Asia) and head of the American Chamber of Commerce in Seoul. ”Japan will be the No. 1 target, but South Korea and Taiwan run a close second.”
With 40 percent of South Korea`s gross national product earned from exports and U.S. markets taking 40 percent of those exports, Seoul will have little choice but to listen to U.S. complaints.
South Korea`s trade surplus with the U.S. was up 73 percent last year and is headed toward $10 billion this year. Imports from the U.S. have hardly budged.
Like their counterparts in Japan, Korean business leaders regularly scold Americans for not trying hard enough to sell in South Korea`s markets.
But, privately, Korean economists concede that even markets officially open to foreign goods are often made impenetrable by layers of bureaucracy steeped in anti-import practices.
By South Korea`s measurement, its markets are now nearly 95 percent
”liberalized.” But ”liberalization” in South Korea simply means that particular imports are not banned outright.
In fact, many key U.S. exports like beef, much computer hardware and services like advertising remain officially shut out. And tariffs for many finished products that are admitted run 40 percent and higher.
Under threat of retaliation, Seoul last year agreed to admit U.S. insurance companies and to protect intellectual property, from software to patented pharmaceuticals, that has been pirated here for years.
But only three U.S. insurers have so far been approved and enforcement regulations for intellectual property have yet to be announced.
Much of South Korea`s recent export success has come at the expense of neighboring Japan. While the yen has soared against the U.S. dollar, the Korean won has edged up only 3.26 percent since the middle of last year, making Korean products more price competitive than ever in the U.S. market.
But the Korean export surge has also deepened the country`s dependence on Japanese imports. The most sophisticated components of Korean products from cars to video recorders are made in Japan.
Last year, South Korea`s trade deficit with Japan jumped 80 percent to $5.4 billion.
U.S. officials are pushing for faster appreciation of the won as well, in the hope of expanding the breathing space the yen`s spurt has given U.S. industry.
But Washington`s call for a 10 to 20 percent increase in the value of the won this year has been met in Seoul with only a grudging mention of possible appreciation of 6 percent or less.
”We don`t think appreciation would help you solve your problem, but it would hurt Korea very, very badly,” says Young Soo Gil, a senior fellow at the Korea Development Institute.
Young and others argue that South Korea must continue to run a substantial trade surplus to pay off foreign debt, which officials here hope to halve by the mid-1990s.
By the late `90s, Seoul hopes to leave behind its ”developing nation”
status and step into the world`s economic elite. With 6 percent annual growth in GNP–just half last year`s rate–officials believe it can be done.
Planners here are equally excited by the prospect of finally cracking long-closed markets in Japan with the help of the low won.
”It`s already beginning,” says Young. ”We want to get a solid foothold in Japan before the won swings up.”
A nervous Japan is wasting no time in throwing up new defenses. South Korean textile exporters have already been signaled to voluntarily restrain shipments to Japan or be shut off.
This month, Tokyo complained to GATT (the General Agreement on Tariffs and Trade) that Seoul is deliberately attempting to orchestrate a move away from Japan goods.
Seoul loudly concedes that it is, in fact, trying to buy more American and fewer Japanese products. A buying mission just back from the United States barnstormed through dozens of U.S. cities on a highly publicized $1.7 billion buying spree.
But U.S. officials said they saw little new in the South Korean purchases, while American exporters continue to face, in the words of one official, ”barrier after barrier after barrier” in Korea.
Next month, U.S. Secretary of Commerce Malcolm Baldrige is scheduled to visit Seoul, reportedly bringing with him an ”offset program” that would require South Korean auto manufacturers to tie their sales in the U.S. market to purchases of U.S. auto parts.
As loudly as they protest tough U.S. trade measures, South Korean companies are battening down for more.
Auto industry analysts in Seoul say that Hyundai automobiles–the first in a wave of Korean autos headed for the U.S.–are selling for just pennies above cost. Within two years, analysts say Hyundai is expecting Korean automakers to be hit with the same kind of ”voluntary restraint” requirement that limits Japanese auto exports to the U.S.
With U.S. quotas likely to be based on market share, Korean carmakers are postponing profits as they race for high-volume sales.
So far, the strategy looks like a winner. In 1985, no Korean cars were sold in the U.S. market. This year, more than 600,000 units are expected to roll off American sales lots.
Meanwhile, U.S. officials are wondering how to interest Koreans in cranberry juice–a newly importable but virtually unknown product here. As for alfalfa pellets, says one official, their import liberalization was ”not exactly what we had in mind.”
