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Korea, Not a Paradigm for Free Trade Economic Success

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how we think
date
12-05-24 21:11
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3,642
Korea, Not a Paradigm for Free Trade Economic Success
Joon Min Kim
St. Lawrence Seminary High School, Mount Calvary, WI, USA


Abstract
Korea’s astonishing economic growth over the past 40 years has been nothing short of amazing. However, it wasn’t free trade that moved Korea from the grips of poverty to the middle power as it is today. It was the vision of Korean leaders to place protectionist measures to insure primary and secondary industries survive and compete with those in other nations. This enabled Korea to fully exploit the benefits of free trade.
Neo-liberalists say the reason for South Korea’s rapid development is the active international trade policies it has implemented, including free trade agreements with several nations. This is evident from the fact that the country’s degree of dependence upon foreign trade according to its Gross National Income(GNI) grew from seventy-one percent in 2002 to ninety-four percent in 2007 (Park, 2008). Such a sudden increase in trade dependence would be difficult to explain without referring to the many different free trade agreements Korea has signed.
The Ministry of Foreign Affairs and Trade shows that Korea has reached free trade agreements with Chile, Singapore, the United States, the European Union, and the Association of Southeastern Asian Nations (ASEAN) while solidifying the Comprehensive Economic Partnership Agreement, or CEPA, with India. These agreements reflect Korea’s willingness to enter free trade agreements. It supports such agreements because of their positive impact on the country’s economy. However, there is one aspect of Korea’s economic development that people sometimes disregard. Behind the accomplishment of Korea’s international trade, there is a period in history when the idea of the “free flow of goods” was completely ignored in order to build Korea’s economic foundation. Without this period, Korea might still be immersed in poverty.
When Korea gained independence from Japanese colonial rule after the World War II, the nation underwent a dramatic transitional period toward modernization. There were only 7.1 million dollars worth of exports from Korea during this time. However, as Korea suffered from the Korean War, profits which Korea had gained from exports quadrupled. Most of the goods exported at the time were raw materials, such as tungsten; and the money earned was spent in importing necessary materials needed to rebuild destroyed facilities and infrastructures (Asia Trade Hub, 2009).
Gaining power through a coup d’état in 1961, Park, Chung-hee came up with a five-year economic development plan. This plan mainly focused on modernizing primary and secondary industries to become free from trade dependency. It was designed to primarily develop existing electronics and heavy chemical industries. These measures were implemented to equalize the imports of raw materials with Korean exports.
The main point is that the economic success gained during this period was not based upon free trade. The government gave lots of incentives, such as tax cuts to individuals or companies that exported goods. It also lowered tariffs on imported raw materials that were necessary in producing exported goods, while strictly limiting the import of luxury items. These protectionist measures helped Korea to move from dire economic conditions to a nation well on its way towards a developed one, all without a free trade policy in place.
Stabilized trade and the economy of Korea were derailed in the late 1990s due to the panic situation caused by the Asian Financial Crisis. In order to overcome the problem of the rapid withdrawal of foreign investors, Kim Young-Sam administration had to get a relief loan from the International Monetary Fund (IMF). The IMF, in return, pointed out eight structural problems of the Korean economy and demanded changes (Feldstein, 1998). The list included 'structural problems' such as foreign investors’ limited access to Korean businesses. It also identified the fact that domestic markets were not fully open to foreign banks and insurance companies, and the limited import of certain industrial products was problematic. In addition, the strong power that the government held over banks, including the Bank of Korea, was addressed.
All these problems, along with others, were policies originally created to combat free trade, which led the Korean economy out of poverty and made it possible to accomplish the “Miracle of the Han River,” which refers to Korea’s great economic success in less than 40 years. The fact that this term was coined prior to Korea’s participation in free trade agreements lends to the theory that the economic success enjoyed by Korea is not solely a result of free trade, but it also stems from the country’s practices prior to free trade policies.
The Korean paradigm if viewed from a historical perspective seems to imply that in order for a country to successfully take part in free trade, it first needs to adopt some policies that would protect its industries from limitless competition against other countries with more advanced technology. Through such support, industries that form the nation’s economic basis can be nurtured, and in turn thrive.
Korea following the Korean War was a developing nation which was not ready for the free trade policies it has in place today. Had it adopted free trade policies then, chances are that most Koreans would still remain farmers, exporting crops and other raw materials, while the county’s industries collapsed after competing in the world market. The policies put in place by the Korean government following the Korean War provided the foundation for the growth and economic success Korea enjoys today.
The average person may be quick to credit free trade policies for all the economic success Korea has had, but they would be remiss if they ignored the Korean policies that put the country in a position to thrive in a free trade environment. Korea, in the end, is not an ideal paradigm for neo-liberal scholars to use when illustrating the success of free-trade policies, as the true reason for Korea’s success is rooted in the policies of the country’s past.


References

Asian Info (2000). Korea’s Economy. Retrieved on October 21, 2009, from
http://www.asianinfo.org/asianinfo/korea/economy.htm
Asia Trade Hub (2009). South Korea Trade (Foreign Trade).Retrieved on October 21, 2009, from
http://www.asiatradehub.com/s.korea/trade.asp
Feldstein, M. (1998). Refocusing the IMF. Foreign Affairs. Retrieved on October 22, 2009, from
http://www.imfsite.org/reform/feldstein.html
Hwang, D. (2001). Korea’s Trade Policy in the Global Age. East Asian Review. Retrieved on October 20, 2009, from http://www.ieas.or.kr/vol13_3/13_3_1.pdf
Ministry of Foreign Affairs and Trade (2007). Korea’s FTA Policies. Retrieved on October 14, 2009, from
http://www.fta.go.kr/user/fta_korea/policy.asp
Park, S. (2008). Korean Economy, Increased dependence on exports, low growth on the domestic Market. Yonhap News. Retrieved on October 21, 2009, from
http://news.naver.com/main/read.nhn?mode=LSD&mid=sec&sid1=101&oid=001&aid=0002016479