Deficit With Japan

The Only Way Is To Narrow Technology Gap

The Knowledge Economy Ministry announced measures Tuesday to rectify the chronic trade deficit with Japan, which hardly made news by itself.

Since the days of the late President Park Chung-hee, all Korean governments have made it one of their foremost goals to narrow the ever-widening trade gap with the world's second-largest economy, a paradoxical reminder that it has become all but an impossible dream for government officials and business executives here.

Yet the latest announcement deserves some attention in at least two aspects. First, the government has set a specific reduction goal this time, from $32.7 billion in 2008 to $21.7 billion this year. Second, it plans to attain that goal not by reducing imports from Japan but by increasing exports, particularly those of consumer goods, to the neighboring economic giant.

Although largely encouraged by the unusual strength of the Japanese currency that helps to enhance the price competitiveness of Korean exports, the government is going in the right direction, as Tokyo is eyeing to shift from an export-led growth model to bolstering its domestic demand to get out of the most serious global recession since the 1930s.

Korea of course cannot be an exception from such a paradigm shift sweeping East Asian countries from undue dependence on exports to reinvigorating domestic demand-oriented industrial sectors. Unlike Japan, however, Korea first needs to completely pull itself out of the lingering specter of a currency crisis, and there is no better way of doing this than maintaining current-account surplus, or exporting its way out. And it seems only natural that more Korean export products should be bound for Japan instead of the United States hit hardest by the crisis.

The problem is whether Korean exporters will be able to find as many consumers of made-in-Korea goods as they wish in Japan, which has long regarded Korean products as so-so at best in terms of both price and quality.

Which brings us back to the longest pending issue in Korea-Japan trade of how to sharpen competitiveness especially in parts and components industries. Last year alone, Korea sustained a trade loss of $20.9 billion in this sector alone, or 60 percent of total trade gap, which is behind the long-running economic imbalance of ``the larger Korean exports grow, the wider its trade gap with Japan becomes.''

Past experiences show there can be few short cuts to rectifying this problem other than making massive investments into research and development of parts-component industries.

Unfortunately, this is another area in which the Lee Myung-bak administration is showing a gap between what it preaches and what it practices. President Lee has often stressed the need for narrowing the trade imbalance with Japan, but his administration's R&D budget is frustratingly small compared with outlays for massive construction and engineering projects.

So much so that some Japanese business executives operating in Seoul have recently expressed their concerns about the Korean government is following the wrong path Japan has taken over the past one and a half decade by creating bubbles.

Without technological self-reliance and correct allocation of financial resources to fit the goal, Korea's economic independence from its former colonizer appears remote.