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Korean businessmen are the first who have come to Pakistan to make joint ventures and participated in basic infrastructure projects with financial package. These activities of the Korean entrepreneurs will encourage other entrepreneurs of developed countries to invest in Pakistan.

As you are well aware, since Korea and Pakistan established diplomatic relations in 1983, which was an epoch-making event in the history of the two countries, bilateral relations, particularly in diplomatic and economic fields have been strengthened in a steady and speedy manner. Trade between the two countries has increased rapidly. Now Korea is the seventh biggest trading partner of Pakistan which posted trade surplus in 1991 in its favour.

On the top of this, the economic cooperation in the form of joint ventures and plant exports, coupled with the transfer of technology, has been strengthened from the beginning of 1990s. This development between the two countries is to the considerable extent, attributable to the strategy and policies, the Pakistani government has introduced for accelarating economic development and social welfare in general, and industrialization in particular, under the leadership of Prime Minister Nawaz Sharif.

Modern economic growth is often characterized by industrialization. In most cases, industrialization was consequence of economic development. However, for developing countries desiring rapid economic growth, industrialization is an essential part of economic development strategy and an important vehicle to expedite economic development.

We do not need a long explanation to understanding that the Pakistan Government's policies of deregulation, denationalization and disinvestment were designed to expedite industrialization. These policies are stimulating productivity and enhancing efficiency of the economy. We are confident that the Pakistan government's economic development strategy and policies are on the right track.

Korea has pursued consistently export-oriented industrialization strategy during the last 30 years. Growth of commondity exports began to be important for economic growth in the early 1960s and has remained so since then. Since the late 1960s, the contribution of export expansion to GNP growth has become very substantial. During the 1970s, Korea's economic development has concentrated on import substitution. Nevertheless, export contribution to GNP growth was most prominent during this period. The export continued to play an important role in the 1980s though the pace of export growth drastically slowed down.

At its initial phase of economic development strategy, export-oriented industrialization concentrated on labour-intensive, light manufacturing industriesx which contributed enormously to the expansion of exports.

In the 1970s focus of import substitution was on the heavy and chemical industries. However, the heavy and chemical industrialization drive with export orientation resulted in a severe overcapacity problem in the late 1970s. Thus, in the first half of the 1980s, the policy priority has been dramatically shifted to stabilization and liberalization. Despite this, promotion of export was emphasized along with the emergence of the foreign debt problem. To promote price stabilization, the Korea government cut public spending drastically and controlled monetary supply very tightly. The government also removed various direct and indirect subsidies so that stabilization became a solid foundation for structural adjustment.

As the economy expanded and grew in complexity, the cost of government intervention in resource allocation rose rapidly. The regulations and protection caused serious imbalance and inefficiency in the economy. The Korea government realized that the invisible hand is more dextrous in allocating resources.

Primarily to promote competition and to enhance the efficiency of the market mechanism, a comprehensive liberalization programme was undertaken. This liberalization programme covered privatization of government-owned commercial banks, reduction or removed of administrative price control, enactment of a new fair trade and anti-monopoly law and trade reforms including domestic market liberalization.

Support system which was designed to promote heavy industry by providing preferential interest rates and industry-oriented financial facilities in the 1970s, was phased out in the early 1980s. Instead, Korea has shifted its policy focus to general support for manpower training and research and development investment. Due to these adjustment efforts and thanks to favourable external environment, the Korean economy regained its pace of rapid growth, and posted unprecedented balanced of payment surplus and low inflation rate in the late 1980s.

We can say that Korea's major economic development strategy has been export-oriented industrialization, as has been indicated. However, it has also been supplemented by import substitution, heavy and chemical industrialization drives and stabilization and liberalization programme executed with proper consideration of economic development stage and external economic environment. Policies are a major factor in advancing economic performance but are not sufficient. The policies must be, amont other things, espoused by leadership, devotion of government officials and entrepreneurs. In this respect, Pakistan is a blessed country.

Foreign investment brings along not only capital but also essential technology. We known that Pakistan has very skilful and hardworking industrial labour. When they are motivated, they will certainly play a greater part in the nation's great leap to economic development. As it is vested with excellent political leadership, industriousness of people and appropriate development strategy, I believe Pakistan is assured of rapid growth and prosperity.

However, internationally, protectionism is growing. While world's major trading partners are doing their utmost in resolving sensitive issues, like trade in agricultural products and intellectual property and services in the context of the Uruguay Round Trade Negotiations, some of them are talking of the possibility of reverting to protectionism if the negotiations fail to produce satisfactory results. Even if the negotiations conclude successfully, developing countries will possibly be confronted with a complicated web of rules governing international trade.

These rules include as a matter of course sets of rules in new areas such as major services industries and intellectual property. As a matter of fact these new sets of rules are likely to guarantee and protect only the interest of advanced countries and some developing countries that are actively participating in the negotiations although non-discrimination principle will be respected. Unless interested governments participate from the early stage of international legislation their interests are likely to be neglected.

