THE SIXTH WTO TRADE POLICY REVIEW OF THE REPUBLIC OF KOREA
STATEMENT BY AMBASSADOR SI-HYUNG LEE
DEPUTY MINISTER FOR TRADE, MINISTRY OF FOREIGN AFFAIRS & TRADE
SEPTEMBER 19, 2012
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KOREA’S ECONOMY AND TRADE POLICY 2008-2012
I. Introduction
1. Mr. Chairman, Ambassadors, and distinguished delegates,
2. It is an honor for me to represent Korea on the occasion of its 6th Trade Policy Review Meeting. First of all, on behalf of my government, I would like to thank you, Mr. Chair, for all the arrangements you have helped to make for this event. I am very grateful to Ambassador Joakim Reiter for agreeing to lend his expertise and insight as our discussant. I also very much appreciate the diligent efforts made by the Secretariat in compiling a thorough report on our economic environment and trade policies, which, together with our government report, forms the comprehensive basis for our discussions today. I thank all of you participants for your keen interest in this exercise.
3. Since its inception, the TPR Mechanism has served well its purpose of enhancing transparency in Members’ trade policies and practices and examining their impact on the multilateral trading system. Likewise, I am confident that this review will provide a valuable opportunity to help Members to further enhance their understanding of Korea’s trade policies and changes thereof over the last four years. In addition, it will also serve as an important occasion for Korea to reassess its trade policies and practices through the eyes of fellow Members.
4. I must acknowledge that the large number of questions, more than 540 so far, highlights the high level of interest that Members have in this exercise. We have provided answers to most of them, and are working on the rest of the questions to submit the answers by Friday.
5. In my opening statement, I would like to begin with an overview of the factors that helped Korea rebound from the 2008 global financial crisis, which took place right after our last review. I will then share with Members the challenges that the Korean economy still faces as well as the strategies and actions that we have employed to cope with those challenges. Lastly, I will touch upon the basic direction of our trade policy.
II. Recovery from the Financial Crisis and Continuing Challenges The Recovery
6. As an export-oriented open economy, Korea is vulnerable to external shocks such as the
2008 global financial crisis. We were hit hard by the crisis, though not as severely as during the 1997 Asian financial crisis. Between August 2007 and November 2008, the Korean currency “won” lost almost half of its value, and Korea’s foreign exchange reserve was slashed by 23 percent in 2008 over the previous year. From 2007 to 2009, the Korean GDP and per capita GNI fell by more than one fifth, and Korea posted the first trade deficit in 2008 in 11 years.
7. However, we were able to rebound rather quickly from the crisis, thanks to a series of prudent economic policies implemented by the government. They included a large fiscal stimulus package amounting to 3.6 percent of GDP, as well as an accommodative monetary policy by the Bank of Korea which lowered its key interest rate to a record low of two percent. Favorable trade conditions such as the sharp decrease in the value of the Korean won during the early stages of the crisis also contributed to the swift recovery.
8. In the meanwhile, it should be noted that the government’s actions grounded in the hard- learned lessons from the earlier Asian crisis proved to be driving factors behind our gradual economic uptrend. The Korean government had learned the critical importance of regaining market confidence through structural reforms in the difficult times of late 1990s.
9. As a result, Korea became one of only three OECD member countries to achieve positive economic growth in 2009, while the world economy was still in the midst of the financial crisis.
Continuing Challenges
10. Although Korea’s economic outlook remains positive and relatively stable, it is yet too early to declare lasting recovery. Slowdowns in major economies following the persisting debt crisis in Europe would have an impact on the Korean economy, given that its exports account for more than half of its GDP. Rising international prices of oil and grains are also troubling as Korea is the world’s fifth largest importer of both. Internally, the Korean economy is feeling the pinch as snowballing household debt is weighing on private consumption. Household debt amounted to 164 percent of disposable income or 89 percent of GDP in 2011.
