Foreign relations of South Korea
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Template:Foreign relations of South Korea
North Korea, Japan, China and United States dominate the foreign relations of South Korea
Structure
Executive in Foreign Affairs. The Constitution of the Sixth Republic established the office of foreign affairs in South Korea. The presidency sets forth major foreign policy objectives as established by the Constitution and, along with the State Council hold decision making power, subject to the approval of the National Assembly. The Constitution requires the president and prime minister to report periodically to the legislature on foreign affairs. The president appoints envoys without confirmation; legislative consent is required for treaties, declarations of war, dispatch of troops overseas, and stationing foreign troops within the national borders. (Article 60 of the Constitution). The president directs the Agency for National Security Planning, which combines the functions of United States Central Intelligence Agency and Federal Bureau of Investigation. (see The Agency for National Security Planning , ch. 5).
The National Assembly. The National Assembly maintains the Foreign Affairs Committee which reports regularly in plenary sessions of the assembly. The assembly may also establish ad hoc committees to consider questions of special importance to the state.
Prime Minister and Minster of Foreign Affairs. The prime minister, who heads the cabinet, and the minister of foreign affairs sit as the chief foreign policy advisers in the State Council. From time to time, the National Assembly may question those officials; the Assembly may pass a recommendation for the removal from office of the prime minister or a State Council member (Article 63).
National Security Council. The National Security Council assists the president in the formulation and execution of foreign, military, and domestic policies related to national security prior to their deliberation by the State Council (Article 91).
Diplomatic Missions Abroad. Diplomatic missions abroad conduct foreign policy. Civil service members and a career foreign service corps, selected on the basis of college education and an examination, make up the Ministry of Foreign Affairs staff. Staff undergo training in international diplomacy, specialized area training, and intensive language training conducted by the Foreign Affairs Research Institute. South Korea has diplomats assigned to more than 170 countries dealing with political and economic issues. The U.S. and Korea cooperate under the 1954 Mutual Defense Treaty. South Korea and Japan confer on a host of issuess, including consultations with the United States on North Korea policy.
United Nations and International Forums. In August 1991, South Korea joined the United Nations, along with North Korea, and has actively participated in United Nations agencies and international forums. South Korea belongs to the Organisation for Economic Co-operation and Development (OECD) as well as the Asia-Pacific Economic Cooperation (APEC) forum. Ban Ki-moon, the former foreign minister of South Korea, sits as the incumbent Secretary-General of the United Nations.
International Events. South Korea has hosted the 1988 Summer Olympics and the 2002 World Cup Soccer Tournament (co-hosted with Japan).
Current Agenda and Program
1988 Olympics
The 1988 Seoul Olympics helped advance diplomatic discussion and exchanges with North Korea. By virtue of a successful joint team of North and South Korea alone, a major milestone had been passed. 159 nations and more than 9,000 athletes participated, even though technically North and South Korea are at War, the agreement of 1953 constituting a true not a peace treath. As with every Olympics, Seoul enjoyed the attention of the world community during the Olympics, receiving a boost to the nations prestige similar to Tokyo's in 1964.
Seoul's 1988 Olympics slogan, "From Seoul to the World, and from the World to Seoul," set the tone for South Korea's diplomacy initiative. Many South Korean diplomats, trained in the West, following the executive initative to implement Nordpolitik and developing openings for South Korea's businesses, the chaebol, abroad.
Nordpolitik
In the afterglow of the Olympics, Roh made his diplomatic debut as the first South Korean president to address the United Nations (UN) General Assembly, on October 18, 1988. Roh's speech called for a six-nation consultative conference to discuss a broad range of issues concerning peace, stability, progress, and prosperity in Northeast Asia. Pledging unilaterally never to use force first against North Korea, Roh proposed to replace the existing 1953 armistice agreement with a peace treaty.
Since the 1980s, South Korea had launched a northern policy, or Nordpolitik, modeled after the Federal Republic of Germany's (West Germany) Ostpolitik of the early 1970s. Seoul's Nordpolitik attempts to balance South Korea's commitments to the United States and Japan while engaging North Korea in an attempt to improve relations. On the whole, South Korea's Nordpolitik accomplished improved relations with North Korea in sports, trade, and diplomacy.
