Replay of Trade Troubles With Japan : S. Korea Angered by U.S. Demands to Open Market

Koram Bank, a joint venture by Bank of America and 17 South Korean companies, has been subjected to raids, seizures and demonstrations by South Korean radicals complaining of American “economic imperialism.”

Bank of America’s Pusan branch has been attacked, and the office of the American Chamber of Commerce here has been seized by radicals. Thirteen Americans, including businessmen, received death threats by telephone over the weekend of May 24-25. They were told that they had been targeted by “anti-imperialist forces.”

These incidents, which began last November, have caused only minor damage and no injuries, but they are unprecedented in South Korea, one of the United States’ staunchest allies and its seventh-largest trading partner.

The incidents reflect the widespread and growing resentment felt here against the United States, particularly U.S. economic demands on South Korea. More serious trouble may lie ahead.

“The crunch in economic relations is coming,” a U.S. diplomat here said, asking not to be identified. “Intense anti-Americanism is going to result from some of our market-opening demands.”

The growing tension is, in some respects, a replay of the trade troubles between the United States and Japan. Underlying it is the United States’ $4.8-billion trade deficit with South Korea and projections that the deficit, like the U.S. deficit with Japan, will widen.

But the sometimes violent anti-Americanism here has no counterpart in Japan. It stems from Washington’s desire to pare its global $150-billion trade deficit and South Korea’s insistence that, although it is entering an era of trade surpluses itself, it should continue to receive preferential treatment from a nation that it regards as a rich “big brother.”

U.S. Has Complaints, Too

The United States has its own complaints about South Korean actions. The U.S. diplomat listed as sore spots likely to get worse South Korea’s sale of oil rigs at below cost, restrictions on U.S. farm products and exports of military weaponry manufactured here under restricted licenses from U.S. firms.

The American Chamber of Commerce here also has complaints against South Korea, in every field from banking to transportation. One of the chamber’s chief problems is that U.S. firms are prohibited from doing their own importing and must go through licensed Korean trading firms.

On the other hand, Korean officials complain of American demands for additional curbs on textile exports and the possible removal of preferential tariffs on some, or all, of the 3,000 items that South Korea sends to the American market under an international system of preferential tariffs for developing countries.

“There is already resentment over the (U.S.) demands” to trim the deficit, the American diplomat said. “And there is resentment that we are not giving Korea special understanding. But they are going to have a $6-billion surplus with the United States this year, and that won’t allow them to sit around and shout, ‘We’re not another Japan,’ which is all they have been doing for the last two years.”

The controlled news media here has subjected the American demands to such widespread condemnation that Yoo Jung Ho, a researcher at the government’s Korea Development Institute, was moved to tell the newspaper Dong-A that Koreans should abandon their “chauvinism.”

Yoo, who has been sent to Washington to join a South Korean lobbying effort, said the government-funded institute has been accused of “upholding U.S. trade policies,” apparently because 34 of its 35 staff members were educated in the United States. “That is really ridiculous,” he said.

Government Backs Attacks

An American businessman, who asked not to be identified by name, said the government of President Chun Doo Hwan is behind the press attacks.

“The government released several negative reports in the press about the United States pressing Korea ‘unreasonably’ to open its markets,” he said. “That passed along to the dissident groups and backfired in the government’s face. Now they’re trying to stop it.”

Kim Chul Soo, an assistant minister of trade and industry, blames the United States for opening two investigations into charges of unfair trade practices against South Korea last September.

He said these investigations, dealing with restrictions on entry into the insurance business here and South Korea’s lack of protection for foreign intellectual property rights, have “really created an unnecessary backlash over the unreasonableness of American requests.”

Opposition politicians such as Kim Young Sam, an adviser to the New Korea Democratic Party, say that the economic aspects of the anti-Americanism stem from politically inspired resentment of America’s perceived support for Chun’s authoritarian government. In an interview, Kim predicted that this kind of anti-Americanism will disappear if South Korea achieves democracy.

