No. 26 — July 7, 2000


Weekly Review

--- by Marc Castellano

Seoul announced June 27 that it would further relax its ban on so-called cultural imports from Japan, allowing for the first time public performances of Japanese pop music groups without restrictions. The move follows a host of recent initiatives aimed at strengthening bilateral ties, the most ambitious of which include efforts to work out a free-trade arrangement and to negotiate an investment accord. Seoul's longtime restrictions on the availability of Japanese culture, broadly defined, and certain made-in-Japan products, imposed due to lingering animosity over Tokyo's colonial rule of the Korean peninsula from 1910 to 1945, gradually have been dismantled in the face of a general warming trend in Japan-South Korea relations.

During an October 1998 summit with South Korean President Kim Dae Jung, then-Prime Minister Keizo Obuchi issued a landmark apology for Japan's 35-year occupation of the Korean peninsula (see JEI Report No. 39B, October 16, 1998). That gesture set the stage for the development of significantly closer bilateral ties. The two leaders also signed a tax treaty that provides equal treatment for Japanese and South Korean companies operating in each other's country. Within days of the summit, Seoul took the first step toward a major policy shift vis-a-vis Tokyo, partially lifting its long-standing ban on Japanese cultural imports. Japanese movies, videos and comic books were allowed into South Korea, albeit still subject to certain restrictions.

Messrs. Obuchi and Kim nurtured the new cooperative spirit at a March 1999 meeting, exchanging views on the possibility of forming a regional trade bloc and fleshing out the framework for an investment agreement (see JEI Report No. 12B, March 26, 1999). Four months later, Seoul completely lifted its restrictions on imports of Japanese consumer products, abolishing a 21-year-old measure originally enacted to protect infant industries and to help reduce a persistent bilateral trade deficit (see JEI Report No. 26B, July 9, 1999). Now, Japanese manufacturers legally can sell such products as camcorders, television sets and cellular phones in South Korea.

Last October, a high-level Japanese delegation visited South Korea to discuss a range of security, political and economic issues (see JEI Report No. 42B, November 5, 1999). The two sides agreed to press ahead with plans to complete the investment accord. They also revisited the possibility of creating a free-trade zone (see JEI Report No. 47A, December 17, 1999). In addition, Tokyo and Seoul signed a pact to eliminate double taxation of capital gains, a move that should help curtail tax evasion and spur greater business integration.

Tokyo and Seoul have continued to explore ways to foster economic cooperation. The leadership of both countries remains committed to completing the investment accord, although the breakthrough concessions that would spur significant progress are still lacking. In May, Prime Minister Yoshiro Mori spoke to the head of a Japan-South Korea business group and affirmed his support for concluding this agreement as soon as possible. A free-trade arrangement also remains on the official agenda, backed by joint research that suggests the idea is worth exploration. The Korea Institute for International Economic Policy and Japan's Institute of Developing Economies recently reported that, in the long run, the elimination of tariffs on the products of the other country would benefit both economies.

The two organizations noted, however, that several barriers still need to be overcome in the short run. For example, they warned that South Korea's trade deficit with Japan would increase by more than $6 billion a year, nearly doubling 1999's deficit (based on Japanese statistics) of ¥782 billion ($7.1 billion at ¥110=$1.00). Economists predict that high-quality Japanese consumer electronics products and other goods popular in South Korea would take over the market if trade were completely liberalized. A few nationalists even say that a free-trade agreement would presage the recolonization of the South Korean economy by Japan.

Some sectors of Japanese business, especially agriculture, are not enthusiastic about a deal either. In June, a South Korean government adviser charged that foot-dragging on the part of Japanese industry threatens to derail the development of a free-trade agreement. Nevertheless, the dialogue at the official level is progressing.

The latest relaxation of the cultural ban, Seoul's third major trade concession since the 1998 summit, will further warm bilateral relations. Of course, more needs to be done before South Korea can claim that trade with Japan is conducted on the same basis as, say, trade with the United States.

Under the import rules released by the Culture and Tourism Ministry, all Japanese films except those restricted to viewers over the age of 18 will be accepted. Likewise, Japanese musical recordings other than those containing songs in Japanese will be allowed. Personal computer and Internet games will be permitted, but content produced exclusively for video game machines will be denied access. Finally, all Japanese broadcasts of sports, documentaries and news will be allowed. Despite the limitations, the liberalization not only will be a boon to Japanese business but also will contribute to the momentum that has been building between the two countries.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

Issue Index aaaa 2000 Archive Index aaaa Subscriber Area aaaa Home