S. Koreans don't like to be measured by Japan economic yardstick
``Korea is not another Japan, but. . . .'' When South Koreans hear this refrain from Americans more or less politely asking them to hold back on exports, or increase imports, or raise domestic demand, ``it gives us pain,'' as one economic official said.Skip to next paragraph
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Like Japan, South Korea has a trade surplus with the United States which reached $4.5 billion last year and will be substantially larger this year. Like Japan a year ago, South Koreans are being told their currency, the won, is undervalued and should be allowed to float upward against the dollar. Like Japan, South Korea needs to liberalize imports.
In all these areas, and many others, South Korean government officials and business leaders feel it is very unfair for their economy to be judged by the same yardstick that is being applied to Japan.
First, South Korea is still basically a developing country. The soaring office towers of Seoul are impressive, as are its gleaming subways and its elegant shopping malls. But walk through the maze of alleys behind some of these skyscrapers, and you will see hole-in-the-wall workshops where girls are furiously stitching away or noisy restaurants where pungent kimche and ginseng tea are being served.
South Korea's gross national product is about one-thirteenth that of Japan -- $92 billion compared to $1.2 trillion. Japan is the world's largest creditor nation, while South Korea's foreign debt amounts to $47 billion.
Second, as the southern half of a divided country facing an aggressive and unpredictable communist North Korea, South Korea's 40 million people spend 5.5 percent of their gross national product on defense, compared to 1 percent by Japan's 120 million people. Helped by the ``three lows'' -- low oil prices, low interest rates, and the low dollar (or rather the low won, since the won has been linked to the dollar), South Korea's economy is experiencing a boom this year. Exports are at an all-time high.
The trade balance (current account) will be in the black for the first time since the war. A senior economic official estimates that, this year, both the current account and trade will be in the black by about $2 billion each. Trade with the US, as already noted, will be in the black by much more. However, imports from Japan are rising. In fact, the more South Korea exports to the United States, the more it must import from its island neighbor. That, too, said a Korean official, ``is our pain.''
Why is this so? It is a problem, the Korean official noted, peculiar to South Korea and other fast-developing countries.
South Korean labor costs, although rising, are substantially cheaper than Japanese labor costs. A car or video tape recorder made here will cost much less than one made in Japan.
However, to establish and maintain a reputation for reliability and quality, South Korean manufacturers, as latecomers in markets developed by the Japanese, must import the machine tools used to make their products, or the parts and components that go into them, from Japan. The more sophisticated the part, the more likely it is to come from across Tsushima Strait.
The South Koreans know that in time they must set up their own parts makers, their own machine tool plants. However, so far, no Korean assembly line feels comfortable relying on untested Korean parts makers, many of whom are necessarily small.
I went to a major automaker in the south where it was boasted that one of the company's most popular export models had used no Japanese parts since l983. Back in Seoul, a government official told me that was simply not so.
Ironically, as the yen appreciates against the dollar, Japanese manufacturers desperate to cut costs are coming to South Korea in search of parts makers for their own final assembly lines.
So are American companies. South Korea is eager to encourage this inward investment, but has great difficulty in playing the role of matchmaker, in finding appropriate South Korean partners for the overseas investor.
Taiwan, where companies are generally smaller, seems to have been more successful in this regard. The result is that the more orders a Korean carmaker or electronics firm receives from the United States, the more orders he must place for parts and components in Japan.
Since these parts and components must be paid for in yen, as the yen rises so do the Korean manufacturer's production costs. For instance, 35 percent of the final export value of South Korean-made videotape recorders depend on components made in Japan.
Last year, South Korea's trade deficit with Japan was $3 billion. This year it is likely to be much higher.
``The Japanese are too insensitive,'' a South Korean official complained. ``They tell us it is not their fault that we have to import so much from them. When Japan jumped from developing-country to developed-country status in the l960s, the world economic environment was very favorable. Nobody cared how much Japanese exports grew.
``But now,'' the official said, ``everyone is concerned about bilateral trade balances. It is up to the Japanese, who benefited so much from the free-trade environment of the l960s, to see that the world free-trade system does not break down.''