JEI's Spin on the News

South Korea Ends Restrictions On Japanese Goods

Friday, July 2, 1999

American and Japanese companies rightly complain about the lack of access to each other's market, but neither set of restrictions compares to those South Korea imposed on Japanese goods beginning in 1978. On July 1, Seoul removed the last of these restrictions, closing one of the many sad chapters in the history of the Asian neighbors.

Known as the "diversification program," the effort effectively banned the importation into South Korea of a wide range of some of Japan's most internationally competitive products, including most most motor vehicles. (For a partial list see JEI Report No. 37A, October 6, 1995.) Some critics have argued that the plan, together with restrictions on Japanese exports to third countries, gave South Korea the equivalent of both foreign and domestic sanctuaries in which Korean makers could hone their competitive skills against Japanese competition . The Organization for Economic Cooperation and Development also found, however, that the program contributed to higher prices in South Korea for the affected products.

At its peak, the program banned 258 goods, but the number has declined in recent years for a number of reasons. South Korea's membership in the OECD and participation in the World Trade Organization long has been seen as inconsistent with such a program; by the end of 1995 the number of banned products had fallen to 204. More recently, the Korean economic crisis of 1997 led to an agreement to phase the program out completely, which Seoul now has done, and would have accomplished in any case by the end of 1999 under a 1996 agreement with WTO. Notably, Seoul saved some of the most important products,such as medium-sized cars, large color televisions and machine tools, for the very end.

Although some Japanese companies are expected to tread lightly as to not upset Korean sensitivities born of decades of Japanese colonial rule and postwar tension, other firms are less hesitant. Sony, for example, is said to have already captured half of the home video camera market since it was liberalized earlier this year.

The liberalization also has to be seen in the context of increasing talk of further bilateral trade and investment agreements between the two Asian nations. A Japanese economic panel suggested consideration of such plans in a late June report, but many, many details remain to be worked out before serious talks could even begin. Although some Japanese opinion leaders express a desire for an Northeast Asian version of the North American Free Trade Agreement, with South Korea and Japan as the foundation, such an accord is many years away at best.

EI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

TopaaaaSpin Archive IndexaaaaHome