SOUTH KOREA: MILITARY PRODUCTION AND EXPORTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84S00554R000100220003-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 20
• Document Creation Date: December 21, 2016
• Document Release Date: August 27, 2008
• Sequence Number: 3
• Publication Date: November 1, 1982
• Content Type: REPORT

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Intelligence
South Korea: Military
Production and Exports
DIA review completed
Secret
EA 82-10119
November 1982
Copy, 3 0 f
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Directorate of
Intelligence
CPrrpt
South Korea: Military
Production and Exports
This paper was prepared b
Korea Branch, Office of East Asian Analysis.
Comments and queries are welcome and may be
addressed to the Chief, Northeast Asia Division,
OEA,
This paper has been coordinated with the National
Intelligence Council.
Secret
EA 82-10119
November 1982
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Secret
Overview
Information available
as of 12 October 1982
was used in this report.
South Korea: Military
Production and Exports
South Korea has made significant progress toward greater self-sufficiency
in defense production since the early 1970s. Seoul can now produce most
basic military equipment for its infantry and artillery forces and builds
naval combatants of up to frigate size. This year it has begun to coproduce
jet fighters. 25X1
By expanding its defense industry, Seoul has gained a much-needed
capacity for emergency military production, but more remains to be done if
Seoul is to counter the qualitative and quantitative improvements projected
for North Korean military forces in the 1980s. South Korean planners and
researchers are now looking to a new series of indigenously designed
products to help fill mobility and firepower requirements. But Seoul will
remain dependent on technology from the United States and other foreign
sources for production of modern tanks and other advanced military items
during most of the 1980s. 25X1
The defense plant expansion of the 1970s was undertaken in the expecta-
tion that a combination of domestic arms procurement and exports would
make the defense industry economically viable. But oil shocks, world
recession, overoptimism regarding exports, and a decline in US Foreign
Military Sales credits have left Seoul's defense firms with greatly underuti-
lized productive capacity and rising overhead. In an effort to shore up the
industry, President Chun Doo Hwan recently instituted a program of
consolidation, subsidies, tax relief, and other measures. This program holds
promise for a gradual revival of the industry and improved competitiveness.
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The South Koreans also see an aggressive overseas sales campaign as a way
to relieve financial pressure on the industry. Arms export is likely to
become an increasing point of friction between Washington and Seoul
since many of the most attractive South Korean military export items are
manufactured under US license:
? South Korean officials have requested blanket export approval for many
US-licensed goods. In response the US Government has streamlined the
approval process but retains the right to review sales on a case-by-case
basis.
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EA 82-10119
November 1982
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South Korea is also seeking to free itself from US control by designing its
own line of weapons,
But we expect Seoul will be reluctant to
carry its arms diversification program to the point of significantly affecting
the interoperability of South Korean and US military equipment.
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Export Policy and "Military Diplomacy" 8
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South Korea: Military
Production and Exports
Government Objectives and Policy
Defense production-a relatively young industry in
South Korea-is an important element in Seoul's
overall plan to meet the North's military challenge.
Following the Korean war, US aid and defense com-
mitments enabled Seoul to channel its economic
resources into agriculture and civilian industry. By
the early 1970s Seoul began to map out a program for
indigenous defense production, a result of the growth
of the North's military capability, US encouragement
of increased military self-sufficiency among its allies,
and the withdrawal of one of the two US Army
infantry divisions in South Korea. Rapid economic
growth through most of the 1970s allowed South
Korea to assume more of the financial burden for its
own defense. With US guidance, South Korea estab-
lished its own modest research and development pro-
gram in 1971, and by 1973 it was coproducing small
arms, ammunition, and repair parts under licenses
with US firms.'
The growing realization in the mid-1970s that North
Korea was carrying out an aggressive program to
improve its military capability led Seoul to formulate
a program for strengthening its defenses, the Force
Improvement Plan (FIP I). In 1977 President Park
Chung Hee pledged that by 1980 South Korea would
be mass-producing all its own arms except advanced
electronics, combat aircraft, and nuclear weapons.
Park's program espoused a number of goals:
? Modernization of the South Korean armed forces.
? Acquisition and diffusion of technological skills to
the private sector.
? Reduction in dependence on US support.
? Extension of the lifetime of systems for which US
replacement parts were no longer available.
