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PRESS RELEASE
PRESS/TPRB/40
24 September 1996 Korea
undertakes more domestic reform as its position in world trade continues to strengthen Back to top
Strong economic growth, deregulation, trade
liberalization and an easing of foreign investment restrictions are helping Korea not only
to become more competitive but also to take a more forceful approach to domestic reform.
Referred to in a new WTO Secretariat report as "one of the world's most dynamic
economies," Korea is now in the end phase of a five-year programme which seeks to
reduce state control, abolish unnecessary regulations and restrictions, increase
transparency of trade-related policies and align domestic laws with international
regulations.
The WTO Secretariat report and a report by the
Government of Korea will serve as the basis of two days of discussion at the WTO on 30
September and 1 October 1996. According to the WTO report, Korea's liberalization efforts
were spurred on in part because of the Uruguay Round. Its commitments included tariff
reductions, concessions in the agricultural and offers in many services sectors. Korea's
final bound tariffs will average 8.3 per cent on a trade-weighted basis by 2004. Rates for
all farm items have been bound while the level of tariff bindings for industrial products
was increased from 10 to 90 per cent.
On-going reforms in agriculture have been driven
mainly by external requirements, states the report, rather than efficiency considerations
or consumer welfare. In lieu of fixing tariffs for rice, Korea undertook to expand its
minimum access commitment. Rice imports will now rise from 1 to 4 per cent of domestic
consumption over a 10-year period.
Korea's narrowly focused exports are somewhat
vulnerable to product-specific market and policy developments, with semi-conductors and
automobiles alone representing nearly 25 per cent of total merchandise exports. Recent
initiatives by the government are intended to promote the capital goods industry, where
the bilateral deficits with Japan are the highest.
While Korea does not grant subsidies in the form of
direct payments to industry, the report notes that assistance is extended primarily for
agriculture and coal mining via tax breaks and concessional interest rates. Under the WTO
Agreement on Subsidies and Countervailing Measures, Korea plans to phase out all
prohibited subsidies by 2002.
Korea's competition law has been overhauled since
1992 and complemented by institutional and organizational improvements in policy
implementation. The reforms are intended to contribute to a more balanced economic
structure in terms of company size, and reduce barriers for new entrants. While the
reforms are conducive to long-term economic resilience, the report states that there may
be no immediate gains as large industrial conglomerates are well represented in dynamic
and innovative industries. Trading companies related to such conglomerates handled over 46
per cent of Korea's exports in 1995, up from 38 per cent in 1990 (including some products
from small and medium-sized enterprises).
Korea's services sector currently accounts for about
60 per cent of GDP. The report notes that Korea has assumed commitments in over 80
sectors, followed by additional offers in the extended negotiations on financial services,
basic telecommunications and maritime transport. However, significant portions of the
transport, communications, financial and business services industries are still restricted
for foreign investors.
Korea is a member of the World Intellectual Property
Organization (WIPO), and has signed a variety of international conventions governing the
protection of intellectual property rights. Recent legislative revisions included
virtually all areas of protection, from copyrights to patents and trademarks. The
authorities feel that most of the Uruguay Round implementation measures are now in place,
in an attempt, by their own assessment, to comply as closely as possible with
developed-country requirements under the WTO Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS).
As a member of the forum for Asia-Pacific Economic
Cooperation (APEC),See footnote 1 Korea
views APEC's role as supplementary to and supportive of the multilateral trading system.
Almost 70 per cent of Korea's external trade and 75 per cent of its foreign direct
investment is with other APEC members.
The report concludes by noting that recent
statements made by Korean officials indicate a gradual change in policy perception,
implying both a more assertive rôle in international economic fora and a more dynamic
approach to domestic reform. The strengthening of competition policy is an important
signal, indicating confidence in the operation of market forces and their impact on
resource allocation. Accelerated liberalization under WTO provisions would be the natural
complement and, at the same time, match the political responsibilities ensuing from
Korea's strong and still growing rôle in world trade.
