S. Korea Does an About-Face on Trade With U.S. : First Reduction in Foreign Debt Spurs Nation to Buy More American Goods

As recently as three months ago, South Korean officials were insisting that last year’s trade surplus, their first ever, coupled with a 12.5% increase in the gross national product, were not reason enough to speed the opening of Korea’s closed markets.

They described South Korea’s increasing trade surplus with the United States as negligible, even though it reached $7.1 billion last year.

U.S. restrictions on South Korean exports--textiles, television sets, steel, even photo albums--were the cause of deep resentment here, among officials and the public alike.

Now, on the heels of South Korea’s first-ever reduction in its foreign debt and a rise of 15.6% in the GNP in the first three months of the year, officials have done an about-face. Suddenly, restraining the trade imbalance with the United States has been given top priority.

The Economic Planning Board declared on April 17 that South Korea’s “growing trade surplus is not only unsustainable but counterproductive for Korea’s long-term development.” Failure to open markets and curtail rising surpluses, it said, would “give the false impression that Korea is a mercantilistic country that accumulates massive trade surpluses while restricting its imports.”

Appreciation of the currency, which the government refused even to discuss until August of last year, has become a fact of life.

Taking Urgent Steps

And far from complaining about American restrictions on Korean goods, the Ministry of Trade and Industry is now working out the details of restrictions that the United States has never sought on exports of 11 Korean products. They are to become effective July 1.

Buying missions have been sent abroad, the government has instituted a special $2.5-billion import procurement program and private firms are being urged to “Buy American.” All this reflects a sense of urgency to correct the trade imbalance with the United States.

The government has even taken the unprecedented step of reducing special financing for exports and establishing preferential credits for imports from the United States.

The results are already apparent. As recently as February, 5% annual appreciation of the won, the unit of South Korea’s currency, was considered out of the question; yet the won has gained 4.92% against the dollar since the beginning of the year, and that works out to 11% for the year.

In the first four months of the year, sales of American goods here increased by 22%, compared to a minuscule 1% increase for all last year.

“No other country in the world has increased imports from the United States more than 20%,” said Jin Nyum, assistant minister of the Economic Planning Board.

More than anything else, the reduction of foreign debt has softened anti-import sentiment among the South Korean people. The debt was reduced last year for the first time, and by an additional $2 billion between January and April of this year.

“That kind of performance has begun to give the people the confidence to open up the market and move exchange rates,” Jin said.

A South Korean technocrat, asking not to be identified by name, said: “Not even the opposition is making an issue out of foreign debt anymore.”

The foreign debt, which reached a peak of $46.9 billion in June of last year, has now been reduced to $41.5 billion.

Seeks to Curb Surplus

The Economic Planning Board said it would try to limit to $5 billion the current accounts surplus, which in the first quarter was running at an annual rate of more than $10 billion. It also set a goal of reducing, by 1991, the surplus as a percentage of gross national product, to 3% from the present 5%, which is even higher than Japan’s 4%.

“A year ago, the technocrats would have been hounded from office if they had made such an announcement,” an American economist said, asking not to be identified by name.

He said that if South Korea follows through on the about-face, it will be a landmark in Korean economic development.

American officials cautioned, however--and Koreans admitted--that there is yet no end to the trade friction that has contributed to growing anti-American feelings.

For 25 years, Jin said, “exporters have been treated as patriots, importers as anti-government,” and attitudes will not change overnight. And he acknowledged that gains in American sales here have been more than offset by yet another 32% increase, through April, of Korean exports to the United States.

The government has promised American cigarette makers 1% of the South Korean market, but there has been such a strong nationalistic reaction that the government has been forced to promote the sale of American cigarettes in an effort to meet that goal. By May, the sale of American cigarettes accounted for barely 0.15% of the market.

Imports of frozen French-fried potatoes from the United States, which rose sharply when American fast-food restaurants started opening here, have now been banned entirely in order to promote domestic farming, the American economist complained.

More Farm Imports

Jin said that despite agriculture protectionism, this year South Korea will increase by $700 million its imports from America of farm products that are not available here. He said South Korea will buy 90% of its imported raw cotton, wheat, soybeans and corn from the United States in the last nine months of the year.

American farmers, who once provided the greater part of South Korea’s farm imports, saw their share of agricultural purchases drop to 42% last year, the lowest in more than 20 years.

Americans complain that South Korea is still dragging its feet on opening its markets to imports. Moreover, they say, government control, rather than reliance on free trade and financial markets, still has priority.

According to Kim Chul Su, assistant minister of trade and industry, without government intervention, South Korea’s trade surplus with the United States would easily exceed $9.5 billion this year. With intervention, he said, the bilateral surplus should be “slightly less than $8 billion.” That would be an increase of slightly more than 11% in the American deficit, compared to last year’s 72%.