International Trade
South Korea's diplomatic initatives with the United States, China, Japan, Europe, Eastern Europe,Africa, and South America have helped catapult South Korea into one of the leading exporting nations in the world. High tech industries such has ships, electronics, cell phones, automobiles, and computer chips that require a highly educated work force have been the leading export ideas. Since the 1988 Olympics, confidence in Korean products has risen. In the late 1980s became one of the world's top ten trading nations.
North-South Relations
- Main Article: Sunshine Policy
- Main Article: North-South Korea Relations
Relations 1953-1988: North-South relations divide neatly into four periods. The first stage,between 1972 and 1973; the second stage, P'yongyang's delivery of relief goods to South Korea after a typhoon caused devastating floods in 1984; the third stage, the exchange of home visits and performing artists in 1985, and lastly, the fourth stage, activated by Nordpolitik under Roh. Roh's initiative built upon the 1972 three basic principles for Korean reunification: 1) reunification by peaceful means, 2) by transcending ideological differences (nationalism), and 3) without external interference (self-determination).
Since the Korean War, relations between North and South Korea have been strained. Official, though irregular and highly secret, contact did not occur until in 1971; these meetings led to Red Cross contacts and family reunification projects but not to a peace treaty or lessening of military tensions. With the military coup that put Chun Doo-hwan in power all contact ceased; the 1983 attempt on Chun's life ended the possibility of their resumption.
Seoul has had a difficult time succeeding in diplomatic initiatives with P'yongyang. After nearly two decades, inter-Korean relations has been stagnant. Seoul and P'yongyang have been increasing their contacts across and around the Demilitarized Zone (DMZ) in a gradual and uneven fashion and taken steps to reunite family separated by the Korean War. South Korean business leaders, aware of business opportunities in North Korea have driven trade with the North into a "growth industry."
Seoul spoke openly about increasing direct and indirect inter-Korean trade. By 1988, Seoul reduced tariffs and duties on trade with P'yongyang. Still, the South conducted most trade through third parties. P'yongyang's response to Seoul consisted of three points: 1) asking for the repeal of the National Security Act, which designated P'yongyang an enemy, 2) making a declaration of nonaggression, and 3) establishing a "Peaceful Reunification Committee." Over the next few months, Roh's government attempted to make progress toward satisfying each of these requirements.
Relations 1989-2007: In his 1989 New Year's address, Kim Il Song extended an invitation to the presidents of the major South Korean political parties and religious leaders, including Cardinal Kim Soo Hwan, Reverend Mun Ik-hwan, and Reverend Paek Ki-wan, for a leadership-level inter-Korean reunification meeting in P'yongyang. Meaningful inter-Korean dialogue bogged down with P'yongyang's objections to the annual United States-South Korean Team Spirit military exercises.
Economic relations between North and South have moved ahead promisingly. , visited North Korea . After years of behind-the-scene efforts, P'yongyang invited Chong Chu-yong, honorary chairman of the Hyundai Group, in early 1989. Ho Tam, Chairman of the ]Committee for the Peaceful Reunification of the Fatherland],received Chong in P'yongyang along with business leaders to discuss large-scale economic cooperation, such as joint ventures and development of the tourist industry. Chong's visit caused euphoric expectations and also engendered other visits.
The unauthorized visits to North Korea of Reverend Mun Ik-hwan (March-April 1989), South Korean lawmaker So Kyong-won (August 1988), and dissident South Korean student representative, Im Su-kyong (July 1989) caused a braking reaction in the South Korea government. Unauthorized diplomatic visits by South Koreans to communist North Korea caused concern that measured movement toward peaceful reunification had been compromised.
Success came slowly at first, beginning with small ties with the Soviet Bloc countries, but accelerated rapidly with the fall of the Berlin Wall and the collapse of the Soviet Union. By 1992, when both nations had been admitted the UN, the South's ties with the North's formerly stalwart allies grew closer.
The nuclear crisis of the early 1990s likely stemmed from the success of Nordpolitik, and the subsequent death of North Korean president Kim Il-sung left the South's Northern policy uncertain. Kim's son Kim Jong-il consolidated his power, leaving the status of North-South relations uncertain for a number of years
Relations improved following the 1997 election of Kim Dae-jung. His "Sunshine Policy" of engagement with North Korea set the stage for the historic June 2000 Inter-Korean summit. President Kim received the Nobel Peace Prize in 2000 for the policy. With that policy, continued by the current administration of Roh Moo-hyun, economic ties between the two countries have increased, humanitarian aid has been sent to North Korea, and some divided families have been briefly reunited.