11. Against this backdrop, the Bank of Korea recently revised down the growth forecast for this year to 3.0 percent, which is lower than previous 3.5 percent, citing decrease in exports and domestic demand. Meanwhile, OECD’s 2012 Economic Survey on Korea points out two key longer-term challenges: sustaining economic growth in the face of rapidly aging population, and improving social cohesion by reducing inequality and relative poverty.
III. Korea’s Response
12. In order to address such challenges, we have taken up a number of measures. While we have undertaken painful but necessary economic reforms domestically, we have maintained a strong commitment to our WTO trade obligations, resisting the temptation of adopting trade-restrictive measures.
13. Let me further elaborate on these efforts.
Implementing Economic Reforms
14. Korea has made prudent use of the global financial crisis to push ahead domestic reforms in various sectors of its economy, focusing on laying down a firm foundation for future economic growth.
15. In the financial sector, we adopted the free-floating exchange rate regime to support the capital market liberalization. Macroeconomic stability was enhanced as we implemented a series of macro-prudential policies to reduce excessive volatility in capital flows.
16. In the labor sector, we have undertaken reforms to increase labor participation, especially for women, youth and the elderly, given that working-age population is projected to start declining from 2017. In particular, to raise the level of female participation, we took steps to encourage better work-life balance and mitigate the difficulties related to childcare through efforts such as expanding public childcare access. These measures are also expected to contribute to boosting Korea’s birthrate of 1.24, which is among the lowest in the world.
17. Recognizing unnecessary regulations as the prime impediment to attracting investment and creating jobs, we have continued to make sincere efforts to systematically remove or streamline regulations that have held down businesses. In this regard, we are pleased to note that the World Bank, in its latest 2011 “ease of doing business” ranking, recognized Korea as one of the countries with the most improved climate, placing it 8th among 183 countries surveyed. Korea was ranked 30th in 2007.
Green Growth as a New Growth Engine
18. In conjunction with these reforms, we have sought ways to ensure sustained economic progress as we tackle global climate change and energy crisis. As a solution, the Korean government announced Low Carbon, Green Growth as a national policy vision in 2008.
This low carbon, green growth policy is expected to contribute to the development of green technologies and the promotion of green industries, which will help enhance economic growth, create jobs, reduce greenhouse gas emissions, and mitigate climate change.
19. In 2009, the Korean government announced a Five-Year Plan for Green Growth which, among other things, commits two percent of the annual GDP to green growth policies and projects. This is twice the level recommended by the UN. In November 2009, Korea adopted a national mid-term goal of cutting 30 percent of greenhouse gas emissions by 2020, as compared with the projected business-as-usual level.
Attracting Foreign Investment
20. Bearing in mind FDI’s important role in economic growth and job creation, the Korean government has implemented a series of measures aimed at further reducing barriers to FDI and fostering more foreign investment-friendly environment.
21. As a result of our proactive FDI inducement policy and relatively stable economic fundamentals in spite of the precarious global investment climate, the FDI inflow to Korea in
2011 reached 13.6 billion U.S. dollars, a record-high since year 2000.
22. With several bilateral FTAs in place, Korea is expected to be a more attractive FDI destination for those businesses which are looking for favorable opportunities in Korea’s FTA partners.
IV. Contribution to the Global Economy
23. Since the last review, Korea has been raising its profile and contribution on the global economic stage. In November 2010, Korea successfully hosted the G20 summit for the first time as a non-G7 country. Not only hosting the Summit, Korea took an active role to produce a “standstill” commitment at the G20 Washington Summit in 2008. This stemmed from the recognition that protectionism can only worsen the situation at a time of global economic crisis as it did during the Great Depression of the 1930s.
24. In April this year, Korea pledged to contribute 15 billion U.S. dollars to the IMF to increase the agency’s lending resources in the wake of global financial difficulties. This marks a stark turnaround for a country that was on the receiving end of IMF bailout funds just 15 years ago during the Asian financial crisis.
25. In 2010, Korea joined the OECD Development Assistance Committee, officially transforming its status from a recipient to a donor state of ODA in less than half a century.
