Seoul's Crackdown On Imports May Be A Luxury It Can't AffordPaul Magnusson and Laxmi Nakarmi
Until recently, U. S. trade relations with South Korea were going just swimmingly. The Koreans' promises to open up their markets to imports made them the darlings of American trade negotiators. Now, the U. S. charges that the Koreans have reneged on those pledges by launching a noisy campaign against luxury goods. In practice, that means many U. S. imports.
It also means a nasty little trade war may be brewing. U. S. Trade Representative Carla A. Hills and her aides say that with congressional anger against Korea also rising, they're readying a plan to punish Seoul. Unless Korea does an about-face, the U. S. could start slapping retaliatory duties on Korean goods, from Hyundai cars to Lucky-Goldstar VCRs. President Bush and Commerce Secretary Robert A. Mosbacher also have sent letters urging Seoul to stop backsliding. A showdown may come as soon as Jan. 14, when U. S. and Korean negotiators meet in Seoul. "We won't be able to keep opportunities open to them if they don't provide the same opportunities" to U. S. exporters, warns Hills.
The worried Korean government recently dispatched a special emissary, former Deputy Prime Minister Cho Soon, to explain to President Bush that the anti-luxury campaign was needed to offset everything from a crime wave to a collapse of the local work ethic. "Import liberalization is still a pillar of Korean economic policy," Cho insists. The Koreans also recently made Trade & Industry Minister Park Pil-Soo a scapegoat for the souring trade relations with the U. S. He was dumped and replaced by Harvard PhD Lee Bong-Suh.
But all this has yet to cut much ice with the Bush Administration. Seoul, Bush aides charge, is engaging in a pattern of restrictive trade practices in an effort to reverse a trade deficit that quadrupled to about $1 billion in 1990. One of the ways Korea is seeking to balance its trade accounts is through a campaign to curb purchases of luxury items. Buyers of high-priced imports, such as fancy cars, now can expect special attention from the Korean tax man. That has helped dampen sales of Ford Motor Co.'s Mercury Sable from between 200 and 300 per month at the beginning of 1990 to fewer than 100 a month now. Although it costs $39,000, it's the luxury car of choice for affluent Koreans.
ROTTEN FRUIT. Imports of consumer items frequently are delayed or rejected by persnickety Korean customs officials. One batch of U. S. cosmetics was stuck in customs for eight months for "testing." Fresh foods, such as oranges and strawberries, frequently require five days to clear customs and can take as long as four months. Consumer durables that do make it to retail stores are slapped with tariffs and taxes that make them prohibitively expensive. A large Westinghouse or Whirlpool refrigerator that sells for about $1,700 in the U. S. goes for about $4,200 in Korea. "Importing has suddenly become a social crime," complains Kim Duk-Soo, a Seoul importer of Chinese rugs.
A paltry 6% of the $13.5 billion in U. S. exports to Korea in 1989 were classified as consumer goods. All other imports except capital equipment are called luxury goods--even dried peas. Not surprisingly, growth of overall U. S. exports to Korea, which had been running at a 20% rate over the past two years, slowed to a 5% increase through September. The 1990 trade balance through September was still $3.3 billion in Korea's favor.
The smart-money bet in Seoul is that new Trade Minister Lee will have to make major concessions to the Americans. Promises may not do this time.