Notes to Editors:
The WTO Secretariat's report, together with a report
prepared by Korea, will be discussed by the WTO Trade Policy Review Body (TPRB) on 30
September and 1 October 1996. The WTO's TPRB conducts a collective evaluation of the full
range of trade policies and practices of each WTO member at regular periodic intervals and
monitors significant trends and developments which may have an impact on the global
trading system.
Two reports, together with a report of the TPRB's
discussion and of the Chairman's summing up, will be published in due course as the
complete Trade Policy Review of Korea and will be available from the WTO Secretariat,
Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover the development of all aspects of
Korea's trade policies, including domestic laws and regulations, the institutional
framework, trade policies by measure and by sector. Since the WTO came into force, the
"new areas" of services trade and trade-related aspects of intellectual property
rights are also covered. Attached are the summary observations from the Secretariat and
government reports. Full reports will be available for journalists from the WTO
Secretariat on request.
Since December 1989, the following reports have been
completed: Argentina (1992), Australia (1989
& 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon
(1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990 & 1996), Costa
Rica (1995), Côte d'Ivoire (1995), Czech Republic (1996), Dominican Republic (1996),
Egypt (1992), the European Communities (1991, 1993 & 1995), Finland (1992), Ghana
(1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993),
Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 and 1995), Kenya (1993),
Korea, Rep. of (1992), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993),
Morocco (1989 & 1996), New Zealand (1990), Nigeria (1991), Norway (1991 & 1996),
Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992),
Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993),
Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991
& 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992 & 1994),
Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
The
Secretariats report: summary Back to top
TRADE POLICY REVIEW BODY: REPUBLIC
OF KOREA
Report by the Secretariat Summary Observations
Since its initial Trade Policy Review
in 1992, the Republic of Korea has continued to be one of the world's most dynamic
economies. Relatively moderate growth in 1992 and 1993 was followed by strong expansion,
exceeding 9 per cent in 1995. The stimulus came from both buoyant exports, in the wake of
the appreciating Japanese yen, and strong domestic investment for equipment.
External Liberalization and Internal Reform
Trade liberalization and a commitment to WTO
principles have been integral to Korea's economic policies in the 1990s. Based on
pre-announced programmes, tariffs have been reduced and quantitative restrictions
abolished across virtually all sectors. Applied tariffs currently average less than 10 per
cent (some 7 per cent in manufacturing), some 15 percentage points below their 1982
levels.
External liberalization has been accompanied by
internal deregulation. The Government's Five-Year Plan for a New Economy (1993-97) calls
for reduced State control, including the abolition of unnecessary regulations and
restrictions, increased transparency of trade-related policies, and the alignment of
domestic with international regulations. The Plan is focused on structural adjustment and
competitiveness in agriculture; technology enhancement in small and medium-sized
enterprises (SMEs); accelerated adjustment of declining industries; and expansion of high
value-added export sectors.
Gradual liberalization of inward foreign direct
investment (FDI) is intended to improve domestic efficiency and meet foreign requests.
Since 1993, the Government has simplified investment procedures, established a
"one-stop" service system, provided tax exemptions and favourable financing, and
created new industrial estates for foreign investors. Inward FDI has been outstripped by
outflows in recent years, in part to develop new outlets and escape domestic cost
pressure.
Financial liberalization is inspired and required by
the needs of Korea's rapidly growing economy. There are some indications that capital
shortage has tended to fuel pressures for sector-specific soft loans, delayed adjustments
in declining labour-intensive sectors, and retarded Korea's shift onto a more capital- and
technology-intensive development path. Opening will be at a deliberate rate, accompanied
by disciplined macroeconomic management, to avoid abrupt currency appreciation and its
adverse effects on export competitiveness.