We hardly expect that international trade environment is on the side of developing countries. They will encounter everywhere obstacles to their efforts for export promotion. This is a harsh reality in the world of free trade. From our experience, it is evident that late entrants into international trade are likely to face various disadvantages in access to world market.

Although world community endeavoured to institute freer trade system under the framework of the General Agreement on Trade and Tariffs, there remain residual import restrictions which is legacy of the Post-World War II shortage of international liquidity. These residual restrictions are maintained by developed countries. Furthermore, new restrictive devices were invented, such as voluntary export restraint, orderly export arrangement, anti-dumping and countervailing mechanism and safeguard mechanism has often been applied by developed countries to restrict imports from developing countries under the pretext of market disruption. Regionalism, such as economic community and free trade area, certainly constitute an obstacle to the trade of countries outside of the regional integration. Therefore, developing countries like Pakistan wishing to get larger share of world market, should expand exports as early as possible by accelarating industrialization. Further, it is necessary for them to take active part in all international conferences relating to trade, intellectual property and environment, including the Uruguay Round Trade Negotiations.

Pakistan and Korea have a commonality, that is, need to achieve a rapid economic development and social welfare. The Korean government dispatched a governmental delegation to Pakistan in early 1960s to study Pakistan's Five-year Economic Development Plan. Now Korea is ready to share with Pakistan its experience and strategy it has accumulated in the last three decades.

There are some economists who regard Korea as an unsuitable model of economic development for developing countries. I happened to note that the most typical argument to that effect was carried in a newspaper of Pakistan on December 16 and 19, 1990. The writer was trying to justify his contention by enumerating differences in internal and external environment between current Pakistan and Korea of 30 years ago.

He went on to say for example that Korea's investment code was one of the world's most restrictive, that Korea and newly industrializing countries provided subsidy and loans with concessional interest rate to entrepreneurs and exporters, that command capitalism, not free-market capitalism enabled the NICs to become major players in the world economy, and that, in the face of the rigorious demands of international competition, Singapore, South Korea and Taiwan all pursued an economic strategy premised on forceful state intervention that distorted local markets and created short-term inefficiencies, yet allowed them over the long term to become highly competitive exporters in a harsh world economy.

The facts he referred to are partially true. But a majority of them are untrue and out of context. He misinterpreted economic phenomena of Korea and other NICs countries and concluded that the NICs are now in a crisis. Having said this, I would like to simply emphasize that we must fully understand the reality of world trade system and master international trade laws and rules. By doing so, we can help accelerate industrialization and promote our trade.

For the countries economically backward, with lack of foreign exchange reserves, it is unrealistic and even unrealisable to liberalize all sectors of economy. They are only under obligation to implement liberalization as economic situation improves and development stage advances.

Government intervention is necessary in order to steer economy in right direction although it is not desirable. Economic laissez-faire is not able to produce desirable results in this world of complexity and dynamic changes. What we have to do in this respect is to consider whether the government intervention is based on command or guidance, and whether the degree of intervention is appropriate or not. Without government intervention preferably guidance, we cannot even coordinate conflicting interests of different groups in a society. Thus, without taking into account these considerations we cannot establish and maintain the manufacturing base which is dubbed as the flower of capitalism.

Liberalization and government guidance should work side by side according to the needs of national economy as a whole, and the pace of changes including liberalization should be decided in a fashion to maximize the benefit of policies. To be brief, it is helpful if Pakistan takes due account of policies and experience Korea and other NICs countries have followed and gained, to minimize errors which may occur in the course of economic development.

In last few years Korea has been faced with difficulties caused by rapid rise in overall wages which have adverse effect on international competitiveness of Korean goods in the world market. In addition to this, some enterprises in Korea are not able to continue manufacturing their goods due to lack of appropriate workforce. This is further aggravated by the process of democratization and social equity through redistribution of national wealth.

Under these circumstances, those enterprises are now being encouraged to go abroad for continuing production of their specialization goods with cheaper overseas labour while they are determined to install capital goods to automatise the process of manufacturing. The growing need to relocate abroad the processing facilities and further invest in foreign countries in the form of joint ventures or plant exports coupled with transfer of technology has led Korean entrepreneur to take Pakistan as one of their business partners. Economies of our two countries are very complementary to each other. Our two-way trade also is complementary. The mid 1980s posted only 100 million US dollars of trade between our two countries. But the provisional estimate of the two-way trade in 1991 amounted to 500 million US dollars. Now Korea is sixth largest importing country of Pakistani goods. This attests to the complementarity of our economies. This complementarity is being enlarged into economic cooperation which will further grow.

There are four different types of overseas investment in view of the major objectives of investment. First, there is a type of investment designated to secure the supply from overseas of raw materials through the participation in exploration and development of mines and oils. The second type is overseas investment aimed at employing cheap local workforce. In this case, normally the relocation of manufacturing facilities often follows the investment. The third type is the investment aimed at securing easier access to the local market by producing the goods on the spot and to shorten the period of delivery of the goods.