In 2002 a naval skirmish left four South Korean sailors dead, leaving the future of the Sunshine policy uncertain. The North cut off talks but the South remained committed to the policy of reconciliation and relations began to thaw again. The resurgence of the nuclear issue two years later cast relations in doubt, but the South has sought to play the role of intermediary rather than antagonist, and economic ties are growing again.
United States
- Main Article: South Korea-U.S. relations
South Korea's relations with the United States intensified 1948 when the U.S. helped establish South Korea and fought on its UN-sponsored side in the Korean War (1950–1953). During the following four decades, South Korea experienced tremendous economical, political and military growth. Since the late 1980s, South Korea has become a partner rather than a dependent nation, opening new opportunities and new strains in the Seoul-Washington relationship.
In 1989 the United States stood as South Korea's largest and most important trading partner while South Korea ranked as the seventh-largest market for United States goods and the second largest market for its agricultural products. United States congress, under pressure to find a cure for an imbalance in trade with South Korea and other nations, sought to improve the balance. A free trade agreement (FTA) between South Korea and the United States became controversial, leading to fears among the Korean people of a loss of the rapid gain in quality of life and increased per-capita income. South Koreans protested against FTA talks. (see [1]).
Security renogiations also tried the new partnership. Most Koreans believed that United States forces should remain in South Korea as long as Seoul needed them, 94 percent of South Koreans supported the presence of United States forces. Stability in the peninsula required a strong Seoul-Washington military cooperation to deter North Korean aggression.
A small faction voiced the demand that United States troops should gradually leave South Korea. In Washington, an increasing number of United States policymakers supported that view. Consultations on restructuring the Washington-Seoul security relationship took place in February 1990 marked a shift in USA policy to a supporting, rather than leading, role in South Korea's defense and increasing support of defense expense.
Politics The increasingly sensitive South Korean nationalism was faced with what Seoul viewed as a hardened Washington. The United States role in the May 1980 Gwangju uprising was the single most pressing South Korean political issue of the 1980s. Even after a decade, Gwangju citizens and other Koreans still blamed the United States for its perceived involvement in the bloody uprising.
Washington's policymakers applauded Nordpolitik as a necessary adjustment of the relationship between Seoul and Moscow. However, the South Korean press contributed to a distorted zero-sum notion of the situation—if ties with the Soviet Union improve, then it must cause strains in the relationship with the United States. In his February 1989 speech to the South Korean National Assembly, President George Bush defined continuity and change as the guideposts in Seoul-Washington relations.
China
- Main Article: China-South Korea relations
Beijing disliked South Korea's Nordpolitik. Moscow, in the 1980s, saw economic advantage in supporing the policy. Still, South Korea and China began to trade actively. South Korea inability to legally protect its citizens and business interests in China hampered a vigorous trade.
Beijing, has been politically closer to P'yongyang, slowing negotiation between Beijing and Seoul inspite of the volume of trade between them. China has attempted to mediate between North Korea and the United States, North Korea and Japan, and tripartite talks between P'yongyang, Seoul, and Washington. Active South Korean-Chinese people-to-people contacts have been encouraged. Academics, journalists, and particularly families divided between South Korea and China exchanged visits freely in the late 1980s. Nearly 2 million ethnic Koreans, especially in the Yanbian Korean Autonomous Prefecture in China's Jilin Province, have interacted with South Koreans.
The political turmoil in China has had little impact on Sino-Korean relations. After the military crackdown on demonstrators in Beijing in June 1989, P'yongyang supported Beijing's masacre while Seoul, took a noncommital stance. Trade between China and South Korea increased.
Japan
- Main Article: Japan-Korea relations
South Korea's relations with Japan still deal with the aftermath of Japan's occupation of Korea, including the Sea of Japan naming dispute, visits by successive Japanese Prime Ministers to the Yasukuni Shrine, and the disputed ownership of Liancourt Rocks (known Dokdo in South Korea, Takeshima in Japan). Since normalizing relations in 1965, Seoul and Tokyo have held annual foreign ministerial conferences to discuss trade, the status of the Korean minority population in Japan, the content of textbooks dealing with the relationship, and Tokyo's relationship with North Korea.
