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PRESS/TPRB/40
24September 1996
KOREA UNDERTAKES MORE DOMESTIC REFORM ASITSPOSITION
INWORLD TRADE CONTINUES TOSTRENGTHEN
Strong economic growth, deregulation, tradeliberalization andaneasing offoreign investment
restrictions arehelping Korea notonlytobecome more competitive butalsototakeamore forceful
approach todomestic reform. Referred toinanewWTO Secretariat report as"oneoftheworld 's
most dynamic economies," Korea isnowintheendphase ofafive-year programme which seeks to
reduce statecontrol, abolish unnecessary regulations andrestrictions, increase transparency oftrade-
related policies andalign domestic lawswithinternational regulations.
TheWTO Secretariat report andareport bytheGovernment ofKorea willserve asthebasis
oftwodaysofdiscussion attheWTO on30September and1October 1996. According totheWTO
report, Korea 'sliberalization efforts were spurred oninpartbecause oftheUruguay Round. Its
commitments included tariff reductions, concessions intheagricultural andoffers inmany services
sectors. Korea 'sfinalbound tariffs willaverage 8.3percentonatrade-weighted basisby2004. Rates
forallfarmitems havebeenbound while theleveloftariffbindings forindustrial products wasincreased
from 10to90percent.
On-going reforms inagriculture havebeendriven mainly byexternal requirements, states the
report, rather thanefficiency considerations orconsumer welfare. Inlieuoffixing tariffs forrice,Korea
undertook toexpand itsminimum access commitment. Riceimports willnowrisefrom1to4percent
ofdomestic consumption overa10-year period.
Korea 'snarrowly focused exports aresomewhat vulnerable toproduct-specific market and
policy developments, withsemi-conductors andautomobiles alone representing nearly 25percentof
totalmerchandise exports. Recent initiatives bythegovernment areintended topromote thecapital
goods industry, where thebilateral deficits withJapan arethehighest.
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While Korea doesnotgrant subsidies intheform ofdirect payments toindustry, thereport
notesthatassistance isextended primarily foragriculture andcoalmining viataxbreaks andconcessional
interest rates. Under theWTO Agreement onSubsidies andCountervailing Measures, Korea plans
tophase outallprohibited subsidies by2002.
Korea 'scompetition lawhasbeenoverhauled since 1992 andcomplemented byinstitutional
andorganizational improvements inpolicy implementation. Thereforms areintended tocontribute
toamore balanced economic structure interms ofcompany size,andreduce barriers fornewentrants.
While thereforms areconducive tolong-term economic resilience, thereport states thatthere may
benoimmediate gains aslargeindustrial conglomerates arewellrepresented indynamic andinnovative
industries.Tradingcompaniesrelatedtosuchconglomerateshandledover46percentofKorea'sexports
in1995, upfrom 38percentin1990 (including some products from small andmedium-sized
enterprises).
Korea 'sservices sector currently accounts forabout 60percentofGDP. Thereport notes
thatKorea hasassumed commitments inover80sectors, followed byadditional offers intheextended
negotiationsonfinancialservices,basictelecommunicationsandmaritimetransport.However,significant
portions ofthetransport, communications, financial andbusiness services industries arestillrestricted
forforeign investors.
Korea isamember oftheWorld Intellectual Property Organization (WIPO), andhassigned
avariety ofinternational conventions governing theprotection ofintellectual property rights. Recent
legislative revisions included virtually allareasofprotection, fromcopyrights topatents andtrademarks.
Theauthorities feelthatmost oftheUruguay Round implementation measures arenowinplace, in
anattempt, bytheir ownassessment, tocomply asclosely aspossible with developed-country
requirements under theWTO Agreement onTrade-Related Aspects ofIntellectual Property Rights
(TRIPS).
Asamember oftheforum forAsia-Pacific Economic Cooperation (APEC),1Korea views
APEC 'sroleassupplementary toandsupportive ofthemultilateral trading system. Almost 70per
centofKorea 'sexternal trade and75percentofitsforeign direct investment iswithother APEC
members.
ThereportconcludesbynotingthatrecentstatementsmadebyKoreanofficialsindicateagradual
change inpolicy perception, implying bothamore assertive rôleininternational economic foraand
amore dynamic approach todomestic reform. Thestrengthening ofcompetition policy isanimportant
signal, indicating confidence intheoperation ofmarket forces andtheirimpact onresource allocation.
Accelerated liberalization under WTO provisions would bethenatural complement and,atthesame
time, match thepolitical responsibilities ensuing fromKorea 'sstrong andstillgrowing rôleinworld
trade.
