The trade deficit with Japan has increased every year and last year set a new record at US$25.5 billion. The government has long been working to reduce the size of the trade deficit, but with no effect. It is time to figure out exactly what the reasons for the deficit are and come up with some effective measures for dealing with it.
The biggest reason is that many of Korea's finished products for export use parts and materials from Japan. The country is heavily dependent on precision equipment for producing semiconductors. That being the case, the answer is already out there. The trade deficit with Japan will shrink quite naturally if Korea develops its parts and materials industry. The question is why the government and domestic companies are not developing those industries.
A larger part of the blame lies with the government's failure to set the right direction on industrial policy. Most economic policy since the financial crisis of 1997 has concentrated on financial policy. Measures taken on behalf of mid-sized companies focus mainly on financial support or restructuring. The fact of the matter is that the government has neglected the work of making the effects of the increase in exports by conglomerates extend to production of domestic parts and materials. There has not been much industrial policy based on "input-output effect." It is not too late for the government to change its approach to mid-sized and venture companies.
One contributing factor is the fact that conglomerates prefer Japanese products because they easy to get a hold of, easier than fostering the growth of the domestic parts and materials industry. They might blame mid-sized companies for failing to make competitive products. Without support from the conglomerates, however, the state of technology and finances at smaller companies makes it close to impossible for them to develop parts and materials on their own. This is an area that demands a change of thinking on the part of the conglomerates.
Fostering the growth of parts and materials industries will be an extremely difficult task. One would hope that the government and the conglomerates would join together and take a long-term view and engage in long-term investment. As part of a transitional phase, one way to go about it might be to actively invite Japanese parts manufacturers to come and operate in Korea and have Korean mid-sized companies receive technology transfers in that process.
The Hankyoreh, 12 January 2005.
[Translations by Seoul Selection (PMS)]
[Editorial] Why the Trade Deficit With Japan? |