Trade Policy Trends
Korea's undertakings in the Uruguay Round included
tariff reductions, concessions in the agricultural sector, commitments in many services
sectors, and accession to the Agreement on Government Procurement. Final bound tariffs
will average 8.3 per cent (trade-weighted basis) and are being phased in over a ten-year
period, until 2004, in line with developing-country provisions. All rates have been bound
for farm items, as required under the WTO Agreement, while the level of tariff bindings
for industrial products was increased from 10 to 90 per cent. This implies gains in
predictability and security of access, although the relevant rates are in most cases
higher than those currently applied.
Korea is committed to phasing out, or bringing into
conformity with WTO provisions, a range of import restraints previously maintained for
balance-of-payments reasons. Non-automatic licensing requirements were eliminated on 220
agricultural and fisheries products between 1992 and July 1996, and 73 additional items
are to be liberalized in July 1997. The date for liberalization of eight categories of
beef and cattle was extended in the Uruguay Round context to January 2001, compensated by
increased quota levels and relatively low final tariffs. Restrictions on certain Japanese
products, maintained under the Import Diversification Programme, are being phased out with
a view to their full elimination by 1999. The current, comprehensive system of trade
licensing, generally automatic, is to be replaced in 1997 by a system limiting licensing
requirements to health, security and similar criteria.
Korea does not grant any subsidies in the form of
direct payments to industry; assistance is extended primarily via tax breaks and
concessional interest rates. Available evidence suggests that most financial support is
destined for agriculture and coal mining. Under the WTO Agreement on Subsidies and
Countervailing Measures, Korea plans to phase out all prohibited subsidies by 2002,
invoking developing-country status.
Korea has acted to remove technical trade barriers,
focusing in particular on the import and distribution chain. An expedited inspection and
clearance system for fresh fruit and vegetables was introduced, and Government-mandated
shelf-life indications for some 200 products were replaced by manufacturer-determined
indications. In contrast to these trends, new origin labelling requirements have been
introduced, mainly on farm products, with a view to better informing consumers at a time
of steady import liberalization. An overhaul of competition law since 1992 has been
complemented by institutional and organizational improvements in policy implementation.
The reforms are intended to contribute to a more balanced economic structure in terms of
company size, and reduce barriers for new entrants. However, while conducive to long-term
economic resilience, there may be no immediate gains as large industrial conglomerates are
well represented in dynamic and innovative industries. Trading companies related to such
conglomerates handled over 46 per cent of Korea's exports in 1995, up from 38 per cent in
1990 (including SME supplies).
Korea is a member of the World Intellectual Property
Organization (WIPO), and has signed a variety of international conventions governing the
protection of intellectual property rights. Recent legislative revisions included
virtually all areas of protection, from copyrights to patents and trademarks. The
authorities feel that most of the Uruguay Round implementation measures are now in place,
in an attempt, by their own assessment, to comply as closely as possible with
developed-country requirements under the WTO Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS). In addition, Korea is committed under a bilateral
agreement with the EU to swift implementation of TRIPS provisions.
Sectoral Policy Developments
As the shift from light-industry to
technology-intensive manufactures has continued, Korea's merchandise exports are
increasingly focused on electrical and electronic products, motor vehicles, and
telecommunications equipment. Uruguay Round tariff reductions are likely to further
accelerate current export trends, while agricultural and light industrial products may
gain on the import side. The United States remains Korea's single largest export market,
although declining in importance, followed by Japan and the European Union.
A recent increase in trade deficits, in the wake of
strong economic expansion, is attributable mainly to structural factors. Some of Korea's
principal industries, including motor vehicles and electronics, rely heavily on imported
components and capital goods. The deficits have proved politically sensitive, despite
their relatively modest share of GDP, the underlying momentum of the manufacturing sector,
and the strength of inward capital flows. In June 1996 the Government thus announced a
number of measures to promote exports (e.g. increased ceilings for advance export
payments, reduced import duties on certain raw inputs and expanded funding for export
insurance).
Agriculture
Despite significant subsidization, support for
Korean agriculture relies predominantly on border protection. Domestic prices may exceed
their world market equivalents by several hundred per cent, peaking at over 700 per cent
for soybeans in 1995; and there have been no signs of decline. Ongoing reforms have been
driven mainly by external requirements, rather than efficiency considerations or consumer
welfare.
