Wrangle Over Trade Strains Old Friendship : Tough U.S. Efforts to Ease Barriers Increasingly Seen as Bullying by S. Korea

Situated in a wooded hill area far from the bustle of downtown Seoul, the government-financed Korea Development Institute has always been a quiet haven for the scholars who ponder South Korea’s economy, aloof from the pressures of everyday politics.

But it has not been that way recently, said Suh San Mok, vice president of the institute.

A few weeks ago, a band of 40 cattle farmers broke into the institute and occupied the lobby, throwing cattle manure at staff researchers.

The attack, which paralleled cattle raisers’ protests at the U.S. Embassy and the National Assembly here, occurred after a staff member of the institute appeared on television and urged the government to accept a U.S. demand to open up its market to imports of high-quality American beef--which, at best, might provide about 3% of the nation’s beef supply.

“Police refused to help,” Suh said. “They just told us, ‘Handle it yourselves.’ ”

The incident emphasized the air of freedom beginning to be felt in South Korea under new President Roh Tae Woo after years of authoritarian rule. It also underscored another spurt in rising anti-U.S. emotions concerning what most Koreans are coming to view as high-handed bullying by their “big brother,” protector and former tutor.

With South Korea scoring a bigger increase in its trade surplus with the United States than Japan did last year--a spurt of $2.8 billion, compared to Japan’s $1.2 billion--Washington’s frustrations with South Korean bureaucratic foot-dragging have reached a new peak.

“Koreans were given an opportunity to address . . . problems and really failed to do so with any degree of resolution to open their market,” said one American, who insisted on anonymity. “There was a real hope these things could be put to rest, but they weren’t.”

The American red ink with South Korea reached $9.9 billion last year, the United States’ fifth-largest bilateral trade deficit of the year, U.S. Trade Representative Clayton K. Yeutter complained Wednesday in a speech in New York. South Korea, he added, is “in danger of killing the goose that lays the golden egg”--its free access to the American market, which takes 39% of all Korean exports--”if (it) doesn’t liberalize (its) trade policies.”

Since the end of an undeclared moratorium by U.S. trade officials on complaints against South Korea during the country’s campaign for the Dec. 16 presidential election, old complaints have been renewed. They include South Korea’s ban on beef imports, impediments that have restricted cigarette sales and backpedaling on agreements to protect American intellectual property and to allow American insurance firms to do business here.

And new demands were added, including a highly controversial one that Seoul accelerate the appreciation of its currency--the won --to curtail South Korea’s growing trade surpluses.

Moreover, threats of retaliation were made, through formal complaints filed under Article 301 of the Trade Act of 1974, of “unfair” trading practices over the beef and cigarette issues. If rulings are issued against South Korea, President Reagan would be empowered to restrict major Korean exports to the United States.

Koreans, like the cattle farmers, have reacted with an emotional explosion.

“The economic giant is threatening its weaker trading counterpart. . . . The United States is menacing Korea,” wrote Yu Jin Soo, economic editor of the Korea Times.

Suh, of the Korea Development Institute, said: “Anti-Americanism hasn’t reached a serious level yet. For historical reasons, Koreans are very pro-American. But we are no longer as pro-American as we used to be.”

A Western diplomat, who asked not to be identified, agreed, saying: “All political parties will be running against the United States” in a general election for the National Assembly next month.

Writing in the Korea Herald, Peter Hyun, a respected author and columnist, condemned the American demand for the opening of Korea’s $2.1-billion cigarette market as an “unconscionable” attempt “to force Korea to buy American cigarettes at the risk of precious human lives.” He compared it to Britain forcing China to import opium in the 19th Century.

Hyun, who said nothing about the fact that the Korean tobacco monopoly has made no effort to point out the health hazards of cigarettes, appeared to be correct on one point: “The cigarette issue,” he wrote, “has become a rallying point of growing anti-Americanism among Korean students and the Korean public alike.”

Since the new dispute erupted, the share of American cigarettes sold here has dropped to 0.1% from 0.3% of the market.

Campus opinion is universally critical. Radical student groups, which earlier condemned alleged American support of “military dictatorship” in South Korea, are now focusing upon charges of “economic imperialism.”

An attack by students on the U.S. Information Service library in Seoul and a time bomb placed in a U.S. Cultural Center in Kwangju on Feb. 25 were only the latest in a series of incidents motivated by both political and economic issues that have forced American installations here to implement Beirut-style security measures.

One government official, who asked not to be named, said he wondered how American businesses would be able to do business in South Korea--difficult as that is anyway, he conceded--with resentment growing against them because of the Reagan Administration’s threats.

“It’s always been hard to argue that we should open our markets,” Suh said. ‘But now, it’s even harder.”

American officials argue, largely to deaf ears, that they are not singling out South Korea for special abuse.

