2014

Staged Tariff Elimination/Reduction in Korea-Australia FTA Text

Further to my earlier post notifying the release of the semi-final text of the Korea-Australia FTA (“KAFTA”), I would like to share one interesting finding I made so far. It is simply summarized in this article by Caberra Times:

“…certain tariffs on  agricultural goods  are being wound back  incrementally over  15 or 20 years. Others will   be reduced by only 50per cent of their present  levels, and those on rice, walnuts and honey imports will remain untouched.”

Chapter 2, Article 2.3(2) of the draft text provides that the tariffs would be eliminated or reduced in accordance with Annex 2-A. Annex 2-A then stipulates that the tariffs would be eliminated or reduced in accordance with the Parties’ respective tariff schedule, BUT with a caveat that the elimination or reduction would take place in stages and rules as set out in Annex-2A and the schedule.

The starting point is the “base rates,” which is defined to be the Parties’ most-favored-nations rates as of January 1, 2010. As it applies to Korea, these rates are eliminated or reduced following any on of the following rules:

  • Staging category 0: to be eliminated immediately after the KAFTA comes into force.
  • Staging category “X”: to be eliminated in “X” years after the KAFTA comes into force; in each year, the tariffs are reduced by an equal rate (i.e., base rate divided by “X” years); the outcome would be elimination of the tariffs entirely by the beginning of the “Xth” year.
  • Staging category S-1 to S-5: different tariff rates apply to imports at different times of the year, which are to be eliminated in stages (equal annual reduction until eliminated as above)
  • Staging category E: E category tariffs to remain at the base rates
  • Staging category R: no obligations

Looking at Korea’s tariff schedule, what stands out is a large number of tariff items that are marked with high staging categories (i.e., tariffs that will be eliminated more slowly), in particular in agricultural sector. In addition, Chapter 6 also provides for Korea to impose safeguard measures for certain agricultural sector.

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