Roh's Nordpolitik helped ease tensions with Tokyo over their approach to P'yongyang. Tokyo assisted Seoul in improving relations with P'yongyang and with Beijing, yet expressed opposition to the improved Seoul-Moscow relationship. Seoul-Tokyo relations became somewhat strained when in 1989 Tokyo began steps to improve relations with P'yongyang.
Russia
Seoul-Moscow relations entered a new era in the 1980s. In many ways, Roh's Nordpolitik and Mikhail Gorbachev's "New Thinking" had something in common—they were attempts to reverse their nations' recent histories. Their efforts, while supported by popular longings, still confronted serious resistance from conservative and powerful bureaucracies. In a fundamental sense, the Soviet economic crisis appeared responsible for Moscow's improved relations with Seoul. Politically, Gorbachev had signaled Soviet interest in improving relations with all countries in the Asia-Pacific region irrespective of sociopolitical system, including South Korea, as was clearly spelled out in his July 1986 Vladivostok and August 1988 Krasnoyarsk speeches.
Improved Seoul-Moscow relations appear to have been carefully and systematically planned in three related stages: sports, trade, and political relations. The Seoul Olympics was a major catalyst. The Soviets were eager to participate in the games, if only for the sake of the athletic competition. More than any other country—including the United States—Seoul's honored guests were from the Soviet Union. Moscow sent more than 6,000 Soviets to South Korea. Soviet tourist ships came to Pusan and Inch'on and Aeroflot planes landed in Seoul. And when the Soviet team headed for home, it also took along thirty-six South Korean television sets, seven minibuses, four large buses, four cars, and one copy machine—all gifts from Daewoo.
Economically, Seoul and Moscow were natural partners. South Korea had been seeking to trade with the Soviet Union even before Gorbachev came to power. Gorbachev desired foreign capital and high technology, as well as Seoul's help in alleviating the Soviet economic crisis through direct investment, joint ventures, and trade. Moreover, with the advantage of geographic proximity, South Korea was an ideal source of badly needed consumer goods and managerial skills. As early as May 1979, during a visit to Helsinki, then South Korean minister of foreign affairs Pak Tongjin signed an agreement obtaining Finnish assistance in exporting South Korean products to the Soviet Union and Eastern Europe.
Seoul has welcomed trade opportunities with Moscow and considers the Soviet Union a significant part of the global market. Moreover, the natural resources Seoul increasingly needs—oil, metals, timber, and fish—are abundant in the Soviet Far East. Trade with the Soviet Union, Eastern Europe, and China would also alleviate South Korea's apprehension over the United States' increasing trade protectionism. Moreover, South Korea's expanding trade with Eastern Europe and the Soviet Union initially was encouraged by the United States, although Washington later became increasingly concerned over possible high-technology transfers.
Because of the lack of diplomatic relations, most South Korean-Soviet trade initially was indirect; Eastern Europe, Hong Kong, Japan, and Singapore served as intermediaries. With an increasing volume of trade, Seoul and Moscow began trading directly, using facilities near Vladivostok and Pusan. Several major South Korean businesses including Daewoo, Sunkyong, and Lucky-Goldstar traded directly with the Soviet Union in 1990.
Based on mutual economic interests, the Korean Trade Promotion Corporation (KOTRA) and the Soviet Chamber of Commerce and Industry exchanged a trade memorandum in 1988 pledging mutual assistance in establishing trade offices in 1989. During a six-day visit to Seoul in October 1988, Vladimir Golanov, deputy chairman of the Soviet Chamber of Commerce and Industry, was received by officials of South Korea's major multinationals. KOTRA president Yi Sun-gi signed the trade memorandum in Moscow in December 1988. Seoul's trade office in Moscow opened in July 1989; Moscow's trade office in Seoul opened in April 1989. In December 1989, Seoul invited Soviet officials to attend a trade exhibition where members of the Soviet state-run Tekhsnabeksport displayed impressive high-technology items.
