South Korea Could Get Hurt by the WTO Subsidy Regulations Targeting China

Posted on 21 February 2020

Source: Business Korea

The Korea Institute for International Economic Policy (KIEP) said in its report on Feb. 19 that the joint statement of the United States, the European Union and Japan for revising the WTO Agreement on Subsidies and Countervailing Measures, which was released on Feb. 14 and targets China’s industrial subsidy policies and economic structure dependent on state-run companies, can affect South Korean industries as well.

According to the joint statement, more types of subsidies will be included in prohibited subsidies, governments providing subsidies will be responsible for proving their harmfulness, supply distortion will be included in the category of significant damage attributable to subsidies, and state-run companies will be included in the category of public institutions.

The joint statement targets China’s non-market-oriented trade policy. It is rooted in their complaints about the Chinese government’s steel and aluminum subsidies. In 2018, the United States invoked Section 232 of the Trade Expansion Act of 1962 and imposed 25 percent and 10 percent tariffs on steel and aluminum imports on its conclusion that Chinese steel and aluminum exporters were benefiting from the subsidies.

South Korea’s shipbuilding and semiconductor industries may be affected by the joint statement. Early this month, the Japanese government claimed in the WTO that the South Korean government provided fiscal and financial support in violation of the agreement during the restructuring of the local shipbuilding industry. According to an OECD report, South Korean semiconductor manufacturers such as Samsung Electronics and SK Hynix have received budgetary support from the South Korean government. U.S. President Donald Trump has cited the same report in criticizing the Chinese government for its subsidies.

However, the impact on the semiconductor industry can be limited in that not every budgetary government support is a subsidy prohibited by the WTO. In addition, the OECD report mentions no over-capacity as to the semiconductor sector whereas it mentions that over-capacity is occurring in the aluminum industry. The joint statement focuses on industrial subsidies that cause over-capacity. 

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