To get the program under way, the South Korean.
Government provided substantial incentives to firms
designated "defense industries":
? Low-interest loans from the Ministry of Commerce
and Industry.
? Guarantees of 10-percent tax-free profit on defense
contracts.
? No import duty on raw materials for military
production.
? Draft exemptions for engineers and other
professionals.
No company, however, was to devote more than 30
percent of its output to defense production
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Today, there are 81 designated defense companies. A
few large corporations dominate the industry, acting
as prime contractors, making some parts, and carry-
ing out the final assembly and testing of products.
Manufacturers of uniforms, boots, and most other
quartermaster items are not officially designated de-
fense companies and receive no special benefits.
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military production.
ontracts are awarded on the 25X1
basis of the Ministry of National Defense's (MND25X1
judgment of a company's technical capability to pro-
duce an item rather than on competitive bidding. We
do not believe that corruption and nepotism are major
factors in defense procurement, although a longstand-
ing and close relationship exists between MND and
the handful of major defense producers
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After the MND determines a need for a new item, the
Agency for Defense Development (ADD) conducts the
developmental research-often using US technical
data-and selects a company to build and test a
prototype. If the testing is successful, a production
contract is staffed through MND's Defense Industries
Bureau and the Defense Industries Committee-the
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senior policymaking body composed of the President
and several Cabinet members. Once approved, the
Defense Procurement Agency administers production
and purchase contracts. The Ministry for Commerce
and Industry loans investment capital to designated
companies at concessionary interest rates with repay-
ments stretched over three years and a two-year grace
period.
Progress and Problems
The defense industry program has facilitated the
modernization of many aspects of the armed forces
through domestic production rather than imports. It
also has given the country a production capability for
times of emergency. In addition, the manufacture of
spare parts in South Korea is extending the life of
many weapons no longer in the US inventory. More-
over, most new defense factories have been built at the
Changwon Industrial Center, away from Seoul and
near Masan in the south. This substantially improves
the security of South Korea's military production base
South Korea now manufactures most of its basic
military equipment, especially ground forces items. It
can overhaul and maintain nearly all weapons systems
in its inventory, including tanks, armored personnel
carriers, surface-to-air and air-to-air missiles, and jet
engines. It can build all its own naval combatants of
frigate size and smaller, although the weapons and
propulsion systems are imported. In addition, this
year it began to coproduce jet fighters with the United
States.'
Imports, which consist chiefly of US Foreign Military
Sales and grant aid, have declined as a result of
increased self-sufficiency, reductions in US credits,
and the depreciation of the won. As a result, import
deliveries peaked at about $530 million in 1979 and
fell to about $260 million in 1981 (see figure 2). South
7 North Korea, by comparison, is able to meet its own needs for all
but the most sophisticated weapons systems and produces several
types of military equipment that are beyond current South Korean
capabilities, including tanks, armored personnel carriers, surface-
to-air missiles, and wire-guided antitank missiles. P'yongyang
remains dependent on China and Poland for its supply of aircraft
Figure 2
South Korea: Military Imports Delivered
I I I I I I
0 1977 78 79 80 81 82a
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Korea has concentrated its military imports on air-
craft, missiles, and other systems that have either
been beyond Korean technical capability or too expen-
sive to produce domestically.
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In our judgment, by pushing rapid expansion in the
mid-1970s, Seoul overestimated the country's ability
to support an indigenous arms industry through do-
mestic procurement and overseas sales. As a result,
the defense industry now faces serious economic
problems. The government was eager to involve pri-
vate industry heavily in defense to get the maximum
technological benefit for the civilian economy. Indus-
trialists, too, were overly optimistic about future
economic growth, government arms procurement, and
the prospects for military exports.
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By the end of 1980 Seoul had met its immediate needs
for most of its defense products, and government
orders fell. Economic reversals brought on by the
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worldwide recession, high domestic inflation, and the
decline in US Foreign Military Sales credits forced
Seoul to cut such purchases from its own defense
factories as had been planned. When Park was assas-
sinated in October 1979, the defense industry lost its
most important backer, and the political uncertainty
that followed contributed to the delayed recovery of
however; exports of ships and patrol boats have
grown, but sales of most ground forces items have
Expanding overseas sales partially compensated for
the decline in government procurement, and total
military output has probably remained constant or
risen gradually. Not all industries have fared equally
well in the transition to more export-oriented sales,
lagged well below production capacity.