Political relations were developing gradually. South Korea's new-found wealth and technological prowess had been attracting the interest of a growing number of socialist nations. In initiating Nordpolitik, its chief architect Pak Ch'or-on—Roh's confidential foreign policy adviser—was rumored to have visited Moscow to consult with Soviet policymakers. Kim Young Sam visited Moscow from June 2 to June 10, 1989, with the apparent approval of the Roh administration. Selected from among several other South Korean politicians (including Kim Dae Jung, who had reportedly been invited to Moscow) to make certain that the newly emerging Seoul-Moscow relationship would proceed steadily, Kim Young Sam was received as a guest of the Soviet Institute of World Economy and International Relations (IMEMO). He participated in talks with various Soviet officials, including the newly elected chairman of the Supreme Soviet, academician Yevgeni Primakov. In a joint statement, the Reunification Democratic Party (RDP) and IMEMO pledged to promote closer trade and cultural ties between the two nations. While Kim Young Sam was in Moscow, the Kremlin announced that it would allow some 30,000 Koreans stranded on Sakhalin since the end of World War II to return permanently to South Korea—clearly a reflection of the continuing improvement in Seoul-Moscow relations.
Moscow even arranged a Seoul-P'yongyang meeting. Planned by IMEMO, Kim Young Sam, with Roh's prior approval, met with the North Korean ambassador to the Soviet Union, Kwon Hui-gyong, who reportedly proposed a regular exchange between the RDP and the Workers' Party of Korea (WPK), as well as a North-South summit meeting. Kim also met with Ho Tam, chairman of the Committee for Peaceful Reunification of the Fatherland (CPRF), who came to Moscow from P'yongyang.
The progress in Seoul-Moscow relations was extraordinary. Given the complementary and parallel interests between Seoul and Moscow, their relations were likely to proceed even if there were temporary setbacks. A highly experienced South Korean diplomat, Kong No-myong, was assigned to the Moscow consulate; an equally experienced Soviet diplomat was posted to Seoul. In June 1990, Roh held his first summit with President Gorbachev in San Francisco. Moscow's "Seoul Rush" may be regarded as an effort to reconcile (and possibly to terminate) its past political-military obligations to P'yongyang with the new economic and strategic opportunities in Seoul. Seoul's "Moscow Rush" had been conceived primarily as a way to utilize its growing economic power for political purposes, particularly in its relations with P'yongyang. On the other hand, if indeed the final destination of Nordpolitik was P'yongyang, Seoul had thus far proved to be less successful than Moscow.
Economic relations
Exports were the key to South Korea's industrial expansion. Until 1986 the value of imports was greater than exports. This situation was reversed, however, in 1986 when South Korea registered a favorable balance of trade of US$4.2 billion. By 1988 the favorable balance had grown to US$11.4 billion. Financing this persistent, although not unexpected, gap between domestic and imported resources was a principal concern for economic planners. In the 1950s and 1960s, much of the trade deficit was financed by foreign aid funds, but in the last two decades, borrowing from and investment in international capital markets have almost completely substituted for economic aid.
Aid, loans, investment
Foreign economic assistance was essential to the country's recovery from the Korean War in the 1950s and to economic growth in the 1960s because it saved Seoul from having to devote scarce foreign exchange to the import of food and other necessary goods, such as cement. It also freed South Korea from the burden of heavy international debts during the initial phase of growth and enabled the government to allocate credit in accordance with planning goals (see The Post War Economy , ch. 1). From 1953 to 1974, when grant assistance dwindled to a negligible amount, the nation received some US$4 billion of grant aid. About US$3 billion was received before 1968, forming an average of 60 percent of all investment in South Korea. As Park's policies took effect, however, the dependence on foreign grant assistance lessened. During the 1966-74 period, foreign assistance constituted about 4.5 percent of GNP and less than 20 percent of all investment. Before 1965 the United States was the largest single aid contributor, but thereafter Japan and other international sponsors played an increasingly important role.
Apart from grant assistance, other forms of aid were offered; after 1963 South Korea received foreign capital mainly in the form of loans at concessionary rates of interest. According to government sources, between 1964 and 1974 such loans averaged about 6.5 percent of all foreign borrowing. Other data suggested a much higher figure; it seemed that most loans to the government were concessional, at least through the early 1970s. International Monetary Fund (IMF—see Glossary) data showed that imports financed through such means as foreign export-import loans with reduced rates of interest totaled 11.6 percent of all imports from 1975 to 1979. The aid component of these loans was only a fraction of their total value.
