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Baker Urges S. Korea to Ease Trade Barriers, Let Currency's Value Rise

February 27, 1988|SAM JAMESON | Times Staff Writer

SEOUL, South Korea — Treasury Secretary James A. Baker III called Friday for South Korea to cut its growing trade surplus with the United States by lowering its "high tariffs" and letting its currency rise in value to "reflect fully the underlying strength of the Korean economy."

South Korean officials said he had urged Finance Minister Sakong Il to let the currency--the won --appreciate by the same percentages that Japan's yen and Taiwan's dollar gained last year, or three times a greater increase in value than the won achieved in 1987.

Baker, who was here as President Reagan's envoy to the inauguration of President Roh Tae Woo on Thursday, also praised the first peaceful and democratic transfer of power in South Korea's history as a "historic event which has inspired the admiration of all Americans and, indeed, of the entire free world."

Speaking at a news conference here shortly before his departure, Baker also said he told Roh that America's commitment to South Korea's security "remains firm, absolute and undiminished."

Baker, however, complained that South Korea's trade surplus with the United States "grew 39% in 1987 on top of a 57% growth in 1986 and was about equal to South Korea's entire current account surplus." Last year's surplus was $9.9 billion.

"With Korea's growing economic strength and the remarkable reduction in its external debt that has occurred during the past 18 months, we look to Korea to help reduce our bilateral imbalance . . . (by) further market-opening measures as well as allowing the won to reflect fully the underlying strength of the Korean economy," Baker said in a prepared statement.

Asked about South Korean forecasts that the won would gain 16% in value this year, Baker refused to comment.

South Korean officials, however, said Baker had asked Sakong for a far faster rate of appreciation, one along the lines of Japan's yen, which rose 29.8% in value, or Taiwan's dollar, which gained 24.6%, in 1987.

Although the Bank of Korea claims that exchange rates are determined by a weighted "basket" of foreign currencies, the won failed to appreciate in value for more than a year after the finance chiefs of five industrialized countries agreed on Sept. 22, 1985, to drive down the value of the dollar.

Since the 1985 accord, the won has appreciated only 17%, including a gain of 8.7% last year, compared to 41.4% for the Taiwan dollar and 86.2% for the Japanese yen.

So far this year, the South Korean currency has risen to 764.40 to the dollar for a gain of 3.6% --a pace that would, if it continues, produce a 24% appreciation for the year.

Baker disagreed with a Korean reporter who said U.S. demands for market opening are "unfair" in view of South Korea's "large" foreign debt of $35 billion and a heavy defense burden equal to more than 5% of the gross national product.

"Korea is an absolutely unqualified economic success story. . . . You are now one of the major trading nations of the world," Baker retorted. "The world's free-trading system depends upon free and fair trade and that means equal access to your markets by your trading partners."

Baker said he also urged South Korean officials to remove a ban on beef imports and permit beef to be sold freely throughout the country, not just to tourist hotels as the Seoul government has offered to permit. He said he also "touched upon" issues involving protection of intellectual property.

South Korean officials said Baker also had urged Sakong to open up his country's insurance, banking and securities markets. Sakong told Baker, they said, that an opening of the capital markets here was "premature." What Sakong said about the appreciation and insurance issues was not disclosed.

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