25X1 The new government under President Chun has been
un was highly concerned the nation's econom-
ic problems would lead to domestic instability, which
North Korea might use to undermine South Korea's
security. As a result, Chun agreed to maintain an
austere, anti-inflationary national budget that limited
aid to any industry, including defense. Squeezed by
slow sales and high overhead, several defense firms
went bankrupt
Despite the low production
levels and a cutback in government purchases, the
Defense Ministry has required companies to keep
production lines open and to continue paying skilled
workers. More important is the fact that defense firms
are having difficulty repaying large government loans
on their new plants and equipment-they still owe
$960 million on the investment in military production
made between 1972 and 1980. Industrywide, principal
and interest payments on this debt will run to $56
million in 1982 and will increase to $88 million a year
for 1984-86.
In May 1982 President Chun approved a proposal to
shore up defense companies. This departure from
Chun's previous policy seems to have come after Seoul
realized that the US Government would not surrender
its right to review third-country sales,
Seoul's responsibility to the defense firms and pro-
poses extensive support under the aegis of the Minis-
try of Commerce and Industry:
? Consolidation of producers into one or two primary
manufacturers for each item.
? Government subsidies and rescheduling of loans.
? Tax relief, special procurement contracts, and ex-
emptions from military service for employees.
? Promotion of commercial sales of goods derived
from military products, such as trucks, communica-
tions equipment, and aircraft parts.
The Industrial Policy Coordination Committee is to
implement the plan, focusing on eight defense firms
that are in the most serious financial difficulty.
25X1
If the plan is fully implemented, we believe it will ease
the defense industry's financial difficulties.
probably be allowed to fold quietly, and total military
production capacity may decline somewhat in the next
two to three years. Plants that produce older, obsoles-
closure.
cent items are the most probable candidates for
South Korea has also had problems with quality
control in its defense industry.
an aggressive program,
begun in 1979, has largely corrected deficiencies for
items now in production. In our opinion, however,
South Korean companies developing new products
will probably continue to have difficulties.
South Korea is likely to remain a good market for US
equipment, especially advanced aircraft and electron-
ics, during most of the 1980s. The most recent figures
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that Seoul has provided to the US Government indi-
cate planned procurement from the United States of
$400 million in 1982, rising to more than $800 million
in 1986. We expect some downward adjustment in
imports, however, as a result of gradual erosion in the
Current Production
Fully aware that ground combat will be the most
important arena in event of a conflict with the North,
Seoul has stressed production of ground forces equip-
ment. This equipment also lends itself best to produc-
tion in South Korea because of its relative simplicity
and the large quantities needed. The output from
South Korea's plants has enabled that nation to
modernize most of the weapons and equipment in its
active Army units and to begin on its reserve units.
Successful aircraft maintenance and helicopter as-
sembly programs during the 1970s prepared Seoul for
its first jet aircraft coproduction project; the first two
F-5F fighters produced in South Korea entered serv-
ice in September 1982. The program will significantly
expand the defense industry's knowledge of material
fabrication technology.
South Korean shipyards, two of which are among the
newest and largest in East Asia, produce frigates,
amphibious craft, patrol ships, and fast patrol boats
using modified US designs. They are fitted with
weapons, engines, and electronic systems procured
from US and European manufacturers. These faster
and better equipped ships are being used to supple-
ment the fleet of World War II-vintage destroyers,
frigates, and support craft bought or transferred from
the United State
The most notable continuing Army, Air Force, and
Navy projects are summarized in tables 1, 2, and 3,
respectively. Engineering development has been com-
pleted on several new items, a number of them
Table 1
South Korea:
Major Production Programs
for Ground Forces Equipment
Artillery Light (105-mm) and medium (155-mm) howitzers and
Vulcan rapid-fire air defense guns have been manu-
factured since 1977; production of multiple rocket
launchers (MRLs) began this year. Although some
direct and indirect US technical assistance was
provided, the MRL is the first indigenously designed
weapons system to be manufactured and deployed in
South Korea.
