Foreign trade immediately following the U.S. occupation of the southern part of Korea is nonexistent as the country struggles to cope with internal material shortages. A damaging drought in 1948 requires that large amounts of food grain be imported. Due to persistent political turmoil, the U.S. cancels its plans to provide $500 million in investment for development.
Foreign aid comprises almost half the national budget through 1960. At the end of the decade, the focus is on increased industrial production. Materials essential for reconstruction, such as cement and steel, are made domestically to reduce dependence on imports. A dramatic drop in foreign aid hits import-dependent industries by cutting the supply of raw materials, sparking an economic downturn.
Industrialization based on exports begins. Financial incentives such as tax-free imports of raw materials encourage the production of export goods, stimulating growth in the textile, electrical machine, and small appliance industries. The Economic Planning Board switches from a positive list system of import controls to a negative list. Large-scale imports of major grains are allowed.
The Third Five-Year Plan focuses on heavy and chemical industries, solidifying the export-driven economy. Chaebol that miss government-imposed export quotas lose their favored status. Auto exports take off, and imported cars virtually disappear from the market. The manufacture of domestic consumer goods decreases due to stringent price controls. Exports increase an estimated 45 percent a year.
Korea suffers greatly from the jump in oil prices, and the cost of its oil imports nearly doubles in 12 months. The economic crisis that follows is caused in part by the emphasis on exports at the expense of domestic consumer goods, the demand for which has risen thanks to increased wages and a higher standard of living. A reduction in price controls aims to stimulate production of these goods.
After early success in heavy industry exports, topping US$17.5 billion in 1980, unfavorable global conditions hit Korea's export-intensive economy. Foreign investment policies are relaxed in response to a decrease in domestic investment. Restrictions on imports are removed. Korea's "Nordpolitik" increases trade with China and the Soviet Union and its European satellites.
The Sixth Five-Year Plan continues the trend away from heavy industry toward export-oriented consumer products, including electronics and high tech. The government removes restrictions to create a friendlier import environment, but a variety of non-tariff barriers continue to complicate trade. In 1986 Korea achieves a favorable trade balance for the first time, a trade surplus of US$4.2 billion.
Growing domestic consumption of luxury items, including high-tech and electronics products, reduces exports. In 1995 Korea becomes a founding member of the World Trade Organization and, per WTO agreements, reduces tariff rates and import restrictions on autos, high-tech products, and financial services. To avoid U.S. sanctions over unfair trade practices, Korea opens its rice market to imports.
The 1997 IMF loan program requires Korea to remove restrictions on foreign investment in its stock market, and non-citizens can now make commercial and personal land purchases.
Korea's rebound from the 1997 crisis bolsters global confidence, and a surge of foreign investment results. Fewer items are subject to tariffs in a continued loosening of import restrictions. Korea liberalizes foreign investment regulations for all sectors except national security or cultural industries. The global slowdown of 2001-02 causes fears, as does increased tension with North Korea.
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