South Korea‘s tariffs remain complex, the World Trade Organization (WTO) concluded.
South Korea’s tariffs still remain one of the country’s main trade policy instruments and a relatively important source of tax revenue, albeit in decline.
“The 2021 customs tariff remains transparent but is relatively complex, involving a multiplicity of rates (88 ad valorem duties and 41 alternative duties), often with small rate differences and some with decimal points,” the WTO said in a report.
As a result of changes related to the implementation of the expansion of the Information Technology Agreement and changes in the tariff nomenclature (from HS 12 to HS 17), the average applied MFN tariff rate was slightly reduced from 14.1% in 2016 to 13.9% in 2021.
In the WTO, each nation sets limits on its tariffs and is obliged to give everyone the status of Most Favored Nation (MFN), an expression that seems to suggest that it is some kind of special treatment for a given country, but that in reality means charging their respective fees to all members equally.
This is still high by OECD country standards, so tariff concessions or rebates are required to ensure that tariffs on intermediate inputs do not become export taxes, increasing the complexity of taxes in border.
The maximum ad valorem rates were also unchanged and concentrated on agricultural products (WTO definition); applied MFN tariff rates ranged from zero to 887.4% (for cassava).
As in 2016, 84.9% of the rates remain at 10% or less in 2021 (85.2% in 2016).
TRQs remain in effect under Korea’s multilateral agricultural market access commitments, with in-quota rates ranging from zero to 50% (2021), compared to out-of-quota rates of up to 887.4%, and with an average fill rate decrease of 58% (2020).
Other measures (for example, “autonomous” tariff quotas, user tariffs, and tariff concessions) selectively lower tariffs on inputs.
Bound rates cover 90.7% of Korea’s tariff lines, a slight increase due to the change in nomenclature; 99.7% of agricultural lines (excluding seaweed and fishing baits) and 89.2% of non-agricultural lines (WTO definitions) are covered by tariff bindings.
The 4.2 percentage point difference between the average bound and applied MFN tariff rates confers some degree of unpredictability to the tariff regime and offers the authorities the possibility of increasing applied rates within bindings.
Korea has continued to use this dispute to apply higher MFN duties (for example, adjustment duties) called “flexible tariffs”, which, according to the authorities, are within the WTO bindings; Product coverage with flexible tariffs (including seasonal and adjusting tariffs) increased from 145 (at the 6-digit HS level) in 2016 to 184 in 2021.