WTO Lauds Korean Trade Liberalization, but Cautions on Complex Regulations, Tariffs

Korea’s strong rebound since the financial crisis was largely achieved without recourse to protectionist measures, said the World Trade Organization in its Trade Policy Review of Korea. The country has instead opened up its markets through bilateral trade agreements, including with the U.S. However, burdensome regulations, a complex and unpredictable tariff schedule, and high walls around certain industries pose challenges for Korea, the WTO said

According to the WTO, Korea has “intensively pursued free-trade agreements with major trading partners or regional groups,” including ASEAN, India, the European Union, Peru, and the U.S., and is continuing or planning FTA negotiations with other large economic blocs and developing countries. The FTAs are seen as a means to reform the economy and raise competitiveness, the WTO said. For example, Korea strengthened its intellectual property rights legislation partly because of the commitments of its FTA with the U.S.

“Korea attaches high priority to making its laws transparent and readily accessible, including by foreigners,” said the WTO. Many laws are available in English on websites maintained by various ministries. Additionally, Korea has been modernizing and streamlining its computerized customs procedures through its World’s Best Customs 2012+ plan. Transfer pricing and customs valuation, two areas where foreign companies had difficulty when conducting business in Korea, were addressed, said the WTO.

However, although Korea has attempted to harmonize its industrial standards with international norms, the share of non-harmonized standards has increased “considerably,” the WTO said. The total number of mandatory standards has increased by 70 percent. Korea is proceeding with an effort to bring food labeling requirements into line with international standards, including new requirements for children’s food, nutritional labeling, and irradiated ingredients.

Also, the Korean tariff schedule remains “relatively complex,” said the WTO. The schedule includes a “multiplicity of rates … often with small rate differences and some involving decimal points,” it said. Korea’s tariff rates are relatively high, which adds to confusion in border taxation by increasing the need for drawbacks and tariff concessions to ensure that the tariffs don’t hinder exports. The large gap between WTO limits on tariffs and average actual tariffs makes the tariff schedule somewhat unpredictable, the WTO said. Taking advantage of this situation, the Korean government has trebled its use of “flexible tariffs,” or higher tariffs on certain products, since 2008.

Finally, Korea still maintains high barriers to entry for certain products and industries particularly in agriculture. For example, rice is still subject to import quotas, and manioc is subject to an import tariff of 887.4%, the WTO said. The average tariff for agricultural products is 55%, over eight times the average tariff for non-agricultural goods. Agriculture also receives “substantial domestic financial assistance,” said the WTO. As a result, Korean consumers pay much higher prices: nearly 1.7 times the world average.