|Future of Indian - Korean Economic Cooperation
Like many other Koreans, when I think of India I am reminded of the poet Tagore's famous words about my country: "In the golden age of Asia, Korea was one of its lampbearers." When he wrote those words, his country as well as mine were under colonial rule. Seventy years later, we are proud and self-reliant nation-states, moving rapidly forward in the van of social and economic progress.
Today, I want to talk mainly about how our two countries can create a stronger, more dynamic economic partnership by combining their respective strengths and achievements. But if we are to become close economic partners as I hope, we should each have a clear understanding of the other's economic situation and prospects. Therefore, I would like to spend the next few minutes outlining the recent performance of the Korean economy and discussing some of the challenges we face.
Profile of Korean Economy
Until the 1960s, Korea was a largely agricultural country, with a lopsided trade imbalance and relatively few exports. With the launching of our First Five-Year Development Plan in 1962, our economy began a rapid transformation that placed us twelfth among the world's trading nations by the mid-1980s. As one would expect, our highest annual GNP growth rates were recorded in the earlier stages of development. But even in the 1980s, Korea's GNP growth rates have been among the highest in the world, reaching 12.3 percent in 1986. Moreover, for most of this decade high growth has been accompanied by relative price stability, although inflationary pressures reemerged last year. Surely Korea's biggest economic news story of the last few years was the achievement of a trade surplus in 1986 after decades of chronic deficits. That surplus began a trend that has continued up to the present and seems likely to extend into the next few years.
Still, not all our economic news was good. For most of the decade, protectionism abroad took a heavy toll on Korea's export trade. Our competitive edge in overseas markets has also been eroded by export price increases caused indirectly by substantial wage hikes in 1987-1988 and directly by the 20 percent appreciation of the Korean currency against the dollar in the past three years. In addition, we are under increasing pressure from the United States and the EC to reduce our trade surpluses with those countries.
We have responded to these challenges in several ways. To take the latter point first, we are seeking to pursue balanced trade expansion with our major trading partners, while at the same time diversifying our traditional trading patterns.
We firmly believe that the most effective way to balance our trade accounts with the United States and Europe is by enabling those and all other countries to compete freely in the Korean domestic market. To that end, we have carried out a wide-ranging policy of import liberalization since the early 1980s. As a result, our import liberalization ratio currently stands at 95 percent, and virtually all types of manufactured goods are freely importable into Korea, subject only to relatively modest tariffs.
Import liberalization not only serves to dampen trade disputes; it also helps us to compete more effectively overseas and to contain our overall trade surplus at an optimum level. Perhaps most important of all, it raises our people's living standards by giving them a wider range of consumer goods from which to choose.
In tandem with import liberalization, we are also working hard to reduce our traditional export dependence on the United States and import dependence on Japan. By diversifying our import sources and export markets, we hope to substantially reduce our trade surpluses with the former and our deficits with the latter. This is one of the reasons our businessmen are showing increased interest in the Indian market, which I will comment on in detail shortly.
But more than this is needed if we are to overcome the adverse effects on our export performance caused by currency appreciation, wage hikes, and growing competition from other developing countries. The only long-term solution is for Korea to shift its export pattern from downscale, labor-intensive goods to upscale, technology-intensive products. This process has been underway for at least a decade, but in recent years both government and the private sector have vastly expanded their efforts to raise the technological level of Korean industry-and with considerable success, I believe.
As Korean industry moves upscale, the nation's top executives are giving serious thought for the first time to transferring some of their more labor-intensive production lines overseas. As a result, offshore investment by Korean companies is rising rapidly, financed by the surplus funds accruing in our trade account. I want to stress here that Korean overseas investment is almost always used to create new productive assets that generate jobs and income in the host country. Unlike some East Asian overseas investors, Korean companies are not particularly interested in acquiring foreign stock portfolios or government bonds.
Toward Closer Economic Cooperation
Against this background, I will now turn directly to the core of my presentation: our two countries' economic relationship-its history, prospects, and potential.
In economic terms, India and Korea are certainly quite different. But these very differences make our two economies highly complementary, and thus natural economic partners. Koreans and other observers are especially impressed by the diversity of the Indian economy. Its primary products sector covers a wide range of agricultural items and natural resources, while its manufacturing sector produces everything from the simplest handicrafts to jet aircraft and the most sophisticated machinery.
Korea offers a large potential market for many of these items, especially raw materials, but also many kinds of manufactured goods. By the same token, Korean businessmen are convinced that there exists an equally large potential market for their products in India.
And yet our respective shares of each other's import market-about 1 percent-are much smaller than would seem warranted by the size and complementarity of our two economies. Moreover, our bilateral trade performance in the last few years has been rather disappointing. In the early years of the decade, Indian-Korean trade volume rose rapidly, peaking at $1,400 million in 1984. Then it began to decline, falling to $606 million last year.
To some extent these figures give a misleadingly negative impression. In our peak year of 1984, ships accounted for 65 percent of the total dollar volume, compared with less than 4 percent last year. This is an exceptional case, and our two-way trade in most other items has been increasing.
