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[Economic Opinion] Reawakening of Korean Industrial Liberation

Immediately after G20 Osaka Summit meeting, a number Japanese media began reporting about Japanese government’s plan to change her export regulation policy against Korea. The core of the policy change is to remove Korea from the 27 White list countries, which has been allowing preferential treatment regarding export and technology transfer licenses. The news was rather shocking in two respects : First, it was just a day after G20 summit meeting where PM Abe declared to ‘lead global economic growth by promoting free trade’ and ‘to realize and promote a free and open, inclusive and sustainable, human-centered future society’. His announcement to the world was actually proved to be vacuous slogans in less than 24 hours. The other shock was that none other than Korea was omitted from the white list, where countries like Poland, Argentina and Greece, among others, are included. This makes people to suspect that Japanese action was all but retaliatory.

Why? Although Japanese government officials reiterated number of times as a matter of security precaution, the real intention was quite evident : it was a lurking political antagonism against the president Moon and his government. The president Moon and his cabinet members were conceived by Japanese leaders as very adamant about the reclamation of the cruelty and exploitation under the colonization period during 1910-1945. Although Japanese government and PM Abe believe that everything has been settled in its entirety when Korea and Japan signed the treaty on the basic relations in 1965, after which Korea and Japan normalized diplomatically, they were severely angered and agitated when Korean Supreme court ruled last October that Japanese firms should compensate for their belated unlawful damages committed more than a half century ago.

No matter what were the real intention behind the Japanese initial action, the consequences or reactions in Korea were beyond anyones imagination. Hundreds of thousands people joined various boycotting movements, and vacation traveling to Japan was almost completely annihilated. Major Japanese products such as beers or cars or apparels are openly denied by Koreans consumers. Cultural activities between schools or local governments are being cancelled by Korean counterparts and there have been massive anti-Abe demonstrations on the streets across the country. All these reactions are, however, personal and filled with emotion, which would return to normality sooner or later.

Nonetheless, there broke out quite significant and non-transitory movements from this Korea-Japan turmoil. It was the realization by Korean people of how deeply Korean industries have been subjugated by Japanese industrial advancedness. Most of the products made in Korea were found to be using crucial Japanese parts and materials without which manufacturing was almost impossible. Semi-conductors, mobile phones, cosmetics, pharmaceuticals and automobile production all require certain portion of Japanese materials. Korean people as well as government now began to realize the immense technological gap or dependence in many industries against Japan.

With this recognition, Korean government hurriedly prepared and announced a set of comprehensive programs to enhance technological development in the parts, material and equipments industries. The programs’ longer term objective was set to establish strong competitiveness in material, parts and equipment industries, but the immediate goal is to provide sufficient supply of the 100 strategically crucial commodities. The 100 products were picked according to industrial importance, substitutability, dependance on a particular country and its positive effect on leading industries. Those includ 6 major categories : semi-conductors, display, automobiles, electric and electronic products, machineries and metals, and basic chemical products. Of these 100 products, government believe 20 items could be sufficiently supplied with 1 year, and the rest could be readily provided in 5 years. Import diversification being the prime strategy for the 20 quick items, it requires massive R&D investments for the 80 5-year items. Government plans to put 7.8 trillion won in 7 year period for domestic substitution, as well as additional 2.5 trillion won in encouraging M&A of technologically advanced companies. Also, government plans to provide preferential support to technology transfer and direct investment from abroad.

No one will deny the program as needless, but at the same time, no one would agree that it will be enough, either. Not that 10 trillion won involved is too little. Not that government-picked 100 strategic items miss the real target. The most important element in the program should be that real initiative should be given to the private sector, namely corporations involved. It is they who knows what to produce here, and it is they who knows how to produce here. So, the private sector should take the helm of technology development. They would try to produce here if they think it desirable and possible. It can be successful only when the private sector can controls the destiny of technology development. Some must be supplied internally, but not all 100 items should be produced necessarily here. It is real liberation when Korea should not depend or rely on Japanese parts, materials or equipments, and PM Abe has awakened Korean people hurriedly to do so.

By Professor Se Don Shin
Dean, Sookmyung Women’s University

The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA

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