South Korea last week made what seemed an inevitable decision to give up its developing country status at the World Trade Organization.
Given its economic standing, it is unlikely to be recognized as a developing state in the course of future negotiations within the framework of the Geneva-based global trade body. A delayed decision could undermine its negotiating power.
What prompted the decision announced by Seoul on Friday was the US proposal that the WTO strip countries of developing nation status if they meet certain criteria. South Korea is the only WTO member country that meets all four of the criteria suggested by the US -- being members of the Group of 20 major economies, being members of the Organization for Economic Cooperation and Development, being a high-income state as classified by the World Bank and taking up at least 0.5 percent of total global trade.
US President Donald Trump has warned that Washington would no longer treat any WTO member that it considers disqualified for developing nation status as such if no substantial progress was made in overhauling WTO rules by mid-October to reflect its proposal.
If Seoul had not decided to forgo its developing country status, it would certainly have further irked the Trump administration, which has been increasing pressure on South Korea on multiple fronts, including trade and defense costs. Since the Trump administration proposed changing WTO rules in July, many self-declared developing countries, including Brazil, Singapore, Taiwan and the United Arab Emirates, have renounced the status.
South Korea has kept its developing country status since 1995 to protect its agricultural sector. At the WTO, economic status is decided by self-declaration, meaning a country can proclaim whether it is a developing nation or not for itself. South Korea has taken the stance that it will remain a developing country but will not pursue benefits accompanied by the status in any area except for the agricultural sector.
Last week’s decision to give up the status will not immediately affect South Korea’s existing agricultural subsidies and tariffs on imported farm products. The decision is meant to declare that the country will not stick to special treatment as a developing nation in future multilateral trade negotiations.
Currently, South Korea imposes a 513 percent tariff on imported rice for quantities above the annual quota of 409,000 metric tons. Its total agricultural subsidies largely depend on agricultural output in a given year with the ceiling hovering around 11.5 trillion won ($9.7 billion).
Seoul officials say the country has sufficient time and resources to absorb the potential impact from a new agreement to be reached by WTO member states at the next round of negotiations, which would take a long period of time.
But local farmers have voiced their objection to the decision to give up the country’s developing nation status, pledging to hold rallies to pressure the government to withdraw the decision. Politicians have called for active measures to support farmers, with the main opposition Liberty Korea Party criticizing the government for having done little to persuade farmers to understand the decision.
The focus of discussion in the wake of the decision should be put on how to promote the long-term competitiveness of the local agricultural industry.
The government policy should shift from compensating losses to expanding investment for innovative and sustainable growth of the agricultural sector. Subsidy payments have often overlapped and gone to ineligible farm households due to lax management and improper applications.
The government has allocated 15.3 trillion won in spending on the agricultural sector next year, the largest amount in a decade. Officials say the new scheme designed to provide farm households with subsidies based on cultivation acreage regardless of crop prices could avoid a possible conflict with WTO rules in the future. People seeking to take up farming will also be given monthly allowances of up to 1 million won along with other benefits.
These efforts would be insufficient to ensure the survival and growth of the local agricultural sector when special treatment as a developing country is discarded.
Sweeping regulatory reforms are needed to enable corporate entities to run large-scale smart farms that use advanced technologies. Individual farm households should also step up efforts to be more competitive against imported agricultural products rather than call for more compensation.
The decision to forgo special treatment could turn out to be an important milestone for the rebirth of the local agricultural sector as a high value-added industry with global competitiveness.