Although we are still far from reaching our goal of bilateral trade equilibrium, we are making rapid progress in that direction. As of last year, Korea still exported to India twice as much in value terms as it imported from your country. However, compared with the preceding year, Korea's imports of Indian goods increased by 59 percent, while India's imports from Korea fell by 5.2 percent. Accordingly, Korea's trade surplus with India narrowed considerably, and the trend is continuing in 1988.
One reason for this recent progress is, as I mentioned earlier, the efforts being made by Korea to diversify its import sources by finding alternative suppliers to those in Japan. With this end in view, my government organized a private-sector buying mission to India last July, which is expected to eventually result in almost $70 million worth of new Korean imports from your country. Another important initiative in this direction was also taken last summer, when Indian Trade Minister Das Munshi visited Korea and formally opened a branch office of the MMTC in Seoul. I hope this precedent will be followed in short order by other Indian state and private-sector trading corporations.
At this point, I would like to suggest some specific measures that I believe would be very helpful in promoting trade expansion between our two countries.
First, we should encourage mutual participation in each other's international biddings. In the case of India, some three-fourths of its imports are purchased through international tenders, and I think both our countries would benefit if Korean firms were given greater access to this process. The areas in which our competitive strength and India's specific requirements overlap include shipbuilding, offshore structures, hydro- and thermoelectric power plant facilities, rolling stock, iron and steel, and oil-drilling facilities. In many cases, the supplier financing requirement in Indian international biddings can be met through the deferred payment export credit plan of the Korean Export-Import Bank.
Second, businessmen from both countries need more precise and accurate information on each other's markets. This need can be largely met through increased exchanges of business missions, individual visits, and more frequent staging of trade exhibitions. To be fully effective, these activities will in many cases require active government support.
Third, we should encourage closer ties between the government-run Korea Trade Promotion Corporation and the Trade Development Authority of India. A useful first step will be the cooperation agreement that the two bodies plan to conclude later this year. Strong links between TDA and KOTRA should be especially useful in organizing exchanges of information and trade missions.
It is important to recognize that economic cooperation between India and Korea is not and should not be limited to conventional trade relations. Industrial and technological cooperation is also of critical significance to the future of our two countries' economic partnership. This area was largely unexplored until the early 1980s. But in just the last few years, Indian and Korean businessmen have collaborated in a total of 36 projects. Most of these are relatively modest in scale, but they constitute a good beginning. In the long run, I think, the most successful Indian-Korean joint ventures will be those that can harmoniously combine Indian science with Korean engineering expertise.
Of our joint ventures to date, the majority has produced mainly for the Indian domestic market. But I believe there are also excellent possibilities for joint ventures that would produce exports primarily for the markets of Eastern Europe, with which nations India maintains very cordial relations. I might note here that my country, though a latecomer in this regard, has begun the process of building bridges to the socialist countries. And we expect this will eventually yield major economic and political dividends to all parties concerned.
Now is a particularly opportune time to consider the subject of joint ventures between India and Korea for two reasons: first, because the Korean government is encouraging offshore investment by Korean firms as a way of managing the current account surplus; and second, because the Indian government has recently initiated a policy of import liberalization with respect to capital goods. I know that this subject was extensively discussed between the members of the Korean trade mission and their Indian counterparts last summer, and I understand that a number of very promising ideas were explored.
Thus far, I have spoken largely in bilateral terms. Yet our partnership also has a multilateral significance. The most important aspect of this relationship is "South-South Cooperation."
Developing countries such as India and Korea share many problems and challenges as well as opportunities in this regard. Above all, we are confronted with rising protectionist barriers limiting our access to traditional export markets. By the same token, our access to external capital markets is becoming more restricted. A logical solution to these challenges would be for developing countries to trade more with each other and to invest more in each other's economies. If we can't defeat protectionism, we can at least circumvent it to a certain extent.
As a modest step in this direction, last year Korea established a special fund to assist other developing countries procure essential raw materials and other commodities. Designated the Economic Development and Cooperation Fund (EDCF), with a grant element of more than 25 percent, its disbursements will be provided in the form of bilateral official development assistance. I am hopeful that India, as the world's largest noncommunist developing country, will eventually become a major beneficiary of the EDCF.
Before concluding, I would also like to touch on the common interests we share in the Uruguay Round negotiations currently underway in Geneva. On the issues of protectionism among developed countries and the so-called new issues, India and Korea generally have similar interests and views, as do most other developing countries. At the Uruguay Round Mid-Term Review this December in Montreal, the developing countries will once again have an opportunity to forge a unified position and strategy on these critical issues. In the past these opportunities have too often been wasted. If we don't want that to happen again, I think it would be extremely helpful if India and Korea could join forces to rally the developing countries in a common cause. The ideal of "South-South Cooperation" may still be distant dream, but if it is ever to take shape, it is likely to do so first at the trade negotiating table.
In these brief remarks, I have tried to convey to you my thoughts on the most effective means of strengthening economic cooperation between India and Korea. I am convinced that with sufficient commitment and effort, we can transform our bilateral relations into a model partnership between two developing countries. This will require the active support and collaboration of business, government, and the academic community.