During the mid-1960s, South Korea's economy grew so rapidly that the United States decided to phase out its aid program to Seoul. South Korea became increasingly integrated into the international capital market; from the late 1960s to the mid- 1980s, development was financed with a series of foreign loans, two-thirds of which came from private banks and suppliers' credits. Total external debt grew to a high of US$46.7 billion in 1985. Positive trade balances in the late 1980s led to a rapid decline in foreign debt—from US$35.6 billion in 1987 to an expected US$23 billion by 1991. Account surpluses in 1990 were expected to enable Seoul to reduce its foreign debt from its 1987 level of about 28 percent of GNP to about l0 percent by 1991.
United States assistance ended in the early 1970s, from which time South Korea had to meet its need for capital investment on the competitive international market and, increasingly, from domestic accounts. The government and private industry received funds through commercial banks, the World Bank (see Glossary), and other foreign government agencies. In the mid-1980s, total direct foreign equity investment in South Korea was well over US$1 billion.
The fact that South Korea was so dependent on foreign trade made it very vulnerable to international market fluctuations. The rapid growth of South Korea's domestic market in the late 1980s, however, began to reduce that dependence. For example, a dramatic rise in domestic demand for automobiles in 1989 more than compensated for a sharp drop in exports. Furthermore, while Seoul's huge foreign debt left it vulnerable to changes in the availability of foreign funds and in international interest rates, Seoul's economic and debt management strategy was very effective.
The South Korea's philosophy concerning direct foreign investment had undergone several major changes tied to the changing political environment. Foreign investment was not allowed through the 1950s. In 1962 the Foreign Capital Inducement Act established tax holidays, equal treatment with domestic firms, and guarantees of profit remittances and withdrawal of principal. Despite the provisions of the act, there was little foreign investment activity until after the establishment of diplomatic relations between South Korea and Japan in 1965.
Seoul had to mobilize both external and internal sources when it launched its First Five-Year Economic Development Plan in 1962. The Foreign Capital Inducement Act was amended in 1966 to encourage a greater inflow of foreign capital to make up for insufficient domestic savings. A rapid inflow of investment followed until 1973, when the act was changed to restrict the flow of investments. Beginning in the late 1970s, however, the government gradually began to remove restrictions as domestic industries began to grow and needed to be strengthened to cope with international competition. But until the early 1980s, South Korea relied heavily on borrowing and maintained a somewhat restrictive policy towards foreign direct investment.
Donald S. Macdonald has pointed out that under the liberalization policy, restrictions on foreign direct investment were eased in 1984 and 1985. Seoul changed its control policy on foreign investment from a "positive list" to a "negative list" basis, which meant that any activity not specifically restricted or prohibited was open to investment. An automatic approval system was introduced under which all projects meeting certain requirements were to be immediately and automatically approved by the Ministry of Finance.
Seoul twice revised the negative list system after its initial introduction—first in September 1985 and again in April 1987—to open more industrial sectors to foreign investors. In 1984 there were 339 items, or 34 percent of the 999 items on the Korean Standard Industrial Classification, on the negative list. As of July 1987, there were 788 industrial sectors open to foreign investment. In the manufacturing sector, 97.5 percent of all industries (509 out of 522) were open to foreign investment.
In December 1987, Seoul announced a policy to liberalize the domestic capital market by 1992. The program called for liberalizing foreigners' investment funds, offering domestic enterprises rights on overseas stock markets, and consolidating fair transaction orders. Seoul planned to allow direct foreign investment in its stock market in 1992.
Of the total direct investment in South Korea from 1962 to 1986, which amounted to US$3.631 billion, Japan accounted for 52.2 percent and the United States for 29.6 percent. In 1987 Japan invested US$494 million, or 47 percent of the total foreign investment of US$1.1 billion. Japan invested mainly in hotels and tourism, followed by the electric and electronics sector. Direct investment from the United States showed a remarkable increase since the early 1980s, accounting for 54.4 percent of the 1982-86 total investment. The United States invested a total of about US$255 million, or approximately 24 percent of the 1987 investment. Cumulative United States investment was about US$1.4 billion by 1988.
There was a dramatic rise in foreign investment in the late 1980s. Approvals of foreign equity investments reached an all- time high of US$1.283 billion in 1988, a 21 percent increase over 1987. As in previous years, approvals for Japanese investments were the dominant factor; they totaled US$696 million (up 41 percent from 1987), followed by United States investors with US$284 million (up 11 percent), and West European sources, US$240 million (up 14 percent). Investment approvals in the service sector doubled in 1988 to US$561 million, which included two large Japanese hotel projects totaling US$344 million. Investment approvals in the manufacturing sector, however, declined from US$775 million in 1987 to US$710 million in 1988.
