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South Korea caves in to Trump over WTO developing nation status

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Via Financial Times

South Korea has ditched its status as a developing country in the World Trade Organization after criticism from the US, in a move that may pressure China to follow suit.

US president Donald Trump has this year lambasted the WTO for allowing too many countries, including China, to claim the preferential trade status, as part of a broader attack on the organisation.

The acquiescence by Seoul — officials had just months earlier said they had no plans to change the country’s status — was not expected to have a significant immediate impact on the Korean economy but would likely have ramifications for other governments which have been repelling US lobbying on the issue, experts said.

“This will certainly put pressure on China to change its status in the WTO,” said Chung In-kyo, a professor of international trade at Inha University. “They could have resisted the US pressure if South Korea did not change its status, but they will now feel more pressure to follow suit.”

The moves follows a memo written by Mr Trump to Robert Lighthizer, the US trade representative, in July that listed South Korea, Hong Kong, Singapore, Qatar and the United Arab Emirates, among others, as holding “unsupportable” developing-country designations.

513%


South Korea’s tariff on some rice imports

“China and too many other countries have continued to style themselves as developing countries, allowing them to enjoy the benefits that come with that status and seek weaker commitments than those made by other WTO members,” Mr Trump said at the time.

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Hong Nam-ki, South Korea’s finance minister, said on Friday that it was “difficult” to continue to be recognised as a developing country given the country’s current economic standing. It is ranked 12th in the world by the World Bank based on 2018 gross domestic product.

While the designation had allowed Seoul to maintain protections for South Korean farmers — including a 513 per cent tariff on some rice imports — Mr Hong said the government would seek to protect the agricultural sector, including rice, in future WTO negotiations.

Still, the decision threatens to create headaches for the South Korean government from the local agricultural lobby with farmers’ groups threatening to protest against the move.

Mr Chung also pointed out that there might be future impacts on the Korean economy, “depending on how the US runs the WTO or how Trump changes his mind about WTO rules”, referring to US influence on the international trade body.

Korea Exchange, which operates South Korea’s securities exchange, told the Financial Times it did not expect the WTO status decision to affect the country’s position in MSCI’s flagship emerging markets index because the position is based on a country’s financial environment rather than trade issues, the market operator said.

The South Korean decision also comes as Seoul and Washington are locked in negotiations over the cost of maintaining US forces in South Korea with the US seeking a sharp increase in the contribution from one of its core allies in the region.

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June Park, a Seoul-based political economist, said, however, it was not clear whether changing its WTO status would put South Korea in a more favourable position in the cost-sharing talks.

“The negotiations are based on the notion that these ally countries are developed well enough to be able to contribute more to the alliance. Admitting that you are not a developing country just adds to the US argument that South Korea should commit more resources,” she said.

Additional reporting by Kang Buseong

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