Under the upgrading program, 421 M-48 tanks have
been converted from gasoline to diesel engines using
kits bought from the United States; 180 M-48s also
will be fitted with larger main guns. Seoul is
overhauling its M-47 tanks and will begin refurbish-
ing the M-113 APCs in the ROK Army inventory
when it completes the overhaul of US Army APCs in
Korea in 1984-85.a
Tactical South Korea produces cargo trucks, jeeps, wreckers,
vehicles and other nonarmored vehicles for its ground forces.
Small arms South Korea turns out a full line of M-16 rifles, M-60
and crew- machineguns, 40-mm grenade launchers, 60-mm, 81-
served weap- mm, and 4.2-inch mortars, and 90-mm and 106-mm
ons recoilless rifles, as well as the ammunition for these
weapons. It also makes handgrenades and antitank
and antipersonnel mines. In 1980-81 Seoul began
producing a submachinegun of indigenous design, the
K-1, which fires the same round as the M-16 rifle.
Fairly reliable sources report that so far about 3,500
K- Is have been produced.
Communi- South Korea manufactures the majority of its tactical
cations radios and all of its field telephones and switchboards.
a South Korea makes the Fiat 6614 wheeled APC under Italian
license, but the light armor and limited off-road mobility of this
vehicle restrict it to rear area security and riot control roles.
25X1
incorporating US technology, and we expect produc-
tion to begin this year. Table 4 lists these products for
the three sponsoring services.
25X1
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The Ministry of National Defense conducts an exten-
sive R&D program to facilitate the growth of the
nation's defense industry. The Research and Develop-
ment Bureau (J-7) of the Joint Chiefs of Staff is
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Table 2
South Korea:
Major Production Programs
for Air Force Equipment
Table 3
South Korea:
Major Naval Construction Programs
fighter through 1986, South Korean firms will produce many
of the airframe and engine parts and complete the
assembly of 68 F-5E/F fighters with US-made
electronics and weapons systems. This will increase
the ROK Air Force's inventory of F-5 fighters by
nearly 50 percent.
500 MD Korean Air Lines has assembled over 100 Hughes 500
helicopter MD helicopters from kits purchased from the United
States. The ROK Army and Navy use 500 MDs as
lightly armed scout aircraft and for VIP transport.
responsible for planning and approving military re-
search, while the Agency for Defense Development
(ADD) carries out the research. Defense companies
supplement government facilities in production-
related engineering and fabrication of prototypes.
ADD was first established in 1972, following exten-
sive consultations with US specialists in military
research. Since that time, ADD has relied on the
United States for technical assistance in nearly all
Amphibious
ships
1,940 tons The South Korean frigate Ulsan
carries US Harpoon ship-to-ship
missiles; budget constraints and
technical problems are delaying the
start of three additional frigates.
1,800 tons The Navy is considering buying two
tank landing ships (LSTs) similar to
the four that South Korean ship-
yards delivered to Indonesia in
1981. The LSTs are of US design
modified to accommodate Exocet
missiles and a helicopter platform.
The ROK Navy has halted procure-
ment of additional 380-ton utility
landing craft (LCU) since construc-
tion of three in 1980.
Patrol ship 1,000 tons One patrol ship capable of 21-knot
speeds and mounting three 20-mm
guns was delivered to the Maritime
Police this year. Seoul plans to
] construct additional police ships,
although we do not know how many.
The ROK Navy regards these ves-
sels as more cost effective than
frigates. Four corvettes, capable of
38-knot speeds and armed with
Harpoon missiles, will be built by
1983, with the possibility of 16 more
during the 1980s.
Fast-attack 80 to 500 tons At least six classes are built for the
craft Navy and Maritime Police; some
carry Harpoon or Exocet missiles.
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The Research and Development Bureau determines
South Korea's research program based on information
provided by the armed services and the ADD. The
Army, Navy, and Air Force submit their requests for
new projects to the Bureau, which passes them to
ADD for study of the time, cost, and technical skill
required for each one. The Bureau reviews ADD's
study results, selects new projects to be initiated, and
compiles the overall research plan and budget into the
annual Joint R&D Objective Document. This is sub-
mitted to the Joint Chiefs of Staff and MND for final
approval.
25X1
Change of Direction Under Chun
Defense officials appointed by President Chun reorga-
nized the components of the research community in
1980.