South Koreans began investing abroad in the 1980s. Before 1967 there was virtually no South Korean investment overseas, but thereafter there was a slow growth because of Seoul's need to develop export markets and procure natural resources abroad. In the 1970s, South Koreans invested in trading, manufacturing, forestry, and construction industries. By the early 1980s, a sharp reduction in development projects in the Middle East led to a decline in South Korean investment there. Mining and manufacturing investments continued to grow throughout the decade. In 1987, out of a total South Korean overseas investment of US$1,195 million (745 projects), US$574 million was invested in developed countries and the remaining US$621 was invested in developing countries.
One of the most noticeable economic achievements in the 1980s was Seoul's reversal of the balance of payments deficit to a surplus. This improvement was largely attributable to strong overseas demand for South Korean products and to the reduction in expenditures for oil imports. In addition, the "invisible" trade account (monies from tourism and funds sent home by nationals) had improved considerably in the late 1980s because of temporary increases in revenue from tourism, receipts from overseas construction, and structural decreases in interest payments (see table 5, Appendix).
South Korea's success in achieving a balance of payments surplus, however, was not without some drawbacks. It led to harsh trade disputes with the United States and other developed nations, as well as to inflationary pressures. To cope with these problems, Seoul had to modify its enthusiastic promotion of exports in favor of a policy restraining trade surpluses within reasonable limits.
An important measure restraining the growing foreign trade imbalance between South Korea and the United States was Seoul's decision to revalue the won against the United States dollar. A stronger won made American imports cheaper, increased the cost of South Korean exports to the United States, and slowed, but did not reverse, the growth in the South Korea-United States trade deficit as of 1989. The United States pressed for further appreciation of the won in 1989. In April 1989, the United States Department of the Treasury accused South Korea of continued "manipulation" of the South Korean currency to retain an artificial trade advantage. South Korean officials and businesspeople, however, complained that the already rapid appreciation of the won was slowing economic growth and threatening exports. In May 1989, South Korea avoided being called an unfair trader by the United States and forestalled possible United States trade sanctions, but the nation paid a high price by promising to open up its agricultural market, ease investment by foreigners, and remove many import restrictions
Trade policy
Seoul stated in 1987 that its foreign trade policy was structured for further expansion, liberalization, and diversification. Because of the paucity of natural resources and traditionally small domestic market, South Korea has had to rely heavily on international trade as a major source of development. Seoul also sought to diversify trading partners to ease dependence on a few specific markets and to remedy imbalances in the present tendency to bilateral trade.
The rapid growth of South Korea's economy in the late 1980s led to significant increases in exports and imports (see table 7, Appendix). In the wake of the 1988 Seoul Olympics, South Korea's trade surplus exceeded US$11 billion and foreign exchange revenue had increased sharply. Seoul's trade with communist countries surged in 1988. Trade with Eastern Europe was US$215 million, trade with China almost US$1.8 billion, and trade with the Soviet Union US$204 million.
In 1989 total exports grew to US$74.29 billion, and imports totaled US$67.21 billion. South Korea's annual trade exceeded US$100 billion for the first time in 1988, making it the world's tenth largest trading nation.
During the 1960s and early 1970s, the commodity structure of Seoul's principal exports changed from the production of primary goods to the production of light industrial goods. After 1974 there was a rapid expansion in the production and export of heavy industrial and chemical products. By 1986 the share of heavy industrial and chemical products in total exports had expanded to 55.5 percent (as compared to 18.9 percent in 1980) whereas the share of light industrial products had shrunk to 40.9 percent (as compared to 71.1 percent in 1980).
South Korea had depended greatly on the United States and Japan as its major trading partners, with 75.6 percent of all exports going to these markets in 1970. Success at diversifying export markets led to a reduction in the United States-Japan export market share to 55.6 percent in 1986. The Middle East accounted for 12 percent of South Korea's export trade from 1972 to 1977, but its share declined to 5.2 percent in 1986 because of the collapse of the construction boom in the Middle East and the Iran-Iraq war (1980-88). Exports to Western Europe declined from 18.8 percent in 1979 to 15 percent in 1986. Exports to developing areas, such as Latin America (0.8 percent in 1972; 3.6 percent in 1986) and Oceania (0.9 percent in 1972; 1.4 percent in 1986), grew.
