Treasury Chief Says S. Korea, Taiwan Must Ease Controls on Currencies

WASHINGTON — The Reagan Administration charged Monday that South Korea and Taiwan have been “manipulating” their exchange rates to gain an unfair advantage in their trade with the United States and said it will seek negotiations with both to bring their currencies in line.

In a formal report to Congress, Treasury Secretary Nicholas F. Brady said the actions by both countries to artificially hold their currencies down have exacerbated America’s trade deficit and have “frustrated” worldwide efforts to reduce global trade imbalances.

At the same time, however, he disputed allegations that America’s overall trade deficit, which has shrunk to an estimated $130 billion from $170.3 billion in 1987, would cease its decline unless the dollar’s value falls further. He indicated that he believes the dollar is near the right level now.

The announcement of plans for new negotiations amounted to something of an escalation in the Administration’s campaign to prod South Korea and Taiwan into unshackling their exchange rates and allowing their currencies to rise.

The United States began its low-dollar policy in September, 1985, and the Treasury has been privately pressuring both countries since mid-1986 but has run into a stone wall, particularly with South Korea.

Over the last few months, the value of the South Korean won has appreciated only about 26%. The new Taiwan dollar has risen 40%, but American officials say that it is still lagging below the level it should be. By contrast, the Japanese yen has appreciated 92% over the same period.

Keeping a currency undervalued, as the Administration says both South Korea and Taiwan do, makes U.S. products more expensive and makes their own exports more competitive abroad.

Monday’s announcement was effectively bolstered by a new mandate from Congress. Under the new omnibus trade bill, the Administration is required to launch formal negotiations with any country found to be manipulating its currency for trade gains. A senior official said Monday that the previous sessions had amounted only to “discussions.”

Nevertheless, authorities conceded that the move is unlikely to provide more than a little added leverage for U.S. negotiators. Asked what the Treasury would do if the U.S. negotiators were rebuffed, the same official said only: “The law is silent on that point.”

Monday’s escalation reflected growing impatience in the United States with failure of the so-called newly industrialized economies of Asia to help America reduce its trade deficit. Washington wants all of its trading partners to let their currencies appreciate and to reduce their trade barriers.

Nevertheless, the Treasury report Monday exonerated Hong Kong and Singapore, which also have large trade surpluses with the United States.

Apart from the findings involving South Korea and Taiwan, the 47-page report mainly reiterated the Administration’s longstanding views on international economic and exchange-rate policies. Under the Omnibus Trade Act, the Treasury is required to provide an updated report every six months.

The report also repeated earlier appeals that West Germany and Japan take steps to spur increased demand at home to help narrow their huge trade surpluses.