But diplomats and businessmen interviewed do not agree. “It could get worse with democracy at work,” the U.S. diplomat said. “Some American businessmen here are getting a little antsy. Their wives are getting nervous. Some are taking home leave earlier and staying away longer.

“It’s the first time we’ve seen an intensification of anti-foreign rhetoric. Most of it is directed against us, but the Japanese and even the British have felt it, too.”

So far, he said, “only one-tenth of 1%” of the South Korean people are involved in violent acts against the American diplomatic and business establishments here. But it would not take much, he said, to set off an explosion of trade-related anti-American sentiment from a far larger body of South Koreans.

Passage of a bill sponsored by Sen. Strom Thurmond (R-S.C.) and Rep. Ed Jenkins (D-Ga.), which would restrict imports of textiles and footwear, over an expected veto by President Reagan “would be truly vexatious,” the diplomat said. The vote is expected to come in August.

Korean officials estimate that the Thurmond-Jenkins bill would cut textile and footwear exports to the United States by at least one-third. Textiles ($2.2 billion) and footwear ($1.2 billion) together account for 31% of South Korea’s sales to the U.S. market. More than 850,000 workers are employed in the two industries--23% of the total manufacturing labor force.

Enactment into law of the so-called omnibus trade bill, which has already been approved by the House, could also cause problems across the board here.

“Then you’d have 350,000 people out of jobs in Taegu and Pusan,” major centers of the textile and footwear industries, the America diplomat said. “You’d have a real explosion on your hands.”

South Koreans ought to be aware of “how dead serious protectionism is in the United States,” the diplomat said. He said they ought to be willing to make adjustments on a multifiber agreement that governs textile exports, “but they aren’t.” If they do not agree to some cutbacks, he said, they take the risk that Congress will enact the far-harsher provisions of the Thurmond-Jenkins bill.

Reached ‘Alarming Level’

Ahn Seung Chul, president of the Korea Development Institute, wrote in a pamphlet that the institute prepared on U.S.-South Korea trade that economic tension “has risen suddenly to an alarming level.”

Last year, when the United States imposed an anti-dumping duty of 64.8% on South Korean photo albums, newspapers here described the move as an example of “rich America” smashing “poor Korea” and helped spur an outpouring of public sentiment. Thousands of South Koreans rushed to help the companies by buying albums that the firms could no longer sell in the United States.

U.S. demands that South Korea open its markets, coming simultaneously with congressional moves to close U.S. markets to South Korean goods, “appall ordinary Koreans as well as businessmen,” Yoo said.

Lee Ki Hong, publisher of the magazine Korea Business World, told Sen. John C. Danforth (R-Mo.) here in January that “Koreans feel they are being picked on.”

So sensitive have economic issues become that South Korea has made no public announcement of actions it has actually taken in response to the American demands.

“The actions themselves were too insignificant to gain any favorable publicity in the United States but too controversial to be announced at home,” another American official said, also asking not to be further identified.

As an example of the don’t-give-in-to-the-Americans attitude, Clayton K. Yeutter, the U.S. trade representative, was told by a South Korean official here in May that “we cannot afford to look like we are kneeling to U.S. pressure.”

The American Chamber of Commerce, in a position paper, expressed concern over what it called “a growing tendency to regard U.S. proposals . . . as an attack on Korean sovereignty.”

Easing Import Curbs

Korean officials insist that they are proceeding steadily on an announced schedule of liberalization that will open markets here to foreign companies. Computer imports, for example, will be decontrolled in July of next year, according to Kim, the Ministry of Trade and Industry official.

Regarding cigarettes, another item of American interest, Kim said: “Next year we will look into the possibility of technical cooperation and joint production (in Korea) of foreign cigarettes, perhaps even buying some imported cigarettes.”

But he emphasized that his reference to “next year” is not a commitment, only a possibility. And he acknowledged that South Korea will keep intact until 1991 its strict curbs on imported alcohol.

Americans here, businessmen and diplomats alike, recognize that the United States has not handled its trade problems with Seoul as well as it might have.