1Themembers, 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, andtheUnited States.
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Notes toEditors:
TheWTO Secretariat 'sreport, together withareport prepared byKorea, willbediscussed
bytheWTO Trade Policy Review Body (TPRB) on30September and1October 1996. TheWTO 's
TPRB conducts acollective evaluation ofthefullrange oftrade policies andpractices ofeachWTO
member atregular periodic intervals andmonitors significant trends anddevelopments which mayhave
animpact ontheglobal trading system.
Tworeports, together withareport oftheTPRB 'sdiscussion andoftheChairman 'ssumming
up,willbepublished induecourse asthecomplete Trade Policy Review ofKorea andwillbeavailable
from theWTO Secretariat, Centre William Rappard, 154ruedeLausanne, 1211 Geneva 21.
Thereports cover thedevelopment ofallaspects ofKorea 'stradepolicies, including domestic
lawsandregulations, theinstitutional framework, trade policies bymeasure andbysector. Since the
WTO cameintoforce, the"new areas" ofservices tradeandtrade-related aspects ofintellectual property
rights arealsocovered. Attached arethesummary observations fromtheSecretariat andgovernment
reports. Fullreports willbeavailable forjournalists from theWTO Secretariat onrequest.
Since December 1989, thefollowing reports havebeencompleted: 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), Côted'Ivoire
(1995), Czech Republic (1996), Dominican Republic (1996), Egypt (1992), theEuropean Communities
(1991, 1993 &1995), Finland (1992), Ghana (1992), Hong Kong (1990 &1994), Hungary (1991),
Iceland (1994), India (1993), Indonesia (1991 and1994), Israel (1994), Japan (1990, 1992and1995),
Kenya(1993),Korea,Rep.of(1992),Macau(1994),Malaysia(1993),Mauritius(1995),Mexico(1993),
Morocco(1989&1996),NewZealand(1990),Nigeria(1991),Norway(1991&1996),Pakistan(1995),
Peru(1994), thePhilippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992
&1996), Slovak Republic (1995), South Africa (1993), SriLanka (1995), Sweden (1990 &1994),
Switzerland (1991 &1996), Thailand (1991 &1995), Tunisia (1994), Turkey (1994), theUnited States
(1989,1992&1994),Uganda(1995),Uruguay(1992),Venezuela(1996),Zambia(1996)andZimbabwe
(1994).
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TRADE POLICY REVIEW BODY
REPUBLIC OFKOREA
Report bytheSecretariat -Summary Observations
Since itsinitial Trade Policy Review in1992, theRepublic ofKorea hascontinued tobeone
oftheworld 'smostdynamic economies. Relatively moderate growth in1992and1993wasfollowed
bystrong expansion, exceeding 9percentin1995. Thestimulus came from bothbuoyant exports,
inthewake oftheappreciating Japanese yen,andstrong domestic investment forequipment.
External Liberalization andInternal Reform
TradeliberalizationandacommitmenttoWTOprincipleshavebeenintegraltoKorea'seconomic
policies inthe1990s. Based onpre-announced programmes, tariffs havebeenreduced andquantitative
restrictions abolished across virtually allsectors. Applied tariffs currently average lessthan10per
cent(some 7percentinmanufacturing), some 15percentage points below their1982 levels.
External liberalization hasbeenaccompanied byinternal deregulation. TheGovernment 's
Five-Year PlanforaNewEconomy (1993-97) callsforreduced Statecontrol, including theabolition
ofunnecessary regulations andrestrictions, increased transparency oftrade-related policies, andthe
alignment ofdomestic withinternational regulations. ThePlanisfocused onstructural adjustment
andcompetitiveness inagriculture; technology enhancement insmall andmedium-sized enterprises
(SMEs); accelerated adjustment ofdeclining industries; andexpansion ofhighvalue-added export
sectors.
Gradual liberalization ofinward foreign direct investment (FDI) isintended toimprove domestic
efficiencyandmeetforeignrequests.Since1993,theGovernmenthassimplifiedinvestmentprocedures,
established a"one-stop" service system, provided taxexemptions andfavourable financing, andcreated
newindustrial estates forforeign investors. Inward FDIhasbeenoutstripped byoutflows inrecent
years, inparttodevelop newoutlets andescape domestic costpressure.
FinancialliberalizationisinspiredandrequiredbytheneedsofKorea'srapidlygrowingeconomy.
There aresome indications thatcapital shortage hastended tofuelpressures forsector-specific soft
loans, delayed adjustments indeclining labour-intensive sectors, andretarded Korea 'sshiftontoamore
capital- andtechnology-intensive development path. Opening willbeatadeliberate rate,accompanied
bydisciplinedmacroeconomicmanagement,toavoidabruptcurrencyappreciationanditsadverseeffects
onexport competitiveness.
