Trade Policy Review of Korea

September 15, 2004
Statement of the U.S. Ambassador

Introduction

Thank you Madame Chair. On behalf of the United States, I welcome this opportunity to participate in the fourth trade policy review of Korea. I’d also like to welcome the large delegation of our friends from Korea, led by Ambassador Choi and Deputy Director-General Kim.

The Secretariat and the Government of Korea have submitted thoughtful and comprehensive reports for this review. Few countries have benefited more from the global trading system than Korea, and I think the two reports accurately reflect Korea’s importance in the global trading system, as well as the active efforts of the Korean Government to update and amend its trade and investment regime. In thinking about this review, we’re also grateful for the participation of the discussant, Ambassador Noor, who has done an excellent job as always.

The United States has submitted detailed questions about many of the issues discussed in the report, particularly those related to some longstanding concerns of the United States, and we look forward to receiving responses from the Korean delegation. We also look forward to the discussions today, which will deepen our understanding of Korea’s trade policy, and how it is evolving.

Madame chair, I’d like to note that the Republic of Korea is currently the United States’ seventh largest trading partner. Two-way goods trade totaled $61.1 billion in 2003; for 2002 (the last year for which complete figures are available), two-way trade in services totaled an additional $12.1 billion. There is also an important and growing investment relationship between our two countries.

Recent progress

Since the last review in 2000, we have seen Korea further consolidate its rapid recovery from the financial crisis of 1997-98. There has been the election of a new Government, that of President Roh, committed to deregulation and structural reform in the corporate and government sectors, and committed to creating the basis for sustainable, balanced growth. We’ve read with interest of the Roh Government’s plans to enhance transparency, introduce innovative technologies, attract foreign investment, and help turn Korea into a “hub” of Northeast Asia. These are goals that will benefit Korea’s trading partners, and ones we strongly support.

The Korean Government has taken some important liberalizing measures since 2000. Tariffs have continued to be reduced or eliminated in many industrial sectors, and by the end of this year, bound tariffs will be reduced to zero on most products in such sectors as paper, steel, semiconductors and farm equipment. The number of items subject to adjustment tariffs has been reduced from 27 in 2000 to 20 in 2004, and their rates have been lowered.

There has been some headway on standards issues since the last review. On automobile standards, Korea joined the Global Agreement to harmonize international automotive standards, moved to a self-certification system, and agreed to accept certain foreign side impact standards. On telecommunications, after extensive bilateral discussions, the Korean Government agreed to implement its Wireless Internet Platform for Interoperability (WIPI) standards in a manner that would not exclude competitive foreign technologies.

On intellectual property protection, Korea acceded to the WIPO Copyright Treaty earlier this year. Changes have been made to strengthen and streamline the application process for patents. Legislation has been passed to strengthen copyright protection of computer programs and books.

Progress has also been made in liberalizing the regulatory framework for foreign investment. Several sectors that were fully closed to foreign investment have been partially opened, and now only two service sectors and two agricultural sectors remain fully closed to foreign investment. Administrative procedures for foreign investment have been simplified, and an office was established to help foreign investors address issues that arise, and investment incentives were expanded to cover foreign investor infrastructure like schools and hospitals. More broadly, the Government has been openly supportive of foreign investment and mergers and acquisitions, even in the face of some public ambivalence. Since 2000 there have been several highly visible acquisitions of Korean firms by foreign companies, especially in the financial and manufacturing sectors.

Moving to the multilateral level, we welcome Korea’s active and constructive participation in the Doha Development Agenda negotiations. We have particularly valued Korea’s helpful role in the Non-Agricultural Market Access discussions, and Korea’s constructive approach on expanding the WTO’s agenda, specifically, the agreement to launch trade facilitation negotiations. We look forward to Korea negotiating ambitious results in the Doha agricultural talks, including Korea’s participation in commitments on market access and agricultural export subsidies.

Liberalization of trade and investment has continued, and - importantly - senior levels of the Korean Government are characterizing these measures not merely as a response to foreign pressure but also as something that will enhance the competitiveness of the Korean economy and the welfare of the Korean people. We have appreciated the readiness of the Korean Government to review these issues on a regular basis with my government.

More work to be done

Despite the progress that has been made since the last trade policy review, much important work remains to be done. Korea has demonstrated time and again a remarkable capacity for leadership. Korea is an export leader, as all of us who deal with its booming automobile, telecom, and semiconductor industries know. Korea is a technology leader, with the world’s highest rate of broadband penetration. Korea is a leader in economic restructuring, as the quick and complete recovery from the crisis of 1997 demonstrated.

But Korea has not yet demonstrated its full potential as a trade policy leader. Despite the encouraging statements from political leaders, Korea’s efforts to open its own market to foreign goods and services remain inconsistent and incomplete.

Tariffs on agricultural products remain inordinately high. And import clearance procedures, food-related standards and specification issues, inspection and testing regimes, and labeling requirements serve as further impediments to market access for foreign agriculture products.

Tariffs on automobiles remain high relative to those in Korea’s export markets. And the impact of that high tariff is magnified by a tax system that falls disproportionately on imported cars. As its auto exports have boomed, Korea now has among the most imbalanced auto trade patterns in the world, but has to date resisted taking measures that would address all the concerns of foreign vehicle makers.

Intellectual property protection, particularly in digital media, remains flawed. This is a particular problem in Korea given the advanced state of its broadband networks. Absent further refinement of its copyright laws -- for example, to explicitly provide complete rights of transmission for sound recordings, or to provide rights of temporary copies for computer software -- Korea may soon become a leader in unauthorized copying – a dubious distinction that would hurt not just foreign content providers but also Korea’s growing film and recording industries.

Recently, the United States has begun to note problems with technology standards, particularly for telecommunications, being selected and mandated by the Korean Government in a manner that favors domestic suppliers and shuts out foreign suppliers of competing technologies from the Korean market. Given the remarkable success Korean technology and telecommunications companies have had in foreign markets, using both domestic Korean and international technologies, we urge the Korean government to take steps to ensure that its technology policy does not serve as a barrier, or as disguised protectionism.

More generally, further work is necessary to improve regulatory transparency in Korea. Korean laws and regulations are often broadly drafted, giving Korean officials a great deal of discretion in applying or interpreting them. Greater notification of planned changes to laws and regulations, more complete and timely opportunity for all stakeholders to provide their views on the proposed changes, and guarantees that regulations will be applied consistently throughout the government would do much to improve the transparency of the Korean regulatory framework, and create a more predictable framework for all companies, including foreign companies, operating in Korea.

The Korean Government has set a goal of becoming a hub of Northeast Asia, in part through attracting foreign investment. However, as the Secretariat report notes, after peaking in 1999-2000, foreign investment has fallen in each of the succeeding years. While some of that can be attributed to trends in the global economy, it also reflects the fact that foreign investors remain to be convinced that they face a fully liberalized and transparent environment in Korea.

Conclusion

In closing, Madame Chair, let me reiterate that Korea has taken many important steps since the last trade policy review, and we commend the Korean Government for them. But more remains to be done. As the senior levels of the Korean Government have recognized, the greatest beneficiary from completing the mammoth task of trade and investment liberalization would be the Korean people. I hope today’s exercise will help Korea focus its thinking on ways to accomplish that task, as well as provide greater clarity to Korea’s trade partners on the ongoing evolution of Korean trade policy. Thank you.