The fourth category of investment is designed to circumvent restrictive measures on exports from developing countries. In this case, capital and technology flow to the developing countries, to which restrictive measures are not applied by developed importing countries. In many cases, it is also intended to benefit from the generalized system of preferences of developed countries by processing the goods in the developing countries that enjoy GSP.

Korea's overseas investments are motivated by secured supply of raw materials, utilization of cheap labour and evasion of import restrictions imposed by developed importing countries. Tobe assured of supply of raw materials, Korea has participated in development of oil resources in Madura (Indonesia) and now is taking part in the exploitation of minerals like antimony, mangan, fluorite, talc, etc.

Korea's investment in the United States of America, European Communities and other industrialization areas is aimed to avoid the imposition of restrictive devices by those industrialized countries and to secure a stable market share in these countries. On the other hand, aims of our investment in developing world like South Asia and Latin America, including the Carribean, are cheap labour and circumvention of import restrictions in access to the developed market.

Our investment in North America and Europe is focused on automobile and electronic industries while investment in South East Asia is on a large variety of light industrial sectors. Pakistan is an attractive place for foreign investors not only in light industry but also in electronics and heavy industries which need more sophisticated technology. As of the end of 1990, Korea's total overseas investment amounted to US 2.34 billion dollars involving 1,243 cases. North America represents 47 per cent and Asia 31 per cent in terms of capital invested. 45.4 per cent of total capital was invested in manufacturing sector.

Encouraged by new policies the Pakistan government has recently introduced, the Korean investors will be concentrating, firstly, on those industrial sectors with export potential; secondly, on import-substitution and employment-creating industries; thirdly, on locally available material processing; and fourthly, Korean entrepreneurs are willing to invest in any other industries where they are able to properly provide capital and technologies.

In the short run, our investment will be made on export-oriented and labour-intensive industries such as textile, leather and petro-chemical industries. In the long run, automobile, electronics, other technology-intensive industries and mining will be targets of their investment. In postcold war era, economic cooperation among nation is no more influenced by ideological differences, and cooperative relations are being transformed into relations of competition, among nations, based on efficiency of market economy.

In view of rapidly advancing technology, globalization of world economy and newly emerging world economic order including new international division of labour, the introduction of open door policy of the Pakistan government was opportune and timely. A series of measures for inducement of foreign investment and for the liberalization of economy are certainly providing important incentives to the inflow of foreign capital and technologies which are essential to nation's economic development.

The Korean industrialists who are facing high wages, manpower shortage and labour disputes at home, have been greatly encouraged by the foreign investment inducement policies of the Pakistan government. One of Korea's textile companies, Samyang Sa, is taking part in a tripartite joint venture to produce polyester staple fibre along with its Pakistani and Japanese counterparts. Factories are now operational on probational basis and commercial production will start within this month. A joint venture to produce DOP which is material for manufacturing plastics is in the processs of construction with the participation of Lucky-Goldstar company.

Daewoo company is planning to establish an industrial complex in which Daewoo and other Korean companies will join hands to install factories in the fields of electronics, car assembly, animal hide processing and textile industry, including spinning, garment manufacturing, etc. Certainly, this is attributable to the policies the Pakistan government has adopted to attract foreign investment from abroad and to speed up industrialization for export and import substitution, and to the availability of skilled manpower and natural resources.

Our two countries have an enormous complementarity of economy. This complementarity offers to our two countries bright prospect of economic cooperation and matual benefit. Mutual benefit further exists in the field of technical cooperation. It goes without saying that technological advancement should follow the process of economic development.

Pakistan needs not only high technology but also middle and low level technologies which meet local needs. The introduction of technology from abroad should go side by side with efforts to localize imported technologies and to develop its own technologies on the basis of that. I am confident that the businessmen from our two countries will conduct business on the long-term basis and with far-sightedness.

Korean businessmen are the first who have come to Pakistan to make joint ventures and participate in basic infrastructure projects with financial package. These activities of the Korean entrepreneurs will encourage other entrepreneurs of developed countries to invest in Pakistan. I am confident these Korean entrepreneurs are very sincere and reliable business partners. For example, Hanbo construction company has completed drainage project dKorean businessmen are the first who have come to Pakistan to make joint ventures andd participate in basic infrastructure projects with financial package. These activities of the Korean entrepreneurs will encourage other entrepreneurs of developed countries to invest in Pakistan despite serious financial loss and Daeyoung Electronics has taken over and completed a project which was left unfinished by a foreign company. Having said this, I am convinced that joint ventures and any form of cooperation between Korea and Pakistan will be successful as these are mutually beneficial. It is also my conviction that, owing to the political leadership and diligent and skilled labour, your will and determination to achieve prosperity for the nation and the welfare of the masses will bear fruitful results. I have tried to cover important aspects of cooperation in business and economic affairs between our two countries.
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Title Annotation:economic relations with Pakistan
Author:Chun, H.E.
Publication:Economic Review
Date:Aug 1, 1992
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