Japanese aid for Korea posing a business risk

Japan faces a major dilemma in promoting industrial cooperation with South Korea. Politically, it makes sense for Japan to try to heal the emotional scars of a long occupation of Korea in the first half of this century.

Industrially, however, it is a potential source of trouble - for technology transfers will simply make the Koreans more competitive and eventually more able to pose a threat to their Japanese industrial mentors.

Take the steel industry, for example. In the late 1960s, Japanese steelmakers helped to develop an integrated steel mill at Pohang, considered one of the biggest and most efficient in the world. Now, cheaper Korean steel products are making significant inroads into the Japanese market.

Such imports increased 21 percent last year, to 1.45 million tons, accounting for two-thirds of total Japanese steel imports. Overall, imports now account for more than 10 percent of the domestic market. It's not much, compared with the current Japanese annual steel output of some 96 million tons. But for the first time in a decade Japanese steel production has dropped below 100 million tons, and this is seen as possibly the ''writing on the wall.''

This so-called ''boomerang effect'' of Japanese technical aid is one reason Japanese industry was reluctant to help when the Koreans wanted to expand the Pohang project further - from the current capacity of 9 million tons a year to 12 million tons by 1988.

There was also concern that Korean steel production at a time of global recession would hurt the depressed steel industries of the United States and Western Europe and would invariably rebound on Japan as well as the Koreans through import restrictions, for example.

But last month, over the steel companies' objections, Tokyo decided the project should go ahead. Prime Minister Yasuhiro Nakasone - who has a strong desire to improve relations with South Korea - asked Yoshihiro Inayama, chairman of the powerful Federation of Economic Organizations, to persuade the steel industry to be more cooperative. Mr. Inayama is a former chairman of Nippon Steel Corporation. Now, several Japanese companies have submitted bids to build blast furnaces and hot rolling equipment at Pohang 2.

During a surprise visit to Seoul in January, Mr. Nakasone promised Korean President Chun Doo Hwan $4 billion in new economic aid, and details were taken up at a bilateral ministerial conference held in Tokyo recently.

Although Foreign Minister Shintaro Abe described it as a friendly session and a step toward a ''mature partnership,'' the problem of technology transfers over a wide range of industries was not resolved.

Other industrial sectors here are watching this issue closely for the same boomerang effect.

Korean shipbuilders, for example, claim that in recent years they have had to shop in Europe for technology because of Japanese concern over helping an increasingly tough rival, although such cooperation had been common earlier. (In the first six months of this year, Japan gained 55 percent of the world's shipbuilding orders, while the Koreans got 24 percent, almost double the Korean performance last year, according to official figures.)

At the Tokyo ministerial session, the Koreans spoke of an interest in obtaining Japanese know-how in a wide range of manufacturing industries, notably robotics, semiconductors, and videotape recorders.

They also stressed a desire for technology transfers from ''sunset industries'' in which Japan has lost international competitiveness. Korean businessmen repeatedly argue that Japan should not be trying to compete against newly developing countries in industries in which Japan has lost the advantage of low-cost labor, but should be moving ''upstream.''

Examples cited include machine lathes, industrial sewing machines, and even conventional ships.

Fortunately, in Japanese eyes, the Koreans did not press the issue, apparently from a desire not to damage the developing bonds of bilateral friendship. Besides, Japanese officials felt many of the Korean demands were tantamount to government interference in the private sector.

Instead, the two countries agreed to set up a working-level committee to examine the problem and, in the meantime, Japan has agreed to accept 1,200 Korean trainees over the next four years to study technical subjects in private enterprises.

But even this draws a cautious reaction from Japanese industrial circles, which also saw it as helping boost Korean industrial competitiveness.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.