Korea Welcomes Gradual Tariff Cut Agreement with WTO

by Dana Marie / Jul 30, 2015 01:52 AM EDT

Korea is among the 54 member countries, including China, that have agreed on the World Trade Organization's (WTO) current trade deal - the gradual tariff cut, which will take effect on July 2016. The agreement involves removing tariff on 201 information technology (IT) products, a sector that amounts to $1.3 trillion.

Some items included in the deal are medical equipment - e.g. X-ray tubes, ultrasonic scanning apparatus, electrocardiograph, etc. - and machines used to manufacture semiconductors. It also covers copiers and printers, audio-frequency amplifiers, and microphones. The initial Information Technology Agreement (ITA) in 1996 excludes products like game consoles and computers.

The nation gladly welcomes this change because it'll mean potential cuts on the listed products' manufacturing costs while improving price competitiveness. SK Hynix and Samsung Electronics are among the companies that will greatly benefit, considering they are two of the leading chip manufacturers worldwide.

On one hand though, Korea is a bit disappointed with the fact that LCD and OLED displays are not included. Its tech giants, LG Electronics and Samsung Electronics, would have benefited from the tariff cut - with LCD and OLED as two of the nation's biggest exports.

(Photo : David Ramos | Getty Images News )

The trade of IT products in international markets has amounted to $136.6 billion in 2014, accounting for 24% of the revenue from exports. Despite the instability and overall weakness of the global export market, Korea has still seen an increase - at 2.1%, amounting to $66.7 billion - in Q1 2015 compared to Q1 2014. The IT sector has been resilient, considering the 5.1% decrease in exports.

"Once the agreement, which involves 201 products, comes into effect, it will lead to an increase in sales of IT products, which account for a quarter of Korea's exports", the Korea International Trade Association (KITA) says.

KITA Director Park Chun-il states that China might make adjustments on other items (while the update to the ITA still has to take effect) included in the Free Trade Agreement between both nations. The WTO trade deal isn't too beneficial for Chinese TV manufacturers and it'll widen their competition with Korea.