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Tackling non-tariff barriers

Korea Herald, Seoul

Tackling non-tariff barriers

25 August 2010

By Jaemin Lee

It is no secret that one of the final sticking points in the Korea-U.S. FTA is the alleged Korean non-tariff barriers (“NTBs”) in the automobile sector. The United States takes the position that the enormously low penetration of the U.S. automobiles into the Korean market can only be explained by NTBs.

The Korea section of the USTR’s 2010 National Trade Estimate for Foreign Trade Barriers lists “a range of NTBs” in Korea that Washington takes issue with. They include standard compliance issues, environmental regulations and even “inability to provide input in early stages of developing regulations and standards.” At this juncture, U.S. automakers are vowing to oppose any free trade agreement with Korea unless Korea commits itself to fully dismantling all these NTBs.

NTBs refer to invisible, disguised import restrictions other than tariffs. They cover various maneuvers to circumvent otherwise applicable international trade norms so as to keep out foreign products from one country’s domestic market. They distort international trade and possibly constitute violations of various trade norms.

The problem is, it is difficult to tell NTBs from incidental negative business consequences flowing from legitimate government regulations that people and companies usually encounter in their daily operation. It indeed requires an extensive inquiry to see which is which. So, broad complaints about NTBs in general would not do much good in addressing the problem. Instead, what is helpful would be to identify the measure, pinpoint the problem and present explanations. Put differently, a fine line would have to be found between negative consequences from NTBs and mere unsatisfactory business performance caused by other factors than NTBs.

Now, again the Korean automobile NTBs. If there are NTBs that are designed to restrict U.S. automobile importats as the U.S. automobile industry argues, they should be abolished or dismantled, pure and simple. An NTB would not only violate a laundry list of provisions of trade agreements ; it would also foment distrust between the two countries. This seeds of distrust will then bloom into more NTB claims in more sectors in the years ahead. They will certainly hurt Korea’s long term interest.

However, as noted above, an NTB inquiry requires more than simply throwing a general NTB accusation. In order for there to be meaningful discussions to find solutions, the alleged NTBs must be substantiated with specific information and materials beyond U.S. automobiles’ less than optimal business performance in the Korean market. It is then Korea’s turn either to explain why the U.S. perception is wrong or inaccurate, or to accommodate U.S. concerns and take necessary follow-up measures without delay.

This has yet to take place in the automobile NTB showdown in the context of the Korea-U.S FTA. Most of the statements on Korean NTBs apparently only point out the imbalance in the automobile trade. The dramatic imbalance that we see between the two countries is indeed embarrassing (it was 6,140 vs. 735,000 in 2009). It does show that there is an issue that requires immediate attention from and cooperation between the two governments. The imbalance alone, however, would not directly translate into the existence of NTBs in a way that violates relevant trade rules. The trade imbalance becomes meaningful only if it has been caused by a disguised trade measure, an NTB. As there are numerous factors that contribute to the specific performance in the domestic market of another country, one could not simply attribute any imbalance to the existence of NTBs.

In fact, sincere discussions on the NTBs in the automobile sector at this juncture may also be important to Korea. Regardless of whether there are NTBs in the automobile sector in Korea, the current situation at least shows that there are areas that require more explanation and clarification from Korea. If so, it would be better if these issues were raised and resolved as early as possible, preferably before the agreement goes into effect. Korea may be able to explain away the misperception of U.S. automobile manufactures, or Washington may end up clarifying its source of concern which may turn out to be NTBs. Either way, chances are the two governments will be able to find a solution to this old issue. In fact, the automobile sector has been the source of attention throughout the negotiations of the FTA, so facing the problem head on early on may not be such a bad option for Korea as opposed to kicking the can down the road for someone else’s future agony.