Korea - economic cooperation with the United States - Special Advertising Section

Nation's Business, Sept, 1992

During President Bush's visit to Korea from Jan. 7 to 9, the heads of state of the United States and Korea discussed various issues of security, international politics and economics.

After the summit talks, Bush expressed his satisfaction over the state of relations between the two countries, stating that bilateral trade is in very good and strong shape."

Furthermore, the two presidents agreed to work toward greater economic cooperation by extending the traditionally strong ties between the two countries in matters of security and international politics to the economic sphere.

Under the Presidential Economic Initiatives (PEI), both governments agreed to improve the environment for trade through consultation in four working groups:

* A Group--Customs and Other Import-Clearance Procedures

* B Group--Standards-Making and Regulatory Procedures

* C Group--Investment

* D Group--Technology

The successful resolution of major bilateral issues by the Section 301 or Super 301 negotiations under the U.S. Omnibus Trade and Competitiveness Act of 1987 has laid the foundations for a constructive economic partnership. Nevertheless, a number of minor trade issues still exist between Korea and the U.S.

With the expansion of trade volume and the diversification of trade relations, the number of trade issues has naturally increased. To overcome these minor issues and solidify a sound economic relationship, cooperation is essential.

The volume of trade between Korea and the U.S. has expanded 250-fold, from a mere $150 million in 1960 to about $37.4 billion in 1991. Korea's trade balance with the U.S. recorded a deficit in 1991 after a period of trade surpluses during the 1980s. (See the chart on Page 68.)

The U.S. has consistently been Korea's largest trading partner since the mid-1960s, buying 26 percent of Korea's total exports and supplying 23 percent of the nation's imports. Korea has ranked as the seventh-largest trade partner of the U.S., comprising 3.5 percent of U.S. export and import shares.

In analyzing the dynamics of the Korea-U.S. trade relationship, the total volume of trade has gradually increased, but the relative importance of each country in other's market share has decreased.

The U.S. loss of share in Korea's mark can be attributed to the emergence of rival competitors such as Japan and the European Community (EC) in high-technology fields and the surge of China in agricultural products. In the U.S., Korea's loss of market share is a result of the weakening of its industrial competitiveness compared with other developing countries.

Korea and the U.S. still maintain a complementary economic relationship. Korea supplies U.S. consumers with textiles, electronics, and footwear at reasonable prices, while the U.S. furnishes Korea with agricultural products, machinery, and chemical products for high-tech ventures.

The flood of Japanese electronics and automobile exports into the U.S. market, however, has aroused U.S. protectionism in these sectors, which are losing competitiveness. The recent entrance of Korean exports into these same industries has also aggravated the protectionist sentiment in the U.S.

However, Korea's economic growth and technological potential in these areas also provide the possibility for expanding mutual cooperation through complementary means.

If Korea's production skills and well-trained workers were combined with U.S. technology and design capabilities, the strains of the necessary restructuring in both countries could be alleviated.

"Combining U.S. high-tech capabilities and Korea's manufacturing skills will help both economies pursue new export markets in Third World countries as well as Japan," says Chang-Wooh Noh, director general of Korea's Ministry of Trade and Industry.

Korea's direct investment in the U.S. stands at only $1.2 billion in absolute terms, but it comprises 35 percent of Korea's total investment. Starting with small-scale investment in trading businesses in the 1970s, Korean investment in the U.S. has increased sharply.

U.S. direct investment in Korea amounts to $2.1 billion and accounts for 27 percent of total foreign investment in Korea. This makes the U.S. the second-largest foreign investor in Korea after Japan.

Korea has government regulations on foreign investment to facilitate investment quantity and quality. Korea articulated its intention to promote foreign direct investment in the Super 301 agreement with the U.S., by guaranteeing relaxed governmental regulations and through streamlined investment procedures.

The U.S. is the second-largest supplier of technology items to Korea, after Japan.

Royalty payments to the U.S. recorded 46.8 percent of total Korean payments for technology, making the U.S. the largest technology supplier in monetary terms, with the average American royalty per case amounting to $1.4 million, compared with Japan's average of $0.37 million, for an annual total of more than $400 million.

This situation can be explained by the fact that U.S. technologies are relatively advanced, large-scale, and in new fields. The current weakening of industrial competitiveness in both countries highlights the need for science and technology cooperation and expansion of technology inducements.