Trade Policy Trends
Korea 'sundertakings intheUruguay Round included tariff reductions, concessions inthe
agricultural sector, commitments inmany services sectors, andaccession totheAgreement on
Government Procurement. Final bound tariffs willaverage 8.3percent(trade-weighted basis) and
arebeing phased inoveraten-year period, until2004, inlinewithdeveloping-country provisions.
Allrateshavebeenbound forfarmitems, asrequired under theWTO Agreement, while thelevelof
tariff bindings forindustrial products wasincreased from 10to90percent. Thisimplies gains in
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predictability andsecurity ofaccess, although therelevant ratesareinmost cases higher thanthose
currently applied.
Korea iscommitted tophasing out,orbringing intoconformity withWTO provisions, arange
ofimport restraints previously maintained forbalance-of-payments reasons. Non-automatic licensing
requirements wereeliminated on220agricultural andfisheries products between 1992andJuly1996,
and73additional items aretobeliberalized inJuly1997. Thedateforliberalization ofeightcategories
ofbeefandcattlewasextendedintheUruguayRoundcontexttoJanuary2001,compensatedbyincreased
quota levels andrelatively lowfinaltariffs. Restrictions oncertain Japanese products, maintained under
theImport Diversification Programme, arebeing phased outwithaviewtotheirfullelimination by
1999. Thecurrent, comprehensive system oftrade licensing, generally automatic, istobereplaced
in1997 byasystem limiting licensing requirements tohealth, security andsimilar criteria.
Korea doesnotgrant anysubsidies intheform ofdirect payments toindustry; assistance is
extended primarily viataxbreaks andconcessional interest rates. Available evidence suggests that
most financial support isdestined foragriculture andcoalmining. Under theWTO Agreement on
Subsidies andCountervailing Measures, Korea plans tophase outallprohibited subsidies by2002,
invoking developing-country status.
Korea hasacted toremove technical trade barriers, focusing inparticular ontheimport and
distribution chain. Anexpedited inspection andclearance system forfresh fruitandvegetables was
introduced, andGovernment-mandated shelf-life indications forsome 200products werereplaced by
manufacturer-determined indications. Incontrast tothese trends, neworigin labelling requirements
havebeenintroduced, mainly onfarmproducts, withaviewtobetter informing consumers atatime
ofsteady import liberalization.
Anoverhaul ofcompetition lawsince 1992 hasbeen complemented byinstitutional and
organizational improvements inpolicy implementation. Thereforms areintended tocontribute toa
more balanced economic structure interms ofcompany size,andreduce barriers fornewentrants.
However, while conducive tolong-term economic resilience, theremaybenoimmediate gains aslarge
industrial conglomerates arewellrepresented indynamic andinnovative industries. Trading companies
related tosuchconglomerates handled over46percentofKorea 'sexports in1995, upfrom38percent
in1990 (including SME supplies).
Korea isamember oftheWorld Intellectual Property Organization (WIPO), andhassigned
avariety ofinternational conventions governing theprotection ofintellectual property rights. Recent
legislative revisions included virtually allareasofprotection, fromcopyrights topatents andtrademarks.
Theauthorities feelthatmost oftheUruguay Round implementation measures arenowinplace, in
anattempt, bytheir ownassessment, tocomply asclosely aspossible with developed-country
requirements under theWTO Agreement onTrade-Related Aspects ofIntellectual Property Rights
(TRIPS). Inaddition, Korea iscommitted under abilateral agreement with theEUtoswift
implementation ofTRIPS provisions.
Sectoral Policy Developments
Astheshiftfromlight-industry totechnology-intensive manufactures hascontinued, Korea 's
merchandise exports areincreasingly focused onelectrical andelectronic products, motor vehicles,
andtelecommunications equipment. Uruguay Round tariff reductions arelikely tofurther accelerate
current export trends, while agricultural andlightindustrial products maygainontheimport side.
TheUnited States remains Korea 'ssingle largest export market, although declining inimportance,
followed byJapan andtheEuropean Union.
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Arecent increase intrade deficits, inthewake ofstrong economic expansion, isattributable
mainly tostructural factors. Some ofKorea 'sprincipal industries, including motor vehicles and
electronics, relyheavily onimported components andcapital goods. Thedeficits haveproved politically
sensitive, despite theirrelatively modest share ofGDP, theunderlying momentum ofthemanufacturing
sector, andthestrength ofinward capital flows. InJune1996theGovernment thusannounced anumber
ofmeasures topromote exports (e.g.increased ceilings foradvance export payments, reduced import
duties oncertain rawinputs andexpanded funding forexport insurance).