“Everyone and his elder brother in Washington is sending his deputy assistant secretary on missions to Korea,” one U.S. diplomat said. “We had eight delegations here at one point. We don’t have our act together.”

And a businessman said: “We probably pushed too hard, and the Koreans don’t like that.”

U.S. businessmen admit that they should be more aggressive in taking advantage of opportunities that do open up to them. One executive conceded that most opportunities here have been seized by the Japanese.

Sakong Il, President Chun’s chief economic adviser, said the level of imports that require no specific government approval “was 67% when this government took over in 1980 and will be 96% in 1988,” when Chun leaves office.”

Moving Quickly

Import liberalization “is being pushed much faster here than in any other country of the world,” he said. “We know this is an American election year. . . . We fully understand the political situation in the United States. But I think we are moving genuinely as fast as we can.”

In the view of South Korean businessmen, the government is moving too fast. But some American businessmen see no movement at all. Reforms in one area are often canceled out by new impediments in others, the Americans say.

By South Korean calculations, tariff rates on imported goods average 22% and are scheduled to come down to 16.9% by 1988.

But in its position papers, the American Chamber of Commerce complains that most manufactured products that American firms want to sell here face a tariff of 40% to 100%. Moreover, customs officials often assess duties not on the basis of cost but on what they see as the market value in South Korea.

Even when an American product is allowed in at a reasonable tariff rate, the chamber says, special consumption taxes, defense taxes and other special taxes can double its price. Sometimes, the chamber says, tariffs are assessed long after a product has been imported.

Kim, the Ministry of Trade and Industry official, denied that tariffs are a problem for Americans. He cited the case of chocolate, which was “liberalized” for import two years ago. Last year, despite a 40% tariff, $600,000 worth of American chocolate products were sold here, “and that isn’t peanuts,” he said.

Koreans continue to depict themselves as “a struggling developing nation” with per-capita income of only $2,000 a year.

“Even if our economy grew by 7.5% in real terms every year from now to the year 2000, we would barely reach a per-capita income of $5,000 a year, or about the level of Spain today,” said Yoo, the economic research specialist.

Products Popular

Nevertheless, Americans are beginning to see Hyundai passenger cars on U.S. highways and are soon likely to see many more Korean cars. Hyundai and two other Korean manufacturers plan to ship 400,000 cars to the United States next year. A Korean personal computer, made by Daewoo, has become a hit on the American market, and sales of Korean videocassette recorders, color television sets and microwave ovens are making inroads in the American market.

“Hyundai can engage in business in the United States just by registering as a company,” an American businessman complained. “Here you have to get a permit for every single operation you want to engage in.”

He cited the case of an American electronics firm that saw its investment here approved without difficulty but then was required to submit 81 separate applications to obtain permits to do business. “The playing field is not level,” the businessman complained.

This year, South Koreans look to a historic transformation of their trade patterns--from chronic deficits to surpluses--and this, an American official said, means that American expectations for market opening here will rise. Up to now, he said, American officials have toned down their demands in consideration of South Korea’s deficits and its heavy foreign debt of $47.5 billion.

Surpluses, he said, “will improve South Korea’s ability to move more aggressively in opening its markets, to be more responsive to its trading partners.”

Stanley J. Marcuss, a partner in the New York law firm of Milbank, Tweed, Hadley & McCloy, told a recent seminar here on U.S.-Korea trade: “Korean exporters must recognize that Korea now enjoys a large and growing trade surplus with the United States. They must be sensitive to U.S. policies, and they must demonstrate restraint when necessary.”

Nothing of the kind has been seen. For example, Korean shoe manufacturers last year escaped what could have been a disastrous reduction in their exports to the United States only because President Reagan vetoed a congressional quota bill. This year they have pushed exports to the United States even more strongly. Through the first four months of the year, exports nearly doubled in some footwear categories.

Kim, the official of the Trade and Industry Ministry, said: “American importers, fearing restrictions, are asking for more footwear. That’s trade. You can’t help it.”