Complying with WTO commitments to tariff
quantitative import restrictions, tariff quotas were implemented in 1995 for 67 groups of
agricultural products. In lieu of fixing tariffs for rice, Korea undertook to expand its
minimum access commitment; rice imports will rise from 1 to 4 per cent of domestic
consumption over a 10-year period. Tariff quota administration has typically been
delegated to State-trading entities and associations previously responsible for price
stabilization and other interventions, implying potential conflicts of interest.
Industry
Given its relatively narrow focus, Korea's export
basket is somewhat vulnerable to product-specific market and policy developments;
semi-conductors and automobiles alone represent nearly 25 per cent of total merchandise
exports. Recent government initiatives were intended to promote the capital goods
industry, where the bilateral deficits with Japan are highest; a Blueprint of May 1995
envisages improvements in export financing, formation of sales consortia, and new tax
credits.
On grounds of public interest, Korea has continued
to maintain licensing restrictions on new entrants in the oil refining, petroleum
retailing and power generation industries. Apart from power generation, the restrictions
are to be replaced by a simple registration system.
Strong emphasis is placed on the development of
small and medium-sized enterprises (SMEs). Measures include tax breaks and
reduced-interest loans for starting new businesses in rural areas. SMEs also receive by
far the largest share of domestic funds for export financing; total SME-related funding in
1996 is estimated at W 1.5 trillion. While a range of activities, mainly in the local
economy, have previously been reserved for SMEs, the reservations are being phased out
progressively.
Services
Korea's services sector currently accounts for about
60 per cent of GDP. Under the General Agreement on Trade in Services, Korea has assumed
commitments in over 80 sectors, followed by additional offers in the extended negotiations
on financial services, basic telecommunications and maritime transport. However,
significant portions of the transport, communications, financial and business services
industries are still restricted for foreign investors.
Telecommunications and financial services have been
among the most dynamic segments in recent years, benefiting from demand trends, product
and process innovation, and gradual policy reform. Liberalization moves in
telecommunications have been partly synchronized with international developments,
including current WTO negotiations. External opening of virtually all basic telecom
services is scheduled for 1998, following domestic liberalization and deregulation.
Recent growth of the financial sector has relied in
particular on savings institutions, insurance companies and investment houses. The
Government seeks to promote segments which have been retarded by previous controls, such
as the long-term bond market. A general limitation on foreign shareholdings, currently 15
per cent across all sectors, is to be reviewed with the possibility of complete
elimination in 1998-99. Korea's accession to the OECD, which the authorities wish to
achieve by autumn 1997, may help to promote further liberalization.
Trade Policies and Foreign Trading Partners
Korea's economic strength relies on industrial
specialization, and the resulting economies of scale, under stable external trading
conditions. Agriculture and significant services sectors have remained largely insulated
from international competition, creating economic distortions at home and political
frictions abroad. While the authorities are committed to continued investment and trade
liberalization, their general approach has remained somewhat reactive in sensitive areas,
responding predominantly to external policy developments. It is noteworthy, however, that
the implementation of liberalization and deregulation programmes has been consistent,
without significant slippages.
Recent statements indicate a gradual change in
policy perception, implying both a more assertive rôle in international economic fora and
a more dynamic approach to domestic reform. The strengthening of competition policy is an
important signal, indicating confidence in the operation of market forces and their impact
on resource allocation. Accelerated liberalization under WTO provisions would be the
natural complement and, at the same time, match the political responsibilities ensuing
from Korea's strong and still growing rôle in world trade.
