Yeltsin Visit Symbolizes New Diplomatic, Business Horizons for Seoul : Trade: More options for South Korea mean a smaller share of the pie may be left for U.S.

A three-day trip to Seoul beginning Wednesday by Russian President Boris N. Yeltsin is unlikely to produce much drama itself, but it will underscore new vistas that have opened up for South Korea that are affecting its relations with the United States.

In 1990, South Korea, seeking Moscow’s assistance to restrain its ally, Communist North Korea, was the supplicant when diplomatic relations between Moscow and Seoul were established. But this time, it is the beleaguered Kremlin leader of a nation with a crippled economy who will be the supplicant.

Moreover, with South Korea having established diplomatic relations with China on Aug. 24, Yeltsin’s visit will symbolize only part of the new diplomatic horizon that has replaced the former void west of Seoul.

Although President Roh Tae Woo reiterated his desire for a continued U.S. military presence here in a telephone conversation with President-elect Bill Clinton, a diminished perception of threat from the north already has led to less concentration on the United States.

No longer is America the sole source of weaponry for South Korea’s 625,000-strong armed forces. Now Seoul is shopping for the best bargains and is procuring about 20% of its arms from non-American sources.

“Defense budgets are tight everywhere. It’s a buyer’s market now, and they (South Koreans) will look around the world,” one U.S. official here said.

Although Roh is expected to turn a cold shoulder to an expected Yeltsin offer to sell Russian weaponry, South Koreans are interested in snapping up an opportunity to obtain military technology from Moscow. Already, Korean government experts have identified 21 technologies, including know-how to build multipurpose fighter planes and aircraft components, that they would like to obtain from Russia.

China, meanwhile, suddenly has become South Korea’s third-largest trading partner and has eaten into markets here that the United States traditionally monopolized, for corn and raw cotton. Sales here of American soybeans and coal, too, may be threatened in the future, Korean trading company executives say.

Between 1989 and 1991, China’s share of South Korea’s market for imported agricultural products nearly doubled to 11.8%, while America’s fell to 30% from 43%.

Already, predictions abound that China will surpass Japan to become the nation’s No. 2 trading partner within five years or sooner. This year, two-way trade is expected to approach $9.5 billion, and by 1995, it may reach $20 billion or even $25 billion, according to Cho Kyung Han, director of socialist countries operations for Samsung Co.

South Korean investment in China--only $250 million so far--appears set to expand now that diplomatic ties have been established. The Daewoo conglomerate, for example, has committed $300 million to build a single cement factory and hopes to launch an automobile manufacturing plant in China. And even as Yeltsin is in town--making amends for the last-minute cancellation of a visit he had been scheduled to make in September--he will be competing for attention with a 600-member Chinese business delegation from Liaoning province.

The province, across the Yellow Sea from the Korean Peninsula, hopes to obtain $100 million worth of new South Korean investments.

Even grander vistas loom for the future.

Beginning in December, South Koreans will be able to ship goods via the trans-China railway through Tashkent and Moscow to European countries. And ultimately, with the opening to Russia and China, Seoul could become a new hub of aviation in Asia.

Kim Woo Choong, founder and chairman of Daewoo, and other leading businessmen are talking about promoting northeast Asia regional development that would link both North and South Korea with China and Siberian Russia, with South Korea playing a key role.

“In three to five years, economic blocs could emerge around the globe. If so, Korea’s would be northeast Asia,” Kim Jae Kyung, Daewoo’s China division manager, said.

With an eye in that direction, Yeltsin will sign an agreement here to launch a feasibility study on a pipeline from the Yakutsk natural gas fields, running through northeast China and North Korea to South Korea. If built, it would cost more than $20 billion.

Yeltsin, however, will find a cool audience for a plea that he told Korean reporters in Moscow he will make here, urging Korean businessmen to invest in Russia. About 60 Russian businessmen will accompany Yeltsin.

One major Korean conglomerate--Hyundai, which invested $100 million, including loan guarantees, in a forestry project near the Russian east coast city of Svetlaya--has run into nothing but broken promises and indecision from Russian authorities, said Chae Soo Sam, second executive vice president of Hyundai Resources Development Co.

After the investment was made, the Russian government slapped an export tax on shipments of lumber to South Korea and added a new demand that half of the income of the joint venture company be converted into Russian rubles, which are losing value almost daily, Chae said. And he added that 700 people living 250 miles away from the logging project have attracted the attention of environmentalists with their fears that the project may threaten the Siberian tiger, inducing Moscow to cut by two-thirds the amount of timber it is permitting Hyundai to cut.

Chae said he has been unable even to meet Russian officials in charge of implementing such decisions.

“We need a responsible answer (to our problems), but they are acting irresponsibly, not guaranteeing the foreign investment they say they want. The Russian government doesn’t care,” he said.

Hyundai has frozen six other projects it was ready to undertake in Russia, and its troubles have induced other Korean firms to halt in their tracks. Fewer than a dozen small investments worth a mere $11 million were made last year, and in the last three months, no new commitments have been made. Trade that exploded tenfold to $1.2 billion last year also was plummeting.

A Russian agreement Friday to pay interest due on the initial portion of $3 billion in loans that South Korea promised to extend as the price for diplomatic ties is expected to break part of the logjam in investment and trade caused by Seoul’s suspension of the loans. Most of the interest, however, will be paid not in cash, but by shipment of 40,000 tons of aluminum ingots.

Samsung’s Cho said his conglomerate will proceed with $160.5 million in investments in four factories and a fisheries project as soon as the Korean government provides guarantees.

Despite mounting criticism of Roh for agreeing to provide the $3 billion in loans, businessmen remain convinced that Russia, once its economy stabilizes, will become a major market for South Korean goods and an important supplier of resources.

“The Russian population is huge. If the economy improves, consumers will want medium-quality products--like those that South Korea produces. I’m very optimistic about the future of the Russian market in the long term,” Cho said.

But for the moment, “the excitement about Russia in South Korea has ended,” said Prof. Ahn Byung Joon of Yonsei University. The action now has moved toward China.