Duty-free market access in the Republic of Korea: Potential for least developed countries and Bangladesh

The paper attempts to assess the benefits of Duty-Free and Quota-Free Market (DFQF) access initiatives of the Republic of Korea for least developed countries (LDCs), which have been in place since 1 January 2008. Following a brief introduction on the background of this initiative, this paper examines the exports profile of LDCs, reviews the DFQF scheme of the Republic of Korea, and assesses the potential benefits of the DFQF scheme for LDCs as well as Bangladesh. The export profile of LDCs shows that the share of those countries in world exports in recent years has increased; this can be attributed to price increases for petroleum constituting a major share of LDC total exports. The Republic of Korea is the tenth largest destination of LDC exports, which indicates that the DFQF initiatives of the Republic of Korea for LDCs will have a positive impact on LDC exports. The DFQF scheme of the Republic of Korea covers 6,967 tariff lines, representing about 59 per cent of the all tariff lines of its Customs Schedule. There are at least 25 chapters where product coverage within the chapter is very low, notably below 10 per cent. These include garments, made-up textiles, and major agricultural products including fisheries. Among the DFQF lines, 1,464 lines are duty-free on a most-favoured nation (MFN) basis. Hence, LDCs enjoy tariff preferences on 5,503 tariff lines, while the average margin of preference on these lines is 7.89 per cent. The margin of preferences in most cases is either 6 per cent or 8 per cent. In order to enjoy the preference granted under the scheme, the products should be wholly obtained, or should have at least 50 per cent value addition. Analysis also reveals that the DFQF scheme covers 36.1 per cent of LDCs’ export to the Republic of Korea in 2007, keeping 64.9 per cent of current LDC exports to that country outside the purview of preferential treatment. Only three major export items from LDCs – copper cathodes, raw tobacco and plywood – enjoy -free access. Bangladesh, Congo, the Lao People’s Democratic Republic, Malawi, Myanmar, Tanzania, Uganda and Zambia are likely to benefit from duty-free access for these items. The Republic of Korea is the seventh-largest destination for Bangladesh exports. Bangladesh enjoys preferential access to the Republic of Korea under the Asia-Pacific Trade Agreement (APTA). DFQF access for LDCs adds 5,471 tariff lines for Bangladesh under preferential access. However, analysis shows that the additional lines cover only 4.63 per cent of Bangladesh’s exports to the Republic of Korea in 2007. However, there are important apparel articles in the scheme that may yield benefits for Bangladesh. APTA continues to remain attractive to Bangladesh because of higher trade coverage and more relaxed rules of origin. Nevertheless, the DFQF scheme currently offered by the Republic of Korea is a milestone for the developing countries’ initiative for LDCs, and one that is likely to lead to other countries coming up with similar initiatives. In time, the Republic of Korea is likely to incrementally increase the product coverage, which will lead to higher trade coverage and more favourable rules of origin, and will yield significant benefits for LDCs.