REPORT INDEX

1. EXECUTIVE SUMMARY
2. INTRODUCTION
3. BACKGROUND KNOWLEDGE
4. TARIFF BARRIERS
5. NON-TARIFF BARRIERS
6. INVESTMENTS
7. TRADE IN SERVICES
8. CONCLUSIONS
9. LIST OF TABLES

GLOBAL TEAM

4. TARIFF BARRIERS

I. Current Situation on General Trade -- II. Analysis and Recommendations on Tariff Barriers

I. Current Situation on General Trade

Korea is the 6th most important commercial partner in terms of exports from Chile. Chilean exports to Korea during 1999 totaled US$ 684 million, with a high concentration of mining products (roughly 80%) and forestry products (16%).[1] The rest of the products, among which included fishery, agriculture, and fruit, accounted for only 4.5% of the total.

With respect to the average tariff rate applied to each other, Korea paid in April 2000 an average tariff for exports to Chile of 8.9% (9.0% was the highest), while Chile paid an average tariff rate of 3.6%.[2] This seems to be in contraposition to the current situation, where Chile is more open to trade than Korea. However, it is because Korea has no middle range tariff rates. There are only two kinds of tariff rates in Korea, one being extremely low—or even zero—for raw materials, and the other being extremely high, so high that, depending on the degree of added value, in many cases they are too cost-prohibitive to be imported.

Thus, basically, an FTA with substantial reduction in tariffs for these goods will be beneficial for Chilean industries. The relative size of the Korean and Chilean markets makes the prospect much brighter. Korean total imports during 1999 were US$ 113.95 billion, which is almost 10 times the size of Chilean exports. In addition to this positive factor, exports from Chile to Korea grew between 1991 and 1999 at 12.7%, while global exports grew at 7.3%.[3] This is evidence of the attractiveness of the Korean market for Chilean exporters.

In order to analyze the current situation of the trade between Chile and Korea more in detail, TABLE 1 provides a comparison between the global exports from Chile and the exports from Chile to Korea. Also in this table, the tariffs applied to products exported from Chile to Korea are shown.

From TABLE 1, it is clear to see the potential benefit for Chile. Nineteen out of the 30 top products exported globally have imposed on them a duty higher than or equal to 10% (14 out of the 19), or are forbidden from trade (5 out of the 19). The only two products not included in these 19 are “coniferous wood shaped and doors and their frames and thresholds” and “non-coniferous wood in chips and particles,” with 8% and 2% tariffs respectively and no participation in the exports to Korea.[4]

Based on this analysis, it can be concluded that the most important products that could potentially benefit from agreed tariff reductions or from permissions to import are:

• Fruit industry: grapes, kiwis, apples, pears, avocados, nectarines, and plums

• Fishery: salmon, hake, grouper, trout, and others

• Forestry: coniferous wood shaped and doors and their accessories

• Wine industry

• Apple juice and other juices

These 21 products that account for 22.6% of global Chilean exports represent only 1.3% of export to Korea. This is clearly the most relevant fact that reflects the importance of negotiating an FTA with Korea and guiding the negotiations around these products. The reason is again the tariff system applied by the Korean government that increases tariffs according to the value added to the product (low or zero tariffs for raw materials and higher for highly processed items). Korea uses “adjustment tariffs,” i.e., raises its tariffs up to higher rates, to protect domestic producers. In 2000, Korea renewed for another year adjustment tariffs on 27 of the 30 items on which tariff adjustments were used in 1999, but reduced the tariff rates for 20 of these items. Among the 27 remaining items, 14 are seafood, six are agricultural, and four are textiles. In 1997, Korea agreed, as a condition of its IMF stabilization package, to reduce the number of products subject to tariff adjustments.[5]

The escalated tariff system’s results can be seen in the TABLE 2, where the low share of total exports of the agricultural, fishery, and industrial sectors to Korea is vividly observed.

Concerning the import from Korea to Chile, the most important products are transportation vehicles (22.6%), laundry machines (7.1%), and polyethylene (3.3%).[6] The rest of the products include electronic products (refrigerators, televisions, and microwave ovens), cargo vehicles, tires, among others. A summary of these products can be seen in TABLE 3.

An FTA may increase exports of these goods from Korea to Chile, which is a challenge for the domestic industry. At present, it is possible to see signals of the concern in domestic industry. In fact, Chile has decided to look into allegations that Korean refrigerators and washing machines are being dumped.[7]

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Last updated: January 08, 2001. Copyright @ 2000 by GLOBAL Trade Consultants.