Korea has been expanding the volume and scope of its ODA with a view to promoting a more balanced global economy. Korea’s ODA has roughly doubled, from 700 million U.S.
dollars in 2007 to 1.3 billion in 2011. Along these lines, Korea will step up its efforts to help other countries achieve their development objectives not only through more financial aid but also by sharing its unique development experiences.
V. Trade Policy Direction
26. Now, let me turn to the overall direction of our trade policy during the period under review and the years to come.
Continuing Commitment to the Multilateral Trading System and the WTO
27. As one of the major beneficiaries of the multilateral trading system, Korea has pursued an open economy that fully complies with the principles and provisions of the WTO rules.
As such, Korea has been faithfully implementing its obligations under WTO agreements.
Korea has also undertaken voluntary measures in some areas that go beyond its WTO commitments.
28. Moreover, since the last review, Korea has exercised great restraint by making minimum use of trade remedies that are allowed under the relevant WTO agreements.
29. In the same vein, we have tried our best to resolve trade issues through bilateral discussions. Only when necessary and warranted, we invoked WTO dispute settlement procedures to protect our legitimate trade interests against unfair practices.
30. We firmly believe that a robust multilateral trading regime underpinned by the WTO has a crucial role to play in helping the global economy grow and prosper. To that end, we have actively and constructively participated in the efforts for a successful conclusion of the DDA negotiations. We will continue to do our due part to help move the stalled negotiations forward in close cooperation with other Members.
Pursuing Bilateral and Regional Agreements to Complement Multilateralism
31. As I just explained, Korea puts utmost priority on a strong and vibrant multilateral trading system as embodied in the WTO. At the same time, Korea has been engaged in various bilateral and regional trade agreements as complementary tools for further liberalization since 2003.
32. As of today, we have eight FTAs with 45 individual countries in force and two others are waiting to be approved by the National Assembly. We have been negotiating FTAs with several other partners for some years, and recently launched negotiations with three more countries. Last May, leaders of Korea, China and Japan agreed to launch negotiations on a trilateral FTA within this year.
33. Initial assessments on the benefits of the FTAs for Korea as well as for its FTA partners seem to be positive. While world trade shrank 6.2 percent between 2008 and 2010, Korea’s trade grew 4 percent. More importantly, the annual average trade volume with our FTA partners has increased 31.3 percent, compared with that of 19.8 percent with all others.
34. I wish to take this opportunity to remind you that we have taken every care to ensure that our FTAs are fully in line with the letter and spirit of the WTO agreements. Most of our FTAs are comprehensive and high-quality, as they cover not only trade in goods and services but also a wide range of other areas, which include investment, intellectual property rights, government procurement, and trade rules.
35. I would also like to note that Korea maintains staunch support for regional cooperative bodies such as APEC and ASEAN plus forums that aim to promote greater economic and technical cooperation among members and ultimately support the multilateral trading system.
36. In a nutshell, I can assure you that we will continue to put forth our best efforts to make sure that our bilateral and regional trade liberalization efforts will continue to serve as a facilitator of multilateralism.
VI. Conclusion
37. Since the global economy is not likely to recover from the slump for the time being, and temptations to erect trade barriers could grow, it is needed more than ever to strengthen the multilateral trading system as well as the monitoring and surveillance function of the WTO.
Korea remains firmly committed to the success of this organization, and will continue to make an all-out effort to keep protectionism at bay especially in these difficult times.
38. Convinced that successful conclusion of the DDA negotiations will bring great benefits
to the entire global community, Korea will continue to work closely with other Members to unlock the current impasse. In parallel with such efforts, we will also make every effort to help advance the discussions in the areas of trade facilitation, ITA expansion and services liberalization.
39. At the same time, Korea will not step back or shy away from carrying out difficult but necessary domestic reforms that promise to improve efficiency, transparency, and fair competition in its economy.
Mr. Chairman, Ambassadors, and distinguished delegates,
40. In conclusion, I recognize that no matter how far or how fast we have come, there is always room for improvement. Indeed, that is why we value the TPR and gather here today for these discussions. My delegation is looking forward to hearing your valuable views and suggestions.
Thank you.
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