During the Park administration, both the Re-
search and Development Bureau and ADD tended to
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Table 4
South Korea:
Newly Developed Items To
Enter Production in 1982
Army Ammunition: mortar, artillery, and tank gun
Night observation device
2.5-ton tanker truck
Artillery binoculars
Two types of gas mask
Air Force Aircraft radio
Runway damage repair kit
Aircraft revetment material
Navy Electronic countermeasures equipment
Depth finder for antisubmarine warfare
rubberstamp proposals from the services. Since the
reorganization, the Bureau has reviewed projects
much more critically and has canceled or disapproved
a number of proposals.
The new director of ADD, Dr. So Jung Uck, reorga-
nized that agency and has refocused the ADD's effort
more toward supporting the tactical needs of South
Korean combat forces. For example, the ADD is
increasing its work on adapting imported items to
Korean needs and improving the performance of older
equipment still in service.
the Defense Ministry has recently directed a 50-
percent cut in ADD's budget and manpower. Pro-
grams and personnel are likely to be transferred to
industry, while ADD will concentrate on basic re-
search. We do not yet know which projects will
continue at ADD, which will go to industry, or which
may be eliminated altogether.
Although the cutback is part of a broad program to
streamline the defense personnel structure, we believe
cuts fell especially heavily on ADD to reduce further
the Agency's traditional autonomy and to increase the
Defense Industry Bureau's control over research and
reduction in government defense research parallels a
government-wide program to encourage growth in
private industry research. 25X1
The Role of US Assistance
US assistance to the South Korean research effort
ranges from release of hardware samples and techni-
cal information to joint development of a few projects
of mutual interest. Performance specifications for
many US military systems are passed to Seoul
through data exchange agreements. Technical data
packages bought from the United States entitle ADD
to study an item, fabricate a prototype, and produce
spare parts.' ADD scientists and engineers receive on-
the-job training at US research centers as part of the
Scientist-Engineer Exchange Program. Seoul also re-
ceives advice from US technical personnel visiting or
stationed in South Korea as members of the Joint i Tc
Military Advisory Group-Korea. 25X1
In addition to contributing to the self-sufficiency and
technological capability of an important ally, this
sharing contributes to US security interests in other
ways. It enhances the interoperability of US and
South Korean equipment and allows friendly third
countries-and even US forces-to procure US-
design equipment now out of production in this coun-
try.
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Although South Korean researchers are showing more
openness toward their US counterparts than they did
under the Park administration, South Korea continues
to deny Americans access to programs not receiving
direct US assistance. US personnel have been giv25X1
little or no information about the Nike-Hercules
surface-to-surface missile program, for example.
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Seoul intends to produce goods that will be competi-
tive in performance and reliability in the world arms
market and that are also exempt from US licensing
restrictions. We have no indications of new weapons
being developed solely for export, however.
information through official channels on at least 20
other projects we are aware of, including multiple
rocket launchers, armored personnel carriers, im-
proved mortars and artillery, and several small arms
projects.
advantage over the North.
Research Outlook
South Korea has established a substantial base of
production engineering and a growing capability for
indigenous, if somewhat derivative, military research.
Seoul appears to be focusing its future research and
development (R&D) efforts on weapons and equip-
ment that are advanced enough to provide a quality
We think the prospects are good that South Korea's
R&D capability will continue to improve, despite the
reduction in work within the government. Although
the full effects of the ADD cutback are not yet
known, the concept appears to be to keep the total
effort-government and private-at a fairly constant
level. The proposed transfer of development activity to
the private sector may increase the efficiency and
practicality of the work-if funding is provided
through Defense Industry Bureau channels, for exam-
ple.
A successful research program will be necessary if
Seoul is to replace the many items in its inventory that
are based on 1960s US technology and are gradually
becoming obsolete. To meet the North Korean threat
in artillery, for example, the Army requires extended-
range, self-propelled howitzers rather than the older
versions now being produced domestically. Based on
South Korea's past record, we believe that relying on
indigenous research rather than imported technology
will delay initial production of new items by two to
five years, although such research is likely to increase
Seoul's long-term self-sufficiency
The desire to develop military equipment for export
provides a strong impetus to the research program.
