Jun 30, 1989


GENEVA, JUNE 28 (BY CHAKRAVARTHI RAGHAVAN)— South Korea has indicated in GATT its willingness to discuss giving up its right to impose trade restrictions on BOP considerations but subject to some major conditions and grace period for phase-out of restrictions.

The South Korean views have been presented this week to the balance-of-payments (BOP) committee in GATT, which oversees the situation and policies of countries that invoke the special GATT provisions to impose import restrictions.

The South Korean delegate, Amb. Sang Ock Lee, cited some indicators of his country’s economic situation, to argue that this year South Korea is facing a more difficult situation than in 1988, and that its current economic situation and BOP outlook are "bleak" and likely to worsen because of structural difficulties and fundamental changes in its socio-political factors.

For these reasons, Lee contended, South Korea believed it should continue to invoke the BOP provisions, but would not foreclose "the possibility of discussing disinvocation" but under some conditions.

The BOP Committee, he suggested, should recognise South Korea’s need in this regard, and should agree to "a grace period sufficiently long for further liberalisation and phase-out of restrictions presently (maintained) under BOP cover", after disinvocation of article XVIII: B.

Secondly, Lee said, the BOP Committee should reach "an understanding that Korea will not be subject to any unilateral actions or to multilateral legal challenges in terms of GATT provisions during the agreed grace period".

This appeared to be a reference to the efforts of the U.S. and EEC to force open South Korea markets for their exports of goods and services and investments – the U.S. seeking to do so by holding out threats of possible S. 301 actions, and the EEC by denying GSP privileges and/or other measures.

Also, the U.S. (as also Australia and New Zealand) raised a dispute over South Korean beef import restrictions, sought to be justified by South Korea on BOP considerations. The U.S. succeeded in getting a panel ruling (still to be adopted by the GATT Council) against South Korea.

Among other things, all three argued that restrictions maintained and justified before the BOP Committee did not preclude them from invoking GATT dispute settlement procedures to challenge the restrictions.

The panel sited the terms of reference, agreed to by South Korea, to rule that it was entitled to look into these matters, and ruled against South Korea.

There are tow sets of provisions in GATT that relate to BOP situation of countries and their right to impose trade restrictions to deal with them.

The first, in place since the beginning at the instance of the Europeans, is on the premise that BOP problems would be temporary and short-term. The provisions were widely used in the beginning by the industrialised countries to maintain quantitative restrictions (QRS), until they achieved full convertibility.

Industrialised countries have ceased to invoke these provisions in recent years, and more so after the floating exchange rate system.

In 1955, special provisions to deal with the BOP problems of third world countries were incorporated into GATT in article XVIII, and these recognised that the very concept of development created structural BOP problems for third world countries.

Section B of article XVIII, recognises that third world countries would need special measures to enable them to apply QRS for BOP reasons in a manner that would take full account of the continued high level of demand of imports likely to be generated by their programmes of economic development.

Most third world countries have invoked these provisions, and South Korea is one of them.

In recent years, Argentina, which had given up use of these provisions, once again invoked in on the outbreak of its debt crisis.

Countries invoking BOP provisions have to hold consultations in GATT, and there is a BOP Committee where these consultations are held once in two years, with the IMF providing a report on its assessment of the BOP situation of the country.

Depending on the country concerned and the nature of the problem as others see it, these consultations are either full periodic consultations where the Committee examines the BOP situation and the whole range of trade policy restrictions maintained and justified by the country concerned or less formal and simplified consultations for the smaller economies.

The reports go before the GATT Council for adoption. Till recently, the BOP consultations and adoption of reports were fairly routine. But with major industrialised countries seeking to expand their exports through neo-mercantilist policies, and trying to force open third world economies, BOP consultations and reports have taken on a new edge.

In the Uruguay round, the U.S. and some other industrialised countries want to change the provisions or article XVIII, and make it more difficult for third world countries to invoke these provisions.

The BOP consultations of South Korea this year comes against this background.

The last full BOP consultation with South Korea was held in 1987.

Normally, BOP Committee meetings attract little attention, and third world delegations who are small and stretched by normal GATT work and the Uruguay round meetings, do not pay much attention and rarely attend.

But the consultations this time have attracted some attention.

This is presumably because of the prospect of the U.S. and others using the occasion to set precedents for other third world countries.

Other third world delegations appear to be interested in distinguishing their own situations from that of south Korea and making sure that the South Korean case is seen as an exception to the general situation of third world countries and no precedent set through this.