South Korea Summary

last updated November 2004

Introduction

Following growth rates in the high teens in the 1990�s, the Republic of Korea (South Korea, hereafter referred to as Korea) is a new addition to the global group of developed �First World� countries. It achieved this growth pattern through an export-led strategy that established a strong precedent of global openness; this commitment was evidenced by Korea�s reaction to the capital flight crisis and recession it faced in 1997, when it opted to respond with further market reforms rather than protectionist measures. Due to this approach, Korea achieved a pre-crisis GDP level of $12,000 in 2003 due to growth in industrial exports, which consist of 92% of all exports. [1] Korea's customs tariff, which is also an important source of tax revenue, was on average 12.8% in 2004, with 7.5% for industrial products and up to 50% for agricultural products. [1] In international trade negotiations, the government has tended to take the developed-country stance on global trade issues, rather than the developing-country position, in contentious debates such as developed-country agricultural protections.

Agriculture

Like Japan and the EU, Korea argues that rural industries are "multifunctional" - that is, they carry substantial social benefits beyond their economic value, and thus can justifiably be protected. Japan, the EU and South Korea are net importers of many farm and agricultural products, while still supporting domestic agricultural industries. Together they have pushed in recent WTO talks to slow the rate of liberalization, though they recognize that it will be hard to get agreement from many developing country members of the WTO. [2] Most agricultural products, particularly rice, are being excluded from the trade liberalizations being pursued in bilateral deals with other Asian countries.

Steel

A steel exporter, Korea is also among the countries worried by the US's use of anti-dumping laws to challenge cheap steel imports, and by what it sees as the general overuse of anti-dumping rules since the completion of the Uruguay Round. The Korean government argues that newly-introduced ambiguities in anti-dumping regulations can be blamed for the rise of disputes, and proposes that the rules be clarified and tightened. For the reduction of tariffs on industrial goods, Korea favors a "formula-cut" approach, which it considers fairer than individually negotiated agreements. Korea is among the countries currently planning to levy putative tariffs on US imports in response to the US�s refusal thus far to repeal an anti-dumping law deemed anti-competitive by the WTO; however, President Bush has recently promised to push Congress to repeal the law. [3]

Bilateral Agreements

Korea decided to embrace the bilateral approach to trade negotiations after the Asian crisis in 1998, when it lost some of its preferential access to the American and Japan markets and came to view bilateral and regional deals as a good tool to ensure market access. [1] In February 2003, Korea signed a free trade agreement with Chile, Korea's first with another country, [4] though it seems more are likely to come. The agreement reduces tariffs on South Korean industrial products in return for reduced barriers to Chile's agricultural products. Many Korean farmers have expressed the view that such reductions will threaten their livelihoods, [3] although most agricultural products are excluded from the export promises in the agreement. Korea is also in bilateral negotiations with Singapore and Japan. [1] In November, Korea announced it will begin negotiating a free trade agreement with the Association of Southeast Asian Nations (ASEAN) in 2005. [5]

Future

The biggest concern regarding Korea�s economic future is continuingly sluggish domestic demand. This has not become a significant problem yet only because of the robustness of growth in demand for industrial exports. The growth of China, which has been an increasingly important importer, is very important for the Korean outlook in this respect. Productivity in agriculture and services is also lower than in manufacturing. Continuing bilateral and regional trade deals, further market reforms and an increase in the hospitality of the Korean environment to foreign investment seem to be the best strategies to ensure Korea�s future growth and stability.

[1] WTO Trade Policy Report on the Republic of Korea, 2004, http://www.wto.org/english/tratop_e/tpr_e/tp235_e.htm.

[2] "WTO talks kick off with clashes over farm trade," The Japan Times, 15 February 2003.

[3] �Bush vows to work with Congress to drop antidumping law after WTO move,� Japan Economic Newswire, November 26, 2004 Friday.

[4] Kirk, Don, "South Korea, in Deal With Chile, Signs Its First Free Trade Pact," The New York Times, 17 February 2003, p. C3.

[5] �SKorea, ASEAN to enter into free trade talks next year,� AFX � Asia, November 24, 2004.