Plans for merging the state-run Korea Development Bank with the Korea Finance Corp. has recently picked up speed, bolstered by the authorities’ determination to turn the clock back on the privatization of KDB.

The move is seen as the Park Geun-hye government’s determination to continue claiming ownership over the bank.

The U.S., however, appears to see the affiliation between KDB and government as a major trade barrier, according those who don’t want the merger to happen.

These parties include the union of the Korea Finance Corp., which is now resorting to extreme measures to stop the deal. 

The union argues that the U.S. would put pressure on the Korean government should it take further steps to keep KDB a public entity.

On Tuesday, the Korea Finance Corp.’s labor union issued a statement, quoting a March report submitted by the United States trade representative to Congress that echoed its claims.

“The U.S. government will continue to monitor the lending policies of the KDB and other government-owned or affiliated financial institutions, as well as the plans for privatization,” the report said.

The past efforts to privatize KDB were largely in line with the spirit of free trade, an idea advocated by both allies, and this spirit should not be undermined, according to the union.

Despite the protest, the National Assembly’s legislation reviewing committee recently passed the bill to merge KDB with Korea Finance Corp.

The bill, should it obtain the final approval at the parliament’s general meeting, is to transfer Korea Finance Corp.’s overseas functions to KDB and to combine the two bodies into an integrated policy finance operator.

Ever since the government announced the merger plans in August 2013, the financial corporation’s union has raised objections for fear of layoffs.

“The USTR report, which handles U.S. trade policies, was a display of its sentiment over the Korean government’s plans to scrap the plans for KDB’s privatization,” the union said.

It went on to claim that the free trade agreement with the U.S. would not allow the merger to happen.

“Even if the KDB revision is passed at parliament as scheduled, it may later be overruled by the Korea-U.S. Free Trade Agreement, an international pact with dominant powers.”

Neither the financial authorities nor the KDB have yet responded to the union’s claims.

In 2009, the former Lee Myung-bak administration adopted a financial holding company system and separated the Korea Finance Corp. from KDB, intending to run the former  as a public policy lender and the latter as a commercial bank.

But under the Park Geun-hye government, financial authorities recanted the plan and pledged to once again combine the two. In January, KDB was re-designated as a state-owned organization.

“Privatizing KDB was a significant attempt at boosting the bank’s private investment functions, but following the 2008 global financial crisis, there was a need for a leading policy finance operator to replace the faltering commercial banks,” said Shin Je-yoon, chairman of the Financial Services Commission, in a parliamentary audit in 2013.

By Bae Hyun-jung (tellme@heraldcorp.com)