Agriculture
Despite significant subsidization, support forKorean agriculture relies predominantly onborder
protection. Domestic prices mayexceed theirworld market equivalents byseveral hundred percent,
peaking atover700percentforsoybeans in1995; andtherehavebeennosigns ofdecline. Ongoing
reforms havebeendriven mainly byexternal requirements, rather thanefficiency considerations or
consumer welfare.
Complying withWTO commitments totariffquantitative import restrictions, tariffquotas were
implemented in1995 for67groups ofagricultural products. Inlieuoffixing tariffs forrice,Korea
undertook toexpand itsminimum access commitment; riceimports willrisefrom1to4percentof
domestic consumption overa10-year period. Tariff quota administration hastypically beendelegated
toState-trading entities andassociations previously responsible forprice stabilization andother
interventions, implying potential conflicts ofinterest.
Industry
Given itsrelatively narrow focus, Korea 'sexport basket issomewhat vulnerable to
product-specific market andpolicy developments; semi-conductors andautomobiles alone represent
nearly 25percentoftotalmerchandise exports. Recent government initiatives wereintended topromote
thecapital goods industry, where thebilateral deficits withJapan arehighest; aBlueprint ofMay1995
envisages improvements inexport financing, formation ofsalesconsortia, andnewtaxcredits.
Ongrounds ofpublic interest, Korea hascontinued tomaintain licensing restrictions onnew
entrants intheoilrefining, petroleum retailing andpower generation industries. Apart from power
generation, therestrictions aretobereplaced byasimple registration system.
Strong emphasis isplaced onthedevelopment ofsmall andmedium-sized enterprises (SMEs).
Measures include taxbreaks andreduced-interest loans forstarting newbusinesses inrural areas.
SMEs alsoreceive byfarthelargest share ofdomestic funds forexport financing; totalSME-related
funding in1996isestimated atW1.5trillion. While arange ofactivities, mainly inthelocaleconomy,
havepreviously beenreserved forSMEs, thereservations arebeing phased outprogressively.
Services
Korea 'sservices sector currently accounts forabout 60percentofGDP. Under theGeneral
Agreement onTrade inServices, Korea hasassumed commitments inover80sectors, followed by
additionaloffersintheextendednegotiationsonfinancialservices,basictelecommunicationsandmaritime
transport.However,significantportionsofthetransport,communications,financialandbusinessservices
industries arestillrestricted forforeign investors.
Telecommunications andfinancial services havebeenamong themostdynamic segments in
recent years, benefiting fromdemand trends, product andprocess innovation, andgradual policy reform.
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Liberalization moves intelecommunications have been partly synchronized with international
developments, including current WTO negotiations. External opening ofvirtually allbasic telecom
services isscheduled for1998, following domestic liberalization andderegulation.
Recent growth ofthefinancial sector hasrelied inparticular onsavings institutions, insurance
companiesandinvestmenthouses.TheGovernmentseekstopromotesegmentswhichhavebeenretarded
byprevious controls, suchasthelong-term bondmarket. Ageneral limitation onforeign shareholdings,
currently 15percentacross allsectors, istobereviewed withthepossibility ofcomplete elimination
in1998-99. Korea 'saccession totheOECD, which theauthorities wishtoachieve byautumn 1997,
mayhelptopromote further liberalization.
Trade Policies andForeign Trading Partners
Korea 'seconomic strength relies onindustrial specialization, andtheresulting economies of
scale,understableexternaltradingconditions.Agricultureandsignificantservicessectorshaveremained
largely insulated frominternational competition, creating economic distortions athome andpolitical
frictions abroad. While theauthorities arecommitted tocontinued investment andtradeliberalization,
theirgeneral approach hasremained somewhat reactive insensitive areas, responding predominantly
toexternal policy developments. Itisnoteworthy, however, thattheimplementation ofliberalization
andderegulation programmes hasbeenconsistent, without significant slippages.
Recent statements indicate agradual change inpolicy perception, implying bothamoreassertive
rôleininternational economic foraandamoredynamic approach todomestic reform. Thestrengthening
ofcompetition policy isanimportant signal, indicating confidence intheoperation ofmarket forces
andtheirimpact onresource allocation. Accelerated liberalization under WTO provisions would be
thenatural complement and,atthesametime, match thepolitical responsibilities ensuing fromKorea 's
strong andstillgrowing rôleinworld trade.