Export Policy and "Military Diplomacy"
During the 1970s as the nation's defense industry
grew, South Korea cautiously expanded its military
exports to offset the mounting costs of domestic
production and to earn foreign exchange.' The govern-
ment concentrated on sales of nonlethal items and
avoided arms exports to countries that might threaten
' In this study we consider "military exports" to include nonlethal
as well as lethal items bought and used by the armed forces of a
country; hence, we include communications equipment, quarter-
master items (uniforms, boots, tents, field packs, and so forth), and
tactical vehicles. By "arms" we mean weapons, ammunition, mines,
or other lethal devices. In contrast to the DIA series, Foreign
Military Assistance, we exclude overseas military construction
because this is a service, not an exported good, and because
information is usually inadequate to separate civilian from military
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? Maintenance of aircraft and other military equip-
ment: revenues from this work are limited, but
tunities abroad and pressures at home,
In the late 1970s Seoul shifted to a more aggressive
military export program in response to market oppor-
Immediate domestic requirements
for many items had been satisfied, leaving many
defense plants underutilized. MND procurement cuts
resulting from economic reversals also increased the
pressure to relieve endangered manufacturers through
increased overseas sales. Many government officials,
as well as business executives, saw exports as the
salvation of the nation's defense industry.
Seoul has also gradually realized that military exports
can help advance relations with Third World coun-
tries and has made such sales a central aspect of its
recently announced policy of "military diplomacy."
South Korea has shown strong interest in cementing
relations with resource-rich countries; Saudi Arabia
and Indonesia were its first large customers, buying
quartermaster items and patrol boats, respectively, in
1976. The main objective of military diplomacy,
however, is to use strengthened bilateral military
cooperation to offset North Korea's influence in such
international forums as the Nonaligned Movement.
The program takes a variety of forms:
? Joint committees on defense issues: a formal govern-
ment-to-government channel for handling contract
negotiations and VIP visits.
? Sales of military goods: besides promoting its own
exports, Seoul is interested in buying military equip-
ment from Third World countries
? Military construction: South Korean military per-
sonnel may act as on-site advisers on South Korean
construction work
Seoul believes it demonstrates technical
competence.
? Defense industry technical assistance: many coun-
tries are eager to set up their own defense industries,
and Seoul seems willing to provide some assistan25X1
but is constrained by US licensing agreements
covering most of its current production facilities.
Export Procedures and the Role of Government
Military exports require close coordination, at home
and abroad, among South Korean defense industries,
the Ministries of National Defense and Foreign Af-
fairs, and the Agency for National Security Planning
(NSP-formerly the KCIA). The oversight role of
government agencies is increased because of the re-
quirement for US approval for many items.
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Only 25 designated "Defense Trading Companies"
may engage in overseas marketing of military goods.
To prevent excessive competition between domestic
companies, the government often specifies one or two
firms, known as export windows, as the primary
trading agents in one country. MND's Defense Indus-
try Bureau issues a preliminary export license to a
firm only after confirming the proposed sale with the
buying country, receiving an end-user certificate
pledging that the goods will not be transferred to
another country, and coordinating the sale with the
Ministry of Foreign Affairs. When a contract is
signed and a letter of credit opened, copies of thes(25X1
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documents are submitted to the Bureau, which, if US-
origin items are involved, is supposed to request US
approval through diplomatic channels. If Washington
concurs, MND issues an export license and the sale
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Sales and Markets
Through the end of 1981 South Korea had recorded
military sales to 53 countries and has since negotiated
with six more potential customers. By our estimate
sales last year totaled at least $375 million, and
negotiations for roughly $170 million were reported
during the first quarter of 1982 (see figure 3).
East Asia. Asian countries are South Korea's most
important arms clients, and the region generally acts
as a trial market for new products and policy initia-
Indonesia is South Korea's best customer, and the
relationship appears to exemplify Chun's defense co-
operation objectives.
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Malaysia also has bought large amounts of ammuni-
tion and a number of ships and boats from South
Korea.
a istan an e r lp-
pines buy ammunition and fast patrol boats. Singa-
pore, Burma, and Sri Lanka recently closed arms
deals with Seoul for the first time.
