Invisible Barriers

In posh Kangnam, at the bustling heart of Seoul, a lonely Ford dealer makes an odd pitch to shoppers
who barely glance at his shop. Inside the nearly deserted showroom, a display of flowers and pink
ribbons presents a green Lincoln LS as the car of choice for--movie stars? Football players? No:
government ministers. Salesman Jeon Kyeong Seob says the idea is to convince consumers they will
no longer be punished for buying foreign autos. The pitch isn't working too well. This is Ford's main
showroom in South Korea, and it has sold only about 100 cars so far this year. Why? "Patriotism,"
says Jeon, gazing out on a street filled with Korean cars made by Hyundai, Kia or Daewoo. "Koreans
are patriotic people."

The supposedly inexorable force of globalization can't change that. After years of pressure from the
Americans, Europeans and Japanese, South Korea has cut tariffs, taxes, rules and regulations,
becoming one of the most open car markets in the world--on paper. Nevertheless, South Koreans
almost never buy foreign cars. The combined marketing might of the world's great carmakers
persuaded South Koreans to buy 4,400 imports last year--a mere 0.4 percent of the total market.
Last week a visiting U.S. trade delegation demanded even lower barriers. Local importers can only
sigh. They say no edict from Seoul can undo decades of government, corporate and union
exhortations to buy Korean. "It is easy to change regulations and tax systems," says Son Eul Rae, a
Mercedes dealer who heads an auto- importers association. "But changing a culture or a mind-set is
not."

This culture was built on anger. After decades of Japanese occupation ended with Japan's defeat in
World War II, South Korea set out to win a respectable place in the world. "Nation building through
exports," the rallying cry of President Park Chung Hee in the early 1960s, was emblazoned on factory
walls all over the country. Luxury-import buyers were publicly denounced as traitors. Until the
1980s, smoking foreign cigarettes was a crime punishable by jail. But no luxury item had more power
as a patriotic symbol than the car.

That's still true. The Buy Korean campaign tapped into a deep Confucian bias against displays of
wealth. During the 1997 Asian financial crisis, officials in Seoul loudly blamed their currency's plunge
on profligate Koreans' buying foreign goods. The real problem was that the country's consumers
were scared to buy anything. But TV news reports on the crisis routinely showed footage of foreign-
car salesrooms anyway. Citizen vigilantes took up the cause, slashing tires and scratching paint jobs
on foreign cars left unattended in Seoul. "I heard so much about harassment of import cars or their
drivers," says a 41-year-old restaurant owner who uses only secure pay lots to park her blue BMW. "I
actually hesitated buying this car because of that."

The harassment decreased as the economy recovered, but the resentment still lingers. An import
dealer says he doesn't allow TV crews in his showroom if they are from the city desk of a big Seoul
network, because he knows the footage will be used to bash foreign-car buyers, who are abused
enough. In a recent survey of 200 domestic-luxury-car owners, 70 percent said buying imports would
lead to greater "social disparity," and nearly half avoid imports for fear of "dirty looks" from fellow
Koreans.

That hostility is about more than cars. It's about economic class and corruption, too. Back in the Park
era, when tax dodging was a national sport, one of the easiest ways to catch rich cheats was to audit
anyone who traveled abroad or bought pricey foreign cars. Many of the targets were doctors,
lawyers and other professionals with substantial cash incomes, rather than executives, whose
corporate salaries were easier to trace. Until only a few years ago, simply owning a foreign car was
enough to trigger an audit. Foreign carmakers protested the practice as an underhanded form of
protectionism by intimidation.

Everything is different now, Seoul insists. Formal barriers started eroding in the early '90s under
former president Kim Young Sam, who cut auto-import tariffs from 20 percent to the current 8
percent. That's lower than tariffs in the European Union, Australia, Taiwan and many other wealthy
nations. Since then Seoul has revised discriminatory taxes on foreign cars, eased complicated testing
requirements and otherwise tried to satisfy foreigners' demands for an open market. Yet the gross
imbalance of the South Korean car trade remains--the 4,400 imports last year, versus 1.5 million
exports--keeping alive the suspicion that South Korea is still trying to export its way to prosperity.
The less-than-1 percent import share of the South Korean market compares with 6 percent in Japan
and 30 percent in the United States.

Seoul is increasingly focusing its reform efforts on informal, cultural barriers. Until recently Korean
business and government leaders would never have dared to be seen riding in a foreign car. Lately,
though, President Kim Dae Jung has repeatedly urged them to start buying imports for official
purposes. Early this month Hwang Doo Yun, the Trade minister, bought a Lincoln LS with much
fanfare. "With my action, I would like to convince people that foreign-car owners don't face any
disadvantages," said Hwang. "In this age of globalization, riding a foreign car is not against national
interests." He went so far as to predict that Korean car buyers would one day embrace imports in
the same way that "Korean kids have switched from kimchi to hamburgers."

One day, perhaps. Ford dealers see hints of change even at Posco, a steel giant and a bastion of
Korean export strength. Foreign cars used to be banned from even entering the grounds of Posco's
mills. (A company spokesman denies that such a policy ever existed.) But Ford officials say they were
surprised recently to get a request from Posco's presidential office for price quotes and brochures on
Ford cars. "They have not yet placed any orders, but that itself was a major shock," says Ford's Korea
sales rep, Jay Jung. "We are still in a survival mode, but see a growth trend ahead."
The Kim administration is trying to allay the car buyers' lingering fears of punishment. In April a
senior tax officer proclaimed that import owners are no longer to be targeted for audits. Many
people remain skeptical. Nearly two thirds of the luxury-car owners in the poll said they still think
import buyers are inviting an audit. Import dealers are desperately trying to lure wary customers, at
times offering zero-interest-rate loans and two or three years of free maintenance. Foreign-car
dealers are even starting to battle the nationalists head on. Last week, as workers at Daewoo Motors
escalated their protests against a possible General Motors takeover, the importers were trumpeting
the benefits that foreign capital could bring to the industry.

South Koreans' refusal to buy American gives GM more incentive to tangle with Daewoo's angry
workers and massive debts. Daewoo could enable the U.S. firm to slip through the invisible barriers.
The French automaker Renault managed the same trick last year when it bought a controlling stake
in Samsung Motors. Samsung's cars were originally designed by a Japanese maker, Nissan, but the
domestic brand name is what counts with South Korean consumers. With less than a decade in the
automaking business, Samsung sold 28,000 cars in South Korea last year--compared with only 182
for GM. "By acquiring Daewoo, GM can secure easy access to the difficult Korean auto market," says
J. M. Park, an auto analyst with Jardine Fleming, who foresees a wave of foreign investment in
Korean makers. "Eventually, it will be meaningless to differentiate domestic carmakers from foreign
makers." The strategy is pretty simple: if you can't sell to Koreans, buy their car companies.