EU/SOUTH KOREA: EU STRATEGY TAILORED TO KOREA'S NEW ORDER.

Summary: The European Union needs to re-direct its policy towards South Korea to take account of the Asian financial crisis, the country's political reforms, and the new reformist Government, according to a Communication adopted by the European Commission on December 9. The paper hails the deregulation measures adopted by the Government in the wake of the crisis, but says more needs to be done to ensure that South Korea has a truly open market. This means that the Government has to clamp down on the preferential rules favouring the chaebol, the giant, multi-sector conglomerates, dominating the economy. And the paper says the thaw in relations with North Korea suggests a new political era in the region. "South Korea has made an impressive start towards creating a more open market economy, and Europe should continue to offer firm but vigilant support for this ambitious reform agenda", said Trade Commissioner Sir Leon Brittan.

The document mixes praise for progress with exhortations for more. "The financial crisis of 1997 exposed an urgent need for wholesale reform of the economy", it says. It recognises the depth of the economic reforms launched in the wake of the financial crisis which led the country to seek a record USD58.35 billion (ECU 49.9 billion) bail-out from the International Monetary Fund (IMF) last year. Entitled "European Union Policy Towards the Republic of Korea", the paper warns that despite the Government reforms planned to pull the country out of the mire of the Asian economic crisis, more work was needed to ensure investors returns. The Commission welcomes the election of President Kim Dae Jung in December last year and the "impressive reform agenda" following the financial crisis. It backs the Korean Government's endeavours, which include measures to ease foreign investment, ensure mobility and flexibility in the labour market, eradicating corruption and removing unnecessary regulations - all in the face of tough resistance. And it supports the measures taken in recent months to ease restrictions on foreign investment and to strengthen financial supervision systems. However, the EU should not remain uncritical, the paper says. "On the contrary, it should remain vigilant. There are areas where reform has clearly not been sufficient", it says. "Further action is needed to restructure the corporate sector, improve banking sector efficiency and create a transparent business environment." It adds that the current difficulties...