FEBRUARY 1983 - VOLUME 4 - NUMBER 2
Japan, the U.S. and South Korea: A New Alliance Takes Shape
Despite sharp disputes between multinationals and the Korean government, relations between the three countries are closer than everby Tim Shorrock
Shortly before his visit to Washington, Japanese Prime Minister Nakasone Yasuhiro paid a highly significant visit to South Korea. This trip - the first political visit by a Japanese leader to Korea in more than 40 years - marked the symbolic end of a period of tension between the two countries over economic and political issues. It was also the culmination of a two-year pressure campaign by the U.S. for Japan to increase its role in regional defense measures.
During his visit to Seoul, Nakasone met with Korean President Chun Doo Hwan and pledged support for closer ties between the U.S., Japan and South Korea. The two leaders also finalized agreement on a $4 billion Japanese economic aid package to South Korea. The loan was explicitly linked to South Korean security: "We give economic cooperation to that country to make it more stable," said Nakasone.
The new Prime Minister has long been one of the strongest supporters of close ties between South Korea and Japan. But his public comments to Chun and Reagan went far beyond previous Japanese committments to regional defense. To many observers, the completion of the loan agreement with South Korea and Nakasone's references in Washington to Japan as an "unsinkable aircraft carrier" marked a turning point for U.S. - Northeast Asian relations: the beginnings of a new military alliance between Japan, the U.S. and South Korea.
Japan and Korea: A bitter history
Due to Korean bitterness about Japanese pre-war oppression, postwar economic and political relations between the two countries did not begin until 1965. The Normalization Treaty signed that year was the result of intensive U.S. pressure. Between 1959 and 1965 the U.S. cut back aid to South Korea to force the government to open its economy to foreign investment and re-open its links with Japan: and a number of commercial treaties with Japan were delayed until the treaty was signed.
The primary reasons for this pressure were the increasing involvement of the U.S. in the war in Vietnam and the general weakness of the South Korean economy. The U.S. saw the Normalization Treaty - and the $800 million in Japanese aid to South Korea that followed its signing - as an important first step in regional cooperation with Japan.
The treaty was strongly supported in Japan by an influential group of Japanese businessmen and politicians in the ruling party, known as the "Korea Lobby." Representing many of the large Japanese firms that had had holdings in colonial Korea, they now saw South Korea as an important source of cheap labor and a market for the expanding Japanese economy.
By 1970, Japan had passed the U.S. to become the leading foreign investor in South Korea, providing the capital for the first phase of South Korea's export-oriented industrialization. At first, its investments were concentrated in the lowwage textile and electronic industries. But in response to growing Japanese dissatisfaction with the environmental impact of heavy industry, Japanese capitalists began to invest in and finance Korean chemical, steel, shipbuilding and automobile plants.
By 1982, Japan had accumulated investments of over $650 million in South Korea. This was double the amount of U.S. investments of $319 million (a figure that has decreased in the last year as two major investors, Control Data and Dow Chemical, have pulled out). Most Japanese investments have been concentrated in manufacturing and tourism, while U.S. companies have concentrated their investments in oil refineries, petrochemicals, fertilizer, electric power and electronics - by far the most profitable sectors of the economy. (With less than one-third of the investments, U.S. multinational corporations have made over three-fourths of the profits accruing to foreign investors in South Korea. According to Business International, between 1965 and 1978 U.S. firms remitted over $130 million in profits, or 75% of the total.)
President Chun Doo Hwan has taken a more nationalistic stance towards Japan than his predecessor, Park Chung Hee. Park, who was trained in the Japanese Imperial Army, had close ties to the Japanese "Korea Lobby" and tolerated (and reportedly profited from) the corruption and bribery that was rampant in Korean-Japanese business relations during the 1960s and 1970s.
In an attempt to establish an image of "clean government," Chun has jailed some of these figures. His government has also sharply criticized South Korea's huge trade deficit with Japan, which had reached $20 billion in 1981. But his strongest criticism has come over the issue of regional defense.
South Korea spends 6% of its GNP on defense - 30% of the government budget - compared to less than 1% in Japan. In 1983 Korean military spending will be nearly $4.6 billion. The Korean government argues that Japan should help South Korea in its defense spending because the Korean military helps protect Japanese interests in Korea and throughout the region from North Korea and the Soviet Union.
In 1981 - with U.S. backing - the Chun government bluntly demanded that Japan grant it $10 billion in "security assistance;" the request was rejected. Since then, the loan issue has been a major stumbling block in U.S.-Japan-South Korean relations.
Although Japan officially recognizes South Korea's security contribution, political realities prevent the government from making outright military aid. A sizeable number of Japanese oppose the government's recent moves towards rearmament, and the issue of nuclear weapons is an emotional one. For these reasons, the Japanese government turned down the Korean request, and insisted on a smaller amount.