Government
report Back to top
TRADE POLICY REVIEW BODY: REPUBLIC
OF KOREA
Report by the Government
Recent Developments of Korea's Trade
Policy
The Korean Government has made rapid progress in
lifting its regulations on economic activities, in particular, since 1993. This action
was, of course, designed to push the economic system in a private-sector initiated and
more market-oriented one. In order to lend support to this programme, the government
established the Committee for the Deregulation of the Economic Administration Sector in
March 1993, as well as the Special Measure Act for the Deregulation of Corporate
Activities in June of that year. To date, it has taken all necessary steps to effectively
implement these measures for the more than 1,700 subject items that were specified by the
above-mentioned Committee. Deregulation of core areas such as finance, land and investment
will be promoted continually within this framework.
The Korean Government has also accelerated its trade
liberalization efforts. Korea's import liberalization ratio increased from 97.7 per cent
in 1992 to 99.3 per cent in 1996. According to the schedule, the remaining restrictions
will either be phased out or otherwise brought into conformity with international rules,
that is, WTO provisions and the results of the Uruguay Round negotiation by the year 2001.
At the same time, Korea has made major tariff reductions by voluntarily implementing the
five-year Tariff Reduction Plan according to the pre-announced Schedule from 1989 to 1994.
As a result, the average tariff rate was reduced from 18.1 per cent in 1988 to 7.9 per
cent in 1994. Korea's tariffs on manufactured products averaged 6.2 per cent on a
trade-weighted average in 1995. Furthermore, the Korean Government has continued to
streamline and improve the import/export procedures. Among other things, the
import-related procedures have been simplified to a significant extent. Other deregulation
measures include the reduction of number of products subject to import approval, quality
inspection, and so forth.
With regard to the foreign direct investment, an
extensive package of liberalization measures is being implemented. As a result, Korea's
foreign investment liberalization ratio increased from 83.0 per cent in 1992 to 97.4 per
cent in 1996. By 2000, according to the schedule, this ratio will increase to 98.4 per
cent and the number of restricted business line will be reduced to only 18 by that year.
As a result, all sectors, except for a few closely related to the public interest, will be
completely open. Aside from the liberalization programme, the Government has been making
ongoing efforts toward improving the foreign direct investment environment in Korea,
including a simplification of the investment-related procedure, the establishment of a
one-stop service system as well as of the exclusive industrial parks for foreign
investment, and etc.
In the financial sector, Korea is radically
reforming the foreign exchange system by relaxing its foreign exchange controls and easing
restrictions on portfolio investments and capital movement under the five-year Foreign
Exchange System Reform Plan from 1995 to 1999. In December 1995, the Foreign Exchange
Management Act was amended in order to better facilitate the liberalization measures in
the future.
In tandem with these liberalization efforts, the
Government has adopted various measures to enhance fair competition. Among other things,
increased weight is being given to competition policy in Government decision making.
Reflecting this new emphasis, the Korea Fair Trade Commission, formerly under the
authority of the defunct Economic Planning Board, has been upgraded to an independent
agency headed by a ministerial-level Chairman and with a larger staff. The Commission is
expected to enhance its role as the 'watch-dog' agency that seeks to ensure fair
competition in finance, industry, trade and other areas.
Korea's Future Policy Direction
Recognizing the fundamental changes in domestic and
international conditions, Korea seeks to meet the challenges of the new era leading up to
the 21st Century by gearing its external economic relations to strengthening the
competition and cooperation. These two elements - competition and cooperation - will be
kept in balance and harmonized within the context of the WTO-based multilateral trading
system.
In line with this philosophy, the Korean Government
will pursue four basic trade policy objectives-
- First, Korea will emphasize the long-term goal of
balanced trade expansion based on the principle of free trade. As such, the government
will promote both quantitative growth of trade and qualitative improvement in its
structure.
- Second, Korea will make greater effort to promote
industrial cooperation , as well as trade expansion.
-The third policy objective is to enhance Korea's
contribution to strengthening the multilateral trading system.
- Korea's final major trade policy objective is to
increase development cooperation and assistance to the less developed countries. Back
to top
Footnote:
1 The members, besides Korea, are: Australia, Brunei, Darussalam, Canada, Chile, China,
Chinese Taipei, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New
Guinea, the Philippines, Singapore, Thailand, and the United States. |
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