Trade deficit with Japan tops US$10 billion

Korea's deficit in its trade with Japan has exceeded US$10 billion so far this year, according to a provisional tally of the Ministry of Commerce, Industry and Energy (MOCIE).

Such a massive deficit of more than US$10 billion is the first of that magnitude since 1997. The deficit is equivalent to that of Korea's trade surplus during the same period.

The ministry estimates that the trade deficit with Japan for 2000 will be more or less the same as the nation's projected trade surplus for this year.

The nation's trade deficit with Japan hit a record level in 1996 at US$15.7 billion and had shrunk to US$13.1 billion in 1997 and US$4.6 billion in 1998. Yet it rebounded to US$8.3 billion last year and has been soaring so far this year.

During the past 40 years since Korea began formal trade with Japan in 1960, Korea never has enjoyed a surplus in trade with Japan. To correct the unbalanced trade between the two countries, the Korean government has worked out a five-year plan to correct the imbalance twice in 1986 and in 1993. However, such policies ended in failure.

Vice MOCIE minister Oh Young-Kyo, who participated in the five-year plan, said that the government of that time didn¡¯t have confidence in the plan. He pointed out that it is very difficult to penetrate the Japanese market because of its complicated distribution system.

However, the fundamental reason for such a huge deficit is because of Korea¡¯s heavy reliance on Japanese parts and components. Japanese economist Omae Kenichi, who is known for his critical comments about the Korean economy, said that the core difference in industries of Japan and Korea is the competitiveness in parts industry.

Korean experts also indicated that reliance on Japanese suppliers was growing as the nation's industrial structure focuses more on heavy-chemical industries and high-tech industries. In this sense, the trade imbalance reflects the weaknesses of Korea's economic structure. In other words, poor technological capability and fabrication-based industries are triggering the nation's trade imbalance with Japan.

For this reason, Korea might be able to correct the imbalance only through building up its parts industries, as well as consolidating the overall industrial structure. Oh Jung-Hun, research fellow at LG Economic Research Institute, said that the trade imbalance with Japan cannot be solved through a temporary measure, noting that it is necessary to work out a long-term approach to tackle the problem.

Lee Myung-Jai mjlee@donga.com