10:32 AM Mar 11, 1997


Geneva 11 Feb (Chakravarthi Raghavan) -- The European Communities, supported strongly by the United States, raised at the World Trade Organization Tuesday their concerns over what the EC termed "frugality campaign" in South Korea, affecting luxury consumption and imports.

The two majors raised the issue under any other business at the meeting of the Goods Council, arguing that the public campaign by civic society against luxury consumption was orchestrated and organized by the government to protect domestic industry and thus violated WTO rules.

The representative of Korea, in what seemed to others as a "mild" reaction, denied any government involvement in the campaign by NGOs, and doubted whether the charges by the EC about government involvement could at all be vindicated and proved.

India, in an unexpected and off-the-cuff intervention, which a trade official described as "philosophical", noted that in many countries the reach of the WTO and its rules was already being seen as "intrusive", and if every public campaign or reaction was brought up to the WTO, it would complicate matters.

The Indian representative, Amb. S. Narayanan, cited in this regard advertisements and campaigns on American TV for "buy America", and a EC paper by Sir Leon Brittan promising EC producers that he would use every instrument available, like anti-dumping investigations, to defend and protect EC producers and manufacturers.

"As long as there is no government interference and no violation of specific WTO rules, you cannot find fault with actions by NGOs and civil society," he suggested.

The EC representative, Mr. Ian Wilkinson, said the community was concerned at the intensifying "frugality campaign" running in Korea since mid-1996, and which was beginning to hurt severely the interests of European exporters. While civic groups such as Korea media and industry were playing a major part in the campaign, "we are also concerned about the position of the Korean authorities and feel they have a degree of responsibility."

Korean authorities, Wilkinson said, claimed the campaign attacked excessive consumption, not imports, and had indicated they would take no measures inconsistent with their international obligations.

"But public figures, at all levels,. continue to make unhelpful statements which are clearly intended to blame imported consumer goods for Korea's current account deficit (while) a study of the deficit's structure showed this to be utterly false," Wilkinson said.

The EC representative also claimed that there were frequent cases of "administrative harassment" carried out directly by government agencies (e.g. customs slowdown; increase in frequency of enforcement inspections; more restrictive interpretations of vague Korean laws on labelling etc; publication of misleading statistics by government agencies; and apparently systematic tax inspections on owners of foreign cars).

The EC was "very doubtful" about the compatibility of certain of these statements and actions with Korea's WTO obligations. The Korean government's stance was also difficult to reconcile with the WTO's objectives, such as "expansion of production and trade in goods and services." The EC was hence actively studying what further action might be appropriate, both on individual cases of which the EC had several examples, and generally the "anti-import aspects" of the wider campaign.

Korea, Wilkinson said, had a responsibility to reassure its trading partners that the impression that it is hostile to imports and hesitant about two-way trade was mistaken. Since all WTO members benefit from an open, equitable and non-discriminatory multilateral trading system, and have a responsibility to defend it, a clear public statement from the government disowning all anti-import aspects of the frugality campaign is necessary to dispel doubts about Korea's commitment to respect in full its WTO obligations and clear instructions to public officials not to target importers or consumers of foreign goods also seem necessary.

In his comments, supporting the EC, the US said it had observed a "troubling pattern" in recent Korean statements asserting the consumption of imports as the direct cause of Korea's current account and trade deficit.

The US and other WTO members were sensitive to Korea's desire to respond to these macro-economic trends and current trade imbalance. However the arbitrary use of standards, documentation requirements, customs delays, regulatory and labelling requirements, tax audits, or other measures to deter imports not only conflicts with WTO principles and obligations, but would be counter-productive to competitiveness of Korean economy over the long term.

Recent statements of Korean government officials that it is a citizen's "patriotic" duty not to consume imports have reinforced the perception of an anti-import bias in Korea. While Korea attributes many of these statements to translation errors or exaggeration of government officials by the media, the espousal of the "frugality measures" is not limited to junior bureaucrats in Korea. "In fact some of the most troubling remarks have been voiced by senior Korean government officials, including at the Ministerial level."

The Korean officials, the US said, had also explained that it is inappropriate for the government to encourage private enterprises to alter their 'patriotic' behaviour to reduce consumption of 'luxury' items.

The US was concerned that these actions lend themselves to the impression that Korea is not committed to open market policies, the multilateral trading system or its international obligations, despite membership of the WTO and the OECD. This perception was reinforced by memories of similar practices in Korea during the late 1980s. US traders note with concern that exports to Korea in certain sectors (i.e. autos and certain consumer goods) are only now returning to levels observed in the late 1980s, when similar 'frugality' measures were last pursued in Korea. The US hoped that Korea would respond to the concerns expressed and issue an unequivocal public assurance that "anti-import behaviour is inconsistent with Korea's international trade policy objectives."

The Korean ambassador said he had taken note of the statements and would convey them to his capital. He however felt there was some "over-sensitivity" in the reactions of the US and the EC. The Korean market had an annual value of $160 billion and must be attractive to any trading nation. He explained that since the introduction of some changes in the banking system in 1993, excessive amounts of cash had become available among consumers and in many cases got translated into consumption of luxury items. This could have led to several NGO groups to start this 'frugality campaign' and it was a social phenomenon with no parallel examples in other countries.

The Korean government on many occasions had mae it very clear that it was not involved in such campaigns and he would reassure everyone that Korea was a responsible member of the WTO and would abide by all its international commitments. He seriously doubted whether the kind of measures cited by the EC (about government involvement to discourage imports) existed at all and whether the allegations could be vindicated. Making such allegations was unfair and inacceptable to the Korean government and he would clearly deny any government role.

Narayanan said that without passing any judgement on the complaints or the responses, he would underline the need for care in dealing with such matters.

Even where agreements have been negotiated, the general public perception is that the subjects covered under rules are "highly intrusive". In such a situation when an NGO or a private organization does something, if objections would be raised at the WTO, life would become very complicated. He had himself seen on American TV slogans like "Be American, Buy American". When asked US officials said these were non-official. Similarly, an EC Commission paper (by Sir Leon Brittan) assured EC producers that the Community would make good use of all instruments to defend the EC producers and their interests. As long as there was no government interference and violation of WTO rules, one cannot find fault with campaigns of NGOs or local business, India added.