Early in 1982, the Koreans came back with another proposal. This time they asked for $6 billion, and excluded their demand for security aid. Negotiations began to move - until they were broken off by a regional dispute over revisions in Japanese textbooks which downplayed the Japanese role in colonizing and making war on Asia.
As the dispute over textbook revisions continued, however, South Korea began feeling an economic pinch from a massive financial scandal that nearly brought down the government. The scandal revolved around loans made to Korean domestic companies by "curb lenders" who conducted their business on the streets outside of major banks. The practice was tolerated by the government because it provided a needed source of capital for domestic - oriented firms.
But the bottom fell out of the market after two wealthy lenders were convicted of selling nearly $1 billion in worthless promissory notes. A number of bankruptcies resulted, and strict controls were placed on the lending. The scandal damaged Korea's standing in the international financial community, and deepened South Korea's domestic capital shortage.
In the wake of the controversy, Korean officials began to express interest in resolving conflicts blocking the loan. Former Japanese Premier Tanaka - representing the "Korea Lobby" and major companies doing business in Korea - made several "behind the scenes" contacts with Korean officials in an effort to move the talks.
The January $4 billion loan agreement was made possible by a "political settlement" between the two governments: Japan agreed to "revise" its textbooks to reflect Korean concerns; and the Korean government released the prominent dissident Kim Dae Jung (Kim, who nearly defeated Park Chung Hee in South Korea's last open presidential election in 1971, had been kidnapped from his Tokyo hotel by Korean CIA agents in 1973. This violation of human rights and Japanese law outraged the Japanese public and government).
American and Japanese bankers have been watching the negotiations over the loan with growing concern, and reportedly were holding off on further loans until the talks were completed. South Korea now has one of the highest debts in the world - $39 billion at the end of 1982 - and may face severe difficulties in meeting debt payments if the world recession continues.
South Korea's development plans for the next five years originally called for a total of $53 billion in loans and $2.5 billion in investments. Though the plans have been scaled down considerably - 33 major projects have been postponed - Korea still remains badly in need of massive amounts of capital. According to the Far Eastern Economic Review, 12% of the Korean GNP is dependent on foreign money, including government and commercial loans, export credit, grants and direct investment
The $4 billion loan thus provides a badly-needed boost to the South Korean treasury, allowing the government to continue its high rate of military spending. And the compromise agreement - the money will go to a still unspecified number of "welfare projects" - allows Japan a face-saving way to give South Korea military aid.
The loan thus constitutes the first concrete military-related link between the two countries in the postwar era, and represents a "foot in the door" for the establishment of a military alliance between Japan, South Korea and the U.S.
U.S. officials were pleased with the loan agreement and the friendly visit of Nakasone to South Korea. Reagan Administration officials said the visit was "a move which would contribute to peace and stability in Asia." A State Department spokesperson told Multinational Monitor that the U.S. was "happy to see our close friends in Asia come to an agreement."
The U.S. denies that it is pushing a regional alliance with Japan and South Korea. "The U.S. would like to see Japan increase its pace in military spending to reach their own goals," the State Department official said. "But we're not interested in seeing Japan as a military power." Asked about South Korean assertions that its forces protect Japan, the official said, "It's Korea's expressed view that their military is essentially helpful to Japan. But the U.S. has never said that."
A Defense Department press officer explained that the "bilateral and separate agreements" with Japan and South Korea are a "success." But he added that the loan agreement between the two countries "shows that they see they have many common interests. We're happy to see it."
Despite the denials, events of the past five years show an increased level of cooperation between the three countries in security and military policy. With the completion of Nakasone's "shuttle diplomacy," the political ground has been laid for more extensive tie-ups in the future (see box).
Anti-Americanism in South Korea
Ironically, close relations between the U.S., Japan and South Korea are coming at a time when unprecedented antiAmerican feeling is building in South Korea in reaction to U.S. support for the authoritarian regime of Chun Doo Hwan. Sharp criticism has come from student and worker groups, who resent the economic domination of South Korea by U.S. multinationals and the U.S. support for a government that imprisons trade unionists and prohibits the formation of independent unions.
Many small and middle-sized businessmen, and some government officials, fear U.S. domination of local markets, and are opposing U.S. investments in protected sectors of the economy. In the last year, three major U.S. corporations - Dow Chemical, Control Data, and General Motors - have pulled out of South Korea due in part to struggles with local management and the government, as well as with labor. Conflicts have become so strong that Dow recently advised investors "not to invest five cents" in South Korea unless the climate improves. Business Week recently commented that the "fiercely nationalistic traditionalists" in the Korean government threaten to bring "the country's go-go foreign investment program to a grating halt."
Despite the conflicts between Koreans and U.S. investors, however, South Korea remains a large market for American agribusiness, oil, military, nuclear and engineering companies. As long as the country is stable, these multinationals - and their friends in the State Department - will continue to support the Chun government.
Tim Shorrock is Editor of the Multinational Monitor.