Published : 2010-03-30 14:33
Updated : 2010-03-30 14:33
The following is the first in a series of articles to review Korea`s economic relations with Japan. It is part of special reports marking the 56th anniversary of The Korea Herald on Aug. 15. - Ed.
By Park Ki-im
This year`s Korea-Japan summit in June once again affirmed the importance of economic cooperation between the two nations. Trade between Korea and Japan, amounting to only $200 million when diplomatic relations were established in 1965, reached $89.2 billion last year. Korea is now Japan`s third-largest trading partner, and Japan is Korea`s second-largest, spurring businesses in both countries to look with interest at each other`s markets.
Of course, it`s not just businesses that have demonstrated interest. With this year`s strong yen, Japanese tourists are now filling the streets of Myeong-dong in Seoul in a mirror image of the throngs of tourists from Korea who flocked to Ginza two years ago when the yen was weak. As nations of consumers, Korea and Japan have nearly converged into a single market.
Prominent economic figures from both countries now meet informally to discuss matters of mutual interest in a kind of adhoc shuttle diplomacy. Such contacts have laid the groundwork for the development of a real partnership between Korea and Japan. With the "hardware" now in place, it is time to address the areas where Korea and Japan can best cooperate: the "software" needed for successful cooperation
Inevitably, whenever we discuss the Korea-Japan relationship we are always confronted with the issue of Korea`s "unfavorable" position with respect to Japan. Whenever a summit occurs between the two countries, or any agreement is reached between their economic sectors, Korea invariably presents suggestions on improving its status by expanding exports to Japan, technological cooperation between the two countries and the inducement of Japanese investment. I would like to question here whether it is desirable that Korea`s "unfavorable" status with respect to Japan need always become a matter for discussion.
Last summer, I interviewed a scholar at the Japan External Trade Organization who was engaged in research on Korea`s position toward Japan. After the interview, he somewhat hesitantly asked, "But why is Korea so obsessed with its supposedly unfavorable relationship with Japan? Korea overall has a stable trade surplus with the rest of the world. Does it really matter whether it has a deficit or a surplus with one particular country?"
Of course, Korea`s position in comparison to Japan is not a trivial matter. Korea`s trade deficit with Japan surpassed $10 billion in 2000 and has continued to increase since then, reaching $33 billion today. Korea has never recorded a surplus in its trade with Japan since it reopened diplomatic relations four decades ago. Such chronic deficits with Japan act as a psychological burden for Korea.
Nevertheless, it is necessary to look at trade with Japan from a larger perspective. Fundamentally, the trade balance with the rest of the world far outweighs the trade balance with a single country. Furthermore, we must carefully consider the framework and distribution of labor among Korea, China and Japan. Although Korea maintains a massive trade deficit with Japan, it also maintains a trade surplus with China. For example, Korea maintains a deficit of $390 million with Japan in styrene, which is used as an intermediate material in tires, bumpers and tanks, while maintaining a surplus with China of $150 million. Under these circumstances, it is difficult to regard the chronic trade deficit with Japan as an unbearable humiliation.
Furthermore, it may be futile even to discuss improvement in Korea`s conditions with Japan. To put it bluntly, from the Japanese perspective, Korea`s adverse situation is of no interest whatsoever. Asking the Japanese government and businesses to cooperate in expanding exports to Japan or to address Korea`s disadvantages is tantamount to failing to distinguish between the enemy and your own soldiers on the battlefield. Resolution of any structural disadvantages vis-a-vis Japan is better addressed in cooperation with other nations-like China and Europe - that are interested in expanding exports to Japan.
Although it may seem counterintuitive, the best way to address Korea`s trade deficit with Japan is to ignore it.
In other words, Korea must recognize that its unfavorable status vis-a-vis Japan is not a "problem" but a "fact," and move on to more worthwhile issues. Negotiations inherently involve bringing reasonable topics to the table that are of interest to all the parties involved. This is the only way that participants will take a positive attitude toward negotiations and reach agreements on numerous points in a short length of time. Focusing on Korea`s disadvantages vis-a-vis Japan will inevitably sacrifice valuable time that could be spent creating more productive and mutually beneficial relations between the two.
Korea and Japan have many areas where they can work together. As world leaders in the electronics industry, both countries can collaborate on industry standardization while finding grounds for cooperation in new technologies in energy conservation and renewable energy, joint exploration of overseas natural resources, and logistical and distribution services to the Chinese market. The past half century of growth in Korea`s economy has seen a Korea that is determined to catch up with Japan and Japanese businesses. Attempting to surpass Japan gave Korea clear goals that, more than anything else, helped motivate its people. This has contributed to Korea`s success to some extent. On the other hand, it is a narrow-minded perspective to stubbornly view only one country as a competitor even as Korean businesses lead the world in traditionally strong industries like semiconductors and ships, while dominating others like TVs, cell phones and steel. Korea now faces challengers other than Japan, such as China, India and rising economic powers in Central and South America.
If Korea persists in regarding Japan as its "eternal" rival, it may indeed be a factor that threatens Japan`s recent steps toward economic recovery. However, Korea may be better off recognizing that there are better opportunities as a partner that seeks cooperation with Japan, rather than a rival that sows conflict with its neighbor.