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S. Korea Set to Flood U.S. With New Cars


South Korea's globally ambitious auto makers are poised to send a flood of low-cost automobiles into an already overcrowded world market, a prospect that is sending shock waves across the Pacific.

The apparent determination of the financially troubled Asian tiger to export its way out of its economic woes is symptomatic of broader trouble ahead in the global trading system, economists and diplomats warn.

For South Korea is not alone. From Japan to Thailand, the "Asian miracle" finds itself in varying stages of disrepair, and the easiest way back to health for these once-robust economies is to crank up their vaunted export machines while continuing to protect their weak players.

U.S. officials, noting a sudden falloff in Japan's economy and a dramatic August surge in its global trade surplus, promise to raise such concerns at this weekend's G-7 finance ministers' gathering in advance of an International Monetary Fund/World Bank meeting in Hong Kong.

"Tensions are going to arise because of these slowdowns, and we are going to have to be vigilant," said Sven Arndt, director of the Lowe Institute for Political Economy at Claremont McKenna College in Claremont.

Nowhere is the dilemma in sharper focus than South Korea, which plans to at least double its auto-building capacity to 7 million vehicles by 2000--even as its own economy weakens and the world already has the capacity to build 20 million more vehicles each year than it needs. In the meantime, South Korea is allegedly retaining barriers that have restricted foreign cars to less than 1% of the 1.6-million-vehicle domestic market.

Automakers Hyundai and Kia already sell cars in the United States--both companies' U.S. headquarters are in Orange County--and a flood of Hyundai, Kia and Daewoo nameplates might be good news for U.S. consumers, because it should drive down prices for entry-level cars. But it means somebody else might lose sales, and thus jobs, while the world's auto makers are denied export sales to South Korea.

The South Korean scenario has U.S. auto makers fuming.

"It's a confirmation to many people of what they had always feared," said Steve Collins, director of international trade and economics for the Washington-based American Automobile Manufacturers Assn. "Everybody wants to be a Japan and be an export platform. And that's not going to make for a balanced global trading system."

Last week, the heads of America's Big Three auto makers wrote President Clinton and members of Congress detailing their unhappiness with South Korea's "irresponsible trade practices" and "irrational buildup of excess capacity."

U.S. auto makers, citing the paltry 3,900 vehicles they sold in South Korea last year, argued that the South Korean government has failed to implement a 1995 bilateral agreement designed to improve access for foreign cars by removing regulatory and tax barriers.

They urged the U.S. government to use its "Super 301" authority to include South Korea on a list of unfair trading countries to be published at the end of this month. That would set the stage for an investigation of the allegations and the possible imposition of penalties against South Korea.

In Seoul, where at least half a dozen giant chaebols, or conglomerates, have declared bankruptcy or sought fiscal relief this year, many view these actions as unnecessarily provocative. They say the Clinton administration should not be pushing so hard, particularly since the United States enjoys a $10-billion trade surplus with South Korea.

"For the U.S. to start to apply pressure to open up the market is ill-timed in the extreme, particularly given the broader political pressures on the South Korean peninsula and unstable economic regime in the north," said Jonathan Dutton, deputy head of research at SBC Warburg Dillon Read in Seoul.

But the U.S. is far from alone in its worries about South Korea's aggressive expansion in automobiles, an industry coveted for its payback in global prestige, high-paying jobs and cutting-edge technology.

Recently, the U.S., the European Community and Japan--a trio rarely on the same side of trade disputes--joined in filing a complaint with the World Trade Organization over an Indonesian national car project that gave South Korean auto maker Kia special access to that fast-growing Southeast Asian market.

Bill Pochiluk, a partner with Coopers & Lybrand Consulting, estimates that the world's car and truck makers will have excess production capacity of 21 million vehicles by 1998. They actually built just 50 million units last year, or roughly 75% of 1996 capacity.

"Frankly, the problem the South Koreans have had is they basically wanted to be the new Japan," he said. "This basically destabilizes the global automotive marketplace."

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