“Nobody is trying to get South Koreans to drop all of their impediments overnight,” the American source said. “(U.S.) officials understand that they’re dealing with a country with a per-capita GNP of less than $3,000--not a fully developed nation.”

The American also conceded that the U.S. demands on cigarettes and beef--”the issues with high visibility,” as he put it--”were not necessarily selected.” They just happened “to be on the table” when frustrations in Washington exploded.

Much of Washington’s frustration stems from what officials there see as a continuing chain of broken Korean promises.

- The ban on beef imports, which Korea imposed without consulting the United States in 1985, was to have been lifted by the end of 1987, but now Seoul is offering only to allow in high-quality beef for tourist hotels.

- An agreement on protecting intellectual property rights that was reached two years ago is, in effect, being renegotiated to spell out the specifics.

- Sales of American cigarettes have failed even to approach the 1% share of the Korean market that the government announced two years ago that it would permit. In stark contrast, U.S. cigarettes have gained a 10% share in previously protectionist Japan and 20% in Taiwan.

- And although U.S. negotiators felt that they had reached an agreement that would allow American insurance firms to do business here in any form they wished, including joint ventures with South Korean companies, the Koreans denied that afterward. Now, with an American concession that will rule out joint ventures with any of the top 15 Korean insurance firms, a post-agreement agreement is reported to be at hand.

But on no other issue is resolution in sight.

Koreans have offered to allow price cuts on American cigarettes by amalgamating six different taxes that drive up prices to 2.3 times the level of Korean cigarettes. But, so far, the Koreans have refused to accept demands for unrestricted advertising and for sales of American cigarettes free of control by the government tobacco monopoly.

Treasury Secretary James A. Baker III, who represented Reagan at Roh’s inaugural Feb. 25, added a new demand that Korea open up its banking and securities markets and renewed American pressure for a dramatic acceleration of the pace of the won’s appreciation. He noted that since Sept. 22, 1985, when the finance chiefs of five advanced nations agreed to drive down the dollar’s value, the won had gained only 17% in value against the dollar while Japan’s yen had appreciated 86% and Taiwan’s dollar had gained 41%.

Although the increase in value of the South Korean currency has picked up speed since the beginning of this year--an increase of 4% in two months--opposition to raising the currency’s value is deep-rooted.

“Korean exporting companies don’t have the ability to raise their dollar prices” to reflect a higher won value, said Lee Hahn Koo, managing director of the Daewoo Research Institute. “They can’t produce quality products as the Japanese do.”

Suh said, “Unlike Japan, our exports are really price sensitive.”

Baker’s insistence that South Korea “is an absolutely unqualified economic success story” and that it has become “one of the major trading nations of the world,” could not have been further off the mark in terms of South Korea’s own perceptions of its economic strength.

Koreans, Suh said, still suffer “the mentality of a deficit economy” that only two years of global surpluses have not erased. “Many, including government officials, think we are still very poor and that using foreign products is unpatriotic. Consumer organizations are the strongest lobbyists against imports.”

A widespread feeling that Korea’s new surpluses may be ephemeral is compounded by concern over what Koreans still regard as a “huge foreign debt,” the Korea Development Institute economist said. Even though South Korea slashed its overseas debt last year to $35.5 billion from a peak of $47 billion, “people will recognize that we have no debt problem only when the net debt gets to zero,” Suh predicted.

That will come in two to three years, he added.

“All of these (misgivings) come from an inferiority complex. We don’t have enough confidence in ourselves as a modern economy,” Suh said.

Ed Poitras, a longtime resident American missionary here, said part of the problem stems from vastly different cultural perceptions of trade.

“To Koreans, trade is like golf. It should be played with a handicap,” he said. “To Americans, it is like football. It should be played on a level playing field.”

Just last month, the government announced a new market-opening package under which tariffs on 436 import items will be reduced and bans on imports of 145 items removed on April 1.

The government said the moves were designed to hold down Korea’s global trade surplus to $4.5 billion this year, compared to $7.7 billion last year, but no independent economist nor any diplomat here regarded that as even remotely possible.

“The government has a credibility problem,” Suh said.

Last year, after the government declared it would restrain to $5 billion the surplus in current account, the sum of both trade and such non-trade transactions as shipping, insurance and tourism, South Korea’s global trade surplus grew to $7.7 billion from $4.2 billion, while the current account surplus more than doubled to $9.8 billion from $4.6 billion.

Exports rose 36.2%, including a whopping 106.6% gain in shipments of automobiles.

U.S. exports to South Korea, however, did enjoy an unusually large growth last year of 33.8%, far better than the American global average of 15%. Moreover, the growth accelerated during the last half of the year.

The most optimistic outlook calls for the American deficit with South Korea to remain largely unchanged this year. But there is little optimism anywhere that there will be a significant opening of Korean markets.