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Figure 3
South Korea: Military Export Agreementsa
_1 I I I
0 1976 77 78 79
1
80 81
human rights issues in several Latin American coun-
tries. Argentina bought air defense guns and large
quantities of uniforms and camouflage materials in
1981. Late in the year it contracted with a Korean
firm for an amphibious landing ship; the ship is still
under construction, but the other equipment was
delivered prior to the Falkland Islands conflict. B- -
zilian military officials were pleased with the 38
South Korean medium howitzers delivered last year,
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Venezuela will take delivery of 60-mm and 81-mm
mortars this year, has shown strong interest in tactical
vehicles, and, recently
signed a contract for four amphibious ships. In addi-
tion, Venezuela has initiated discussions on joint 25X1
ammunition manufacture with Seoul. Panama, Peru,
Chile, and Honduras are negotiating on possible
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a Figures include both lethal and nonlethal items but exclude
military construction projects.
Africa. North Korea's nonaligned image and its will-
ingness to provide concessionary terms have long
made military assistance from P'yongyang more a125X1
ceptable to many African states than South Korean
aid. Ethiopia and Nigeria, however, have been steady
Middle East. This region has surpassed Latin Ameri-
ca as Seoul's second-largest market. Throughout the
Iran-Iraq war, both sides have been large buyers of
Korean quartermaster goods, vehicles, and communi-
cations equipment.
Export Policy in the 1980s
We anticipate that South Korean military exports will
expand reasonably well in the 1980s and that they are
likely to remain competitive in cost, sophistication,
and quality. As the strength of current demand
already shows, South Korean products fill the needs
of many Third World nations for lower cost alterna-
tives to more advanced systems offered by Western
arms producers. Several other countries such as Bra-
zil, Taiwan, and South Africa, however, are emerging
as strong competitors for the same market
Latin America. This market seems to offer good
growth potential, but it is also a region where, in our
judgment, South Korea has restricted its effort be-
cause of US foreign policy considerations, especially
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Prospects look bright for sales of naval equipment
and, over the next several years, for most types of
ground forces equipment now produced. We believe
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that Seoul's new line of indigenously designed weap-
ons and equipment has excellent prospects for meeting
the rising foreign demand for intermediate technology
goods; exports of most South Korean-designed items
will begin between 1983 and 1985. Buyers are ex-
pressing strong interest in Seoul's multiple rocket
launcher, upgraded artillery, modified amphibious
ships, and ship-to-ship missile. Given the increased
worldwide interest in sophisticated weapons systems
in the wake of the recent Falkland Islands and Middle
East conflicts, Seoul may attempt to step up selected
missile and electronics programs, emphasizing tacti-
cally useful and cost-effective systems.
South Korea is also likely to enter the market for
turnkey arms plants in the middle-to-late 1980s.
Demand for these projects is growing rapidly, and
many manufacturing processes used by South Korean
firms and Seoul's need for direct sales to pay for its
own underutilized facilities may restrain the South in
this area for the near term: But as South Korean-
designed arms enter their second generation and the
country's machine tool industry matures, we think
South Korea will begin to move into this market.
We also expect South Korea to show increasing
independence in its arms exports, possibly including
further circumvention of US export regulations. In
the near term Seoul will attempt to take advantage of
export opportunities as they arise.
The plan to shore up the defense industry will
shift most of the financial burden of maintaining
excess capacity to the government, but pressure to
step up exports will continue
Looking ahead three to five years, Seoul sees the
indigenous design program as the most promising
means of increasing its export independence. Some
indigenously designed products may be based on
American technical data, but we do not have enough
information on these projects to determine whether
US firms or the US Government are entitled to
royalties or control over their use and sale. Products
copied directly from US-controlled items would natu-
rally compete aainst US manufactures, but, through
the 1980s, most indigenously designed goods will be at
a lower technological level and more likely to be
complementary to US arms exports.
At the same time, as part of the attempt to reduce US
regulation of military exports, South Korea has been
expanding its efforts to gain technical aid-including
possible joint production-from non-US sourcesC
But we
expect Seoul will be reluctant to carry its arms
diversification program to the point of significantly
affecting the interoperability of South Korean and US
military equipment.
rare-to selected African states.
Seoul will probably expand the scope of its military
diplomacy as it tries to turn its expertise in defense
research and production to advantage in broader
international affairs. While continuing to increase its
market in the Middle East and East Asia, we believe
South Korea is likely to give more attention to Africa
than in the past. In the process, Seoul may be
compelled to step up grant aid-previously quite
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