Indirect Seoul-Moscow trade was estimated at about US$20 million in 1978, with Moscow importing electronics, textiles, and machinery and exporting coal and timber. By the late 1980s, South Korea's global fur trader, Jindo, was expected to produce US$20 million worth of fur garments annually in a joint venture with the Soviet Ministry of Light Industry. South Korean businesspeople were offered such Soviet products as instruments for nuclear engineering and technology for processing mineral ores and concentrates. In the first ten months of 1989, bilateral trade between Seoul and Moscow reportedly increased 156 percent from 1988 figures to US$432 million.
Since the early 1960s, the structural pattern of imports had shown changes, particularly in the relatively decreasing share of imported consumer goods and the accelerated growth of industrial supplies and capital equipment imports. The share of consumer goods imported in 1962 was 24.1 percent of total imports; this share declined to 9.8 percent of total imports in 1986 because of increased South Korean production of these goods for the domestic market. The declining share of raw materials as a percentage of imports during the early 1970s was reversed in 1974 because of the increased value of oil imports (caused by the 1973 war in the Middle East). By 1979 crude oil was 25 percent of South Korea's total import requirements. This figure dropped to 8.4 percent in 1988 because of the use of other sources of energy and the decline in the price of petroleum in the late 1980s.
South Korean exports to the United States in 1988 rose to US$21.5 billion, a 17-percent increase over 1987; imports rose to US$12.8 billion, a 46-percent increase over the 1987 level. The percentage of total South Korean exports destined for the United States market decreased to 35.3 percent in 1988 from 38.7 percent in 1987. At the same time, the United States' share of total South Korean imports rose to 24.6 percent, up from 21.4 percent in 1987. By 1988 Seoul's favorable balance had grown to more than US$8.7 billion.
In 1989 imports rose to US$57 billion (up 18 percent from 1988) whereas exports reached US$61 billion, a 2-percent increase from 1988. The trade surplus was reduced from US$11.5 billion to US$4.3 billion and was projected to decline even more. Invisible receipts rose 10 percent, but payments, mainly reflecting a big increase in South Korean travel abroad, were up 20 percent. Thus, the surplus on invisible trade was reduced from US$1.3 billion to US$400 million.
International organization and the Third World
South Korea has been very active in the United Nations even though, as of 1990, it was not a member. Seoul had taken a vigorous part in the activities of various subsidiary and specialized UN agencies, as well as other international organizations, and had active permanent missions to the United Nations, United Nations Economic and Social Council and its Economic and Social Commission for Asia and the Pacific, and the European Community. An increasing number of UN Security Council members, including the Soviet Union, tended to consider seriously Seoul's bid for separate entry into the UN. This move was vehemently opposed by North Korea, which claimed that such a recognition would make the division of Korea permanent.
Seoul's activities in the Pacific Economic Cooperation Conference (PECC) were particularly noteworthy. As a founding member of the PECC, South Korea played a key role in liberalizing trade networks throughout the entire Pacific region. The South Korean national committee of the PECC represented academic, business, and government interests. The national committee was extremely useful not only in formulating Seoul's trade policies, but also in communicating these policies to other members' national committees and in successfully negotiating mutually advantageous trade agreements.
Equally impressive has been Seoul's diplomacy toward the developing world. Being a developing nation itself, South Korea has identified with other developing nations. For this reason, and in apparent competition with P'yongyang, Seoul has been actively seeking to improve relations, particularly with nonaligned nations, based on the principles of good neighborliness, reciprocity, and equality. As of January 1990, Seoul had full diplomatic relations with seventy-eight members of the Nonaligned Movement, including Yugoslavia and Algeria. To promote economic assistance and expand trade, Seoul established the Economic Development Cooperation Fund in 1987. South Korea signed three loan agreements: US$13 million for a road construction project in Indonesia, US$10 million for modernization of fishing vessels in Peru, and US$10 million for railway projects in Nigeria. To promote better relations with developing countries on the basis of south-south cooperation, Roh made state visits to Malaysia, Indonesia, and Brunei in November 1988.
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- This article contains material from the Library of Congress Country Studies, which are United States government publications in the public domain.
See also
- List of Korea-related topics
- Foreign relations of North Korea
- Government of South Korea
- South Korean diplomatic missions
- South Korea-Japan Joint Declaration of 1998
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