10/14/1997
The Asian Wall Street Journal

By Greg Rushford

Trade tensions between the United States and Korea, arising from threatened sanctions from Washington on Korean automobiles -- and Korean press reports alleging contaminated American beef, spilled onto the streets of Seoul this month. Angry demonstrators waved Yankee Go Home placards in front of the U.S. Embassy. Elsewhere in the city American goods have been yanked off the shelves of Korean stores, while demonstrators called for nationwide boycotts of anything American.

The current trade friction between Washington and Seoul is characterized by raw emotionalism, mutual distrust and acrimony. If allowed to fester, this will spill over into the vital security relationship.There is plenty of shared blame. If the strained U.S.-South Korean trade relationship were a movie, it might be titled Rude, and Ruder. Vying for the lead tough-guy role would be U.S. President Bill Clinton and Korean President Kim Young Sam. Koreans rightly resent the arrogance and bullying -- especially when these are a cover for American protectionism -- that the Clinton administration has displayed on more than one occasion. And U.S. trade officials are livid with indignation at the inflexible negotiating positions of Kim Young Sam's subordinates.

Americans have to live with the Clintonites until the year 2000, but Koreans will elect a new president in December. What should the next occupant of the Blue House do about trade demands from Washington? The short answer is that he should perceive that much of what Washington is asking is reasonable and in Korea's own best interests, and act accordingly.

But first, American officials must understand why Koreans are so angry at them these days. Washington's main problem is attitude, specifically the condescending approach it has brought to negotiations with an ally that is also its seventh-largest trade partner. Mr. Clinton's game is to use his trade negotiators as tough-talking props for domestic political advantage. Koreans have vivid memories of the high-handed treatment they have repeatedly received from U.S. officials. Last year, then-Commerce Secretary Mickey Kantor breezed into Seoul for a day. Instead of paying his hosts due respect by visiting their offices, Mr. Kantor summoned Korean officials to his suite at the Shilla hotel, offering them brusque lectures on their alleged shortcomings. America is now paying the price for such stunts.

Washington also has what could be called a special-pleader problem. Earlier this year, lobbyist Andrew Card of the American Automobile Manufacturers Association insulted Koreans by coming to Seoul and announcing imperiously that he had compiled a report card on their progress in opening their auto markets and that they had flunked. Now Washington, under pressure from Mr. Card's auto lobby to demonstrate its toughness on trade, has branded Korea as an unfair trader in automobiles by invoking the so-called Super 301 provision of U.S. trade law. Super 301's threatened unilateral sanctions -- highly dubious legally with the advent of the World Trade Organization and its dispute-resolution process -- are the diplomatic equivalent of an American stomping into a Korean home without taking his shoes off.

Washington at least has a point when it charges that Korea's automobile market, 99% dominated by domestic manufacturers, is rigged against foreigners. It is on less firm ground on other fronts, where American-style protectionism is in force.

Earlier this year, Korean trade officials asked Secretary of Commerce William Daley to revoke standing antidumping orders involving Hyundai Electronics and LG Semicon Co., Ltd, on the reasonable grounds that even Commerce officials admit that the Korean firms have not dumped DRAM semiconductor chips for the past three years. Korea also asked to be let off the hook in another antidumping case involving color televisions made by Samsung Electronics, where no dumping has been found for six years. The Koreans got stonewalled (and have rightly complained to the WTO).

When it comes to blocking legitimate trade requests from Washington, however, Seoul itself is a master stonewaller. Take a closer look at the car trade. Of 1.6 million automobiles sold in Korea last year, only 10,000 were foreign-made. American and European automobile manufacturers complain about a general atmosphere of intimidation and ostracization against buyers of their products. Seoul's cascading system of taxes on top of a stiff 8% import tariff makes it all the more expensive for consumers to buy foreign, and that's assuming they are brave enough to risk tax audits for buying so-called luxury goods. Seoul takes care of another perceived competitive threat by banning most Japanese car models entirely. Clearly, Korea's automobile market is not a model of free trade.

Try getting Korean officials to admit that. Last week in Seoul I asked Han Duck-Soo, the Vice Minister for Trade, Industry and Energy, if there was anything reasonable that Washington was asking Korea to do to further liberalize its auto markets. How about cutting that 8% import tariff, I asked? Even if everything else were equal for foreign cars trying to compete in Korea (which it is not), isn't adding 8% to sticker prices in automobile showrooms the proverbial deal killer? Mr. Han remained impassive. "We do not think that Korea's market discriminates against foreign cars," is about all I could get out of him.

"What about Amway?" I then asked, referring to a vicious campaign of defamation that has been waged against that American company in the Korean press at the instigation of Seoul's soap lobby. Amway and its world-class line of biodegradable cosmetics and detergents have been accused -- falsely -- of causing environmental degradation. Amway was subjected to a consumer boycott earlier this year and its profits have plummeted. Mr. Han's response? "As far as consumers are concerned, Amway is doing pretty well," he said
enigmatically.

Mr. Han's assurances are reminiscent of the polite brush-off that Americans used to hear from Japanese officials under similar circumstances some 15-20 years ago. But if you think Koreans should do without foreign cleaning products, how do you feel about them being denied life-saving medicines? Korean hospitals earn sizable profits when reimbursed by medical insurance for domestically manufactured drugs -- while no profit is allowed for the reimbursement of foreign drugs. If more Korean consumers knew that if they are hospitalized they may be denied the best medical treatment because of protectionism, would they still see Washington as the enemy?

For Korea's next president, it will be obvious that such protectionist tricks operate against Seoul's own economic interests. The challenge is how to prepare the ground for a shift away from such policies. Koreans talk the talk of globalization these days, referring to the need to open their economy to compete in world markets. But Korea is not yet walking the walk. To change this, Kim Young Sam's successor must lead his country to an understanding of how Korea's future prosperity and ability to compete in world markets is linked to its ability to open its domestic markets.To implement this vision, the next occupant of the Blue House should bring in a senior aide as a kind of trade reform czar. It will have to be someone with enough bureaucratic clout to crack heads when the far-flung bureaucracies do nasty things to foreigners.

For both Washington and Seoul, taking steps to repair frayed trade tempers and head off future disputes is important beyond purely economic reasons. When trade tensions rise, there is always the danger that they will undermine the psychological framework that supports the broader diplomatic relationship. Two years ago, the spat between Washington and Tokyo over automobiles threatened for awhile to erode the U.S.-Japan security relationship until cooler heads on both sides of the Pacific prevailed. America's long alliance and strategic partnership with South Korea is no less important.

Fortunately, relations between Seoul and Washington have not reached a U.S.-Japan-like low point. But things are headed in the wrong direction and there is no room for error here: If a downward trend is not checked it could erode the mutual trust between Washington and Seoul necessary to handle the armed threat from Stalinist North Korea.

Spoiling the dynamic here is the fact that the United States is the party on the move, taking the offensive as it happens, but at least staking out territory, while Korea can only react. One solution is for Seoul to take the initiative in setting a new pace for trade liberalization. As one who first admired the strength and vitality of the Korean people nearly 30 years ago when I served in the U.S. Air Force, and has since been amazed and astonished at what this proud country has accomplished, I see no reason why Korea can't move just as decisively on the trade front to open its markets -- and open the door to another era of unprecedented growth and prosperity.

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