KOREA TO "DISINVOKE" ITS GATT BALANCE-OF-PAYMENT RIGHTS.

Oct 31, 1989

KOREA TO "DISINVOKE" ITS GATT BALANCE-OF-PAYMENT RIGHTS.

GENEVA, OCTOBER 27 (BY CHAKRAVARTHI RAGHAVAN)— South Korea has decided to "disinvoke" from 1 January 1990, its rights under article XVIII: B of GATT relating to restrict imports for balance-of-payments (BOP) reasons, and will phase-out its existing restrictions in a phased programme by 1 July 1997.

The South Korean decision and the conditions have been conveyed to the GATT BOP Committee and approved by it in its report to the GATT Council adopted Friday evening, a GATT spokesman announced.

Article XVIII: B gives some special rights and privileges to third world countries in imposing or maintaining import restrictions on account of their BOP situation.

The review of South Korean restrictions under BOP had come up before the GATT BOP Committee before summer. At that time South Korea had indicated its willingness to consider disinvoking its BOP rights, provided it could have a period of time to phase-out the restrictions maintained by it under the article XVIII: B rights, and if other contracting parties would refrain from challenging the Korean import regime during that period.

At that time, South Korea had already got an adverse ruling over an U.S., New Zealand complaint against it over import restrictions on beef.

Differences between South Korea and the U.S. on these matters, including the South Korea rights during the transition, led to the adjournment of the consideration of the South Korean case.

At that time there were also differences over the payments situation of South Korea, with the IMF projecting an optimistic on the basis of 1988 figures and South Korea presenting a less optimistic one on the basis of the 1989 performance.

This is apart from the general IMF position, evident also in other cases of BOP review, to the effect that any adverse trade balance or BOP effects due to import liberalisation measures are only "short-term" and that in the medium-term any country undertaking such liberalisation would see its exports and export earnings go up.

This view has been challenged in the 1989 UNCTAD trade and development report which brings out that import liberalisation and export orientation would not succeed so long as there are protectionist barriers in the importing (industrial economies).

The resumption of the review by the GATT BOP Committee of the South Korean case comes up after the IMF consultations with South Korea in Seoul earlier.

IMF data now cited to the committee show that in 1989 South Korea is projected to have a balance of trade surplus of six billion U.S. dollars or three percent of its GNP.

This has however to be compared with the trade surplus of four billion in 1986, 7.7 billion in 1987, and 11.5 billion in 1988. The GDP growth in 1986-1987 has been 11-12 percent, while in 1989 it is projected to slow down to a 5-6 percent increase.

The South Korean decision now to disinvoke its article XVIII: B rights effective 1 January 1990, the committee agreeing to the need for South Korea getting appropriate flexibility to bring its restrictions into line with GATT over a period of time, and the hope that till then other contracting parties would exercise "due restraint" in raising disputes appear to be part of a package worked out between South Korea and the U.S. and some other industrial-country members of the BOP Committee.

The report of the committee to the GATT Council welcomes the decision of South Korea to disinvoke its article XVIII: B rights, and welcomes the "substantial progress" made by Korea in trade liberalisation since 1987, and its current programmes till 1991.

Over the last few years, in the light of its improving payments position (and under pressures from U.S. too), South Korea has already set in motion some liberalisation of its imports.

It began in 1989 a three-year programme of liberalisation of imports covering some 264 items - 84 items in 1989, 90 in 1990 and 99 in 1991. Most of these are said to be agricultural products.

In this context, the BOP Committee, in its report approved Friday night, recognised that "appropriate flexibility" was necessary for South Korea to phase out or bring into conformity with other GATT provisions its remaining restrictions, which were "largely concentrated in the agricultural sector".

The committee also welcomed South Korea’s undertaking to eliminate its remaining restrictions or otherwise bring them into conformity with GATT by 1 July 1997.

Korea has undertaken to continue to phase out its remaining restrictions (on some 274 items) in two successive three-year programmes beginning 1991, and do it in "a generally even manner", and on a MFN basis.

The BOP Committee welcomed this and recognised the undertakings by Korea to report the progress of this annually to the council, notify its three-year programmes by March of the year before their introduction and give due consideration, in drawing up such programmes, to the interests of other CPs in a balanced manner.

These assurances would appear to be on lines of some of the demands of the U.S., but modified to meet concerns of other CPs that the South Korean liberalisation should not be a bilateral U.S.-South Korean affair to suit U.S. interests at the expense of others.

The committee in its report finally said that it "understood" that the basis of implementation of these undertakings by Korea "other contracting parties will exercise due restraint in the application of their rights under the general agreement in relation to products included in the programmes of liberalisation".

GATT officials said that the South Korean decision to "disinvoke" was not the first by a country entitled to invoke XVIII: B, nor did it preclude South Korea from re-invoking the provisions if its situation deteriorated.

They noted that this is not the first time that a third world country has disinvoked its article XVIII: B rights.

Apart from the examples of Greece and Spain, which until their accession to the EEC were considered "less developed contracting parties" (the GATT term for the U.N. terminology of "developing country"), Argentina had disinvoked once, and then re-invoked its rights in early 1980s when its economic situation worsened with the debt crisis. Indonesia had disinvoked it too in the early 1970’s.