TRADE POLICY REVIEW BODY
REPUBLIC OFKOREA
Report bytheGovernment -Summary Extracts
Recent Developments ofKorea 'sTrade Policy
TheKoreanGovernmenthasmaderapidprogressinliftingitsregulationsoneconomicactivities,
inparticular, since1993. Thisaction was,ofcourse, designed topushtheeconomic system inaprivate-
sector initiated andmore market-oriented one. Inorder tolendsupport tothisprogramme, the
government established theCommittee fortheDeregulation oftheEconomic Administration Sector
inMarch 1993, aswellastheSpecial Measure ActfortheDeregulation ofCorporate Activities in
Juneofthatyear. Todate, ithastaken allnecessary steps toeffectively implement these measures
forthemore than1,700 subject items thatwere specified bytheabove-mentioned Committee.
Deregulation ofcoreareas suchasfinance, landandinvestment willbepromoted continually within
thisframework.
TheKorean Government hasalsoaccelerated itstrade liberalization efforts. Korea 'simport
liberalization ratioincreased from 97.7percentin1992 to99.3percentin1996. According tothe
schedule, theremaining restrictions willeither bephased outorotherwise brought intoconformity
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withinternational rules, thatis,WTO provisions andtheresults oftheUruguay Round negotiation
bytheyear2001. Atthesametime,Korea hasmade major tariffreductions byvoluntarily implementing
thefive-year Tariff Reduction Planaccording tothepre-announced Schedule from1989 to1994. As
aresult, theaverage tariffratewasreduced from18.1percentin1988to7.9percentin1994. Korea 's
tariffs onmanufactured products averaged 6.2percentonatrade-weighted average in1995.
Furthermore, theKorean Government hascontinued tostreamline andimprove theimport/export
procedures. Among other things, theimport-related procedures havebeensimplified toasignificant
extent. Other deregulation measures include thereduction ofnumber ofproducts subject toimport
approval, quality inspection, andsoforth.
Withregard totheforeign direct investment, anextensive package ofliberalization measures
isbeing implemented. Asaresult, Korea 'sforeign investment liberalization ratioincreased from83.0
percentin1992to97.4percentin1996. By2000, according totheschedule, thisratiowillincrease
to98.4percentandthenumber ofrestricted business linewillbereduced toonly18bythatyear.
Asaresult, allsectors, except forafewclosely related tothepublic interest, willbecompletely open.
Aside from theliberalization programme, theGovernment hasbeenmaking ongoing efforts toward
improving theforeign direct investment environment inKorea, including asimplification ofthe
investment-related procedure, theestablishment ofaone-stop service system aswellasoftheexclusive
industrial parks forforeign investment, andetc.
Inthefinancial sector, Korea isradically reforming theforeign exchange system byrelaxing
itsforeign exchange controls andeasing restrictions onportfolio investments andcapital movement
under thefive-year Foreign Exchange System Reform Planfrom 1995 to1999. InDecember 1995,
theForeign Exchange Management Actwasamended inorder tobetter facilitate theliberalization
measures inthefuture.
Intandem withthese liberalization efforts, theGovernment hasadopted various measures to
enhance faircompetition. Among other things, increased weight isbeing given tocompetition policy
inGovernment decision making. Reflecting thisnewemphasis, theKorea FairTrade Commission,
formerly under theauthority ofthedefunct Economic Planning Board, hasbeen upgraded toan
independent agency headed byaministerial-level Chairman andwithalarger staff. TheCommission
isexpected toenhance itsroleasthe'watch-dog 'agency thatseeks toensure faircompetition infinance,
industry, trade andother areas.
Korea 'sFuture Policy Direction
Recognizing thefundamental changes indomestic andinternational conditions, Korea seeks
tomeetthechallenges oftheneweraleading uptothe21stCentury bygearing itsexternal economic
relations tostrengthening thecompetition andcooperation. These twoelements -competition and
cooperation -willbekeptinbalance andharmonized within thecontext oftheWTO-based multilateral
trading system.
Inlinewiththisphilosophy, theKorean Government willpursue fourbasic trade policy
objectives-
- First,Koreawillemphasizethelong-termgoalofbalancedtradeexpansionbasedontheprinciple
offreetrade. Assuch, thegovernment willpromote bothquantitative growth oftrade and
qualitative improvement initsstructure.
- Second, Korea willmake greater effort topromote industrial cooperation ,aswellastrade
expansion.
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- Thethirdpolicy objective istoenhance Korea 'scontribution tostrengthening themultilateral
trading system.
- Korea 'sfinalmajor tradepolicy objective istoincrease development cooperation andassistance
tothelessdeveloped countries.
END