PRIORITIES FOR THE US, SOUTH KOREA

The time has come for the United States and South Korea to re-examine their trade relationship. Failure to do so will inevitably result in a further

weakening of trust between these allies.

Rather than continue on the present course - a combination of self- righteous finger pointing, followed by intense, sector-specific negotiations - the interests of both parties will be better served if Washington and Seoul broaden their negotiating perspectives to accord with the larger realities surrounding U.S.-Korean trade.Up to now, trade negotiations between Seoul and Washington have been designed to achieve short-term political ends: specifically, to forestall protectionist actions against South Korea in the United States in exchange for Korean promises to quicken the pace of market liberalization at home.

Progress on both fronts has been achieved. While Korean officials remain wary about future congressional intentions toward their country, the U.S. market remains open to Korean goods. This July's joint agreement, involving Korean commitment to provide better protection of U.S. intellectual property rights and improved access to the local insurance market for U.S. firms, reflects the administration's success in impressing upon South Korea that trade must be a two-way street.

What now? Despite a recent cooling in the rhetoric between the two countries, Seoul and Washington need to resolve two key issues if they wish to establish a more mature and stable trade relationship.

The GSP. South Korea's growing trade surplus with us has encouraged the United States to call for major revisions in our traditional commercial relations with South Korea. The most far-reaching of these proposed changes involves South Korea's future membership in the Generalized System of Preferences.

Launched in 1976, the GSP was designed to foster trade growth in developing markets by extending duty-free treatment to approximately 3,000 products from 140 developing countries and territories.

Under Section 502 of the Trade Act of 1974, the president determines a recipient's eligibility based on these considerations: the nation's level of economic development; its eligibility status in other industrialized countries' tariff preference programs, and the extent to which the less developed country grants U.S. exporters equitable and reasonable access to its market.

In addition, a provision of the Trade and Tariff Act of 1984 requires recipient countries to adhere to internationally accepted labor rights standards.

Since the program's inception a decade ago, the value of imports receiving GSP treatment has risen from $3.2 billion to $13.3 billion in 1985. This growth is largely attributable tojust five advanced developing countries (Brazil, Hong Kong, Mexico, South Korea and Taiwan), who between them constitute nearly 65 percent of all GSP preferences. South Korea's share comes to about 14 percent.

In view of the United States' substantial trade imbalances with GSP recipients, the program has come under increased scrutiny by Congress. Outright scrapping of the GSP would create more political conflict with these nations than the imagined benefits would justify. Mindful of congressional dissatisfaction with the way GSP has operated in the past, however, the administration has initiated a less contentious "means test" which would be used to "graduate" certain countries out of the system

Graduation occurs when those countries, such as South Korea, reach an advanced level of development, and when their goods are considered to be competitive with equivalent U.S. products. At the same time, the administration continues to use GSP to bargain for complementary trade benefits from these same countries.

Not surprisingly, Seoul wants to retain its GSP status, while Washington wants to revise it. But over the long term, the odds are good that Congress will force the administration to progressively cut back on South Korea's GSP benefits.

The trick is to bring about this change in a manner which does not explicitly single out South Korea for what nationalist groups at home might consider humiliating treatment. Such actions in turn could easily force the Chun government to retaliate against the United States. One means of achieving the necessary face saving would be for the United States to multilateralize" the graduation issue by calling for simultaneous negotiations with the five major GSP recipients.

* Bilateral Diplomacy: Recent U.S. breakthroughs in negotiating new market access arrangements in South Korea will not bring an end to bilateral conflict. The stakes are too high on both sides. But this should not prevent the two countries from establishing an interim consensus, designed to limit the spread of commercial disagreement into the political and strategic spheres.

A necessary jumping-off point is a more forthright U.S. acknowledgment of Seoul's substantial trade liberalization efforts to date. Confronted with a projected $6 billion merchandise deficit with South Korea this year, Washington has ample justification to continue pressing for market access to South Korea. But the Chun government is already encountering strong opposition at home for the concessions it has made to the United States.

Seoul recognizes that it must continue to negotiate with Washington on removing existing obstacles to free trade between the two countries. But the job of selling South Korea's market-opening package to a skeptical domestic public will be made easier if the United States properly credits South Korea for the substantial progress it has made to date.

In a similar vein, Seoul should abandon the position that every U.S. trade undertaking against South Korea constitutes an assault against a reliable friend. Confronted with this charge recently, one U.S. official appropriately quipped, "What it all boils down to is that South Korea is moving into the big leagues." In fact, while South Korea has become the object of a growing number of U.S. trade actions, its market position in this country has never been stronger.

On a broader canvas, Seoul and Washington need to devise indirect ways to reduce the U.S. trade deficit with South Korea. Opening markets in third countries provides one means of doing so, beginning with Japan with whom South Korea ran a merchandise deficit of $3 billion in 1985. The U.S. deficit with South Korea has many causes.

One unexplored cause is to be found in the diversion of large volumes of Korean goods from Japan's heavily protected marketplace to the more open one provided by the United States. Even if Japan were to suddenly liberalize its import regime, South Korea's existing export drive in the United States would continue.

But over the longer term, such a step by Japan would help create an alternative market for Korean goods. This in turn might make it easier for Seoul and Washington to restore equilibrium in their bilateral merchandise trade account.

A final priority for Seoul and Washington involves the next, multilateral trade round. From the beginning, of course, the initiative behind the new round has come from Washington. But South Korea has also played an important role in selling the idea to a largely hostile Third World.

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