U.S. Trade Representative Robert Lighthizer announced on January 22 that U.S. President Donald Trump decided to impose safeguard measures on washing machines and solar panels imported from South Korea. The import restrictions are the first ones of the U.S. against South Korea in 16 years. At present, South Korea is exporting three million washing machines and solar panels worth over US$1 billion a year to the United States. The Ministry of Trade, Industry & Energy of South Korea is planning to bring the case to the WTO.
In making the decision, the U.S. government turned down the South Korean government’s request to impose no tariff on the washing machines included in its quota and produced in South Korea. The tariffs applied to washing machines are slated to jump from 1% to somewhere between 20% and 50%. The 1.2 million washing machines included in the tariff-rate quota (TRQ) are subject to a tariff of 20%. As a result, those exported to the U.S. by Samsung Electronics and LG Electronics, which amount to three million units worth US$1 billion in total, are subject to import tariffs without exception. Those not included in the TRQ face a tariff of 50% in the first year, 45% in the second and 40% in the third.
A tariff of 50% is applied to washing machine components in the first year as well. When it comes to the components, the zero duty quota is limited to 50,000 units, which are equivalent to less than 2% of the total. Besides, the import restrictions are applied to those produced in South Korea, too. At present, approximately 20% of the washing machines LG Electronics exports to the U.S. are manufactured in South Korea.
The South Korean companies are planning to minimize their losses by exporting premium washing machines and increasing their local production volumes. This is easier said than done though. Samsung Electronics put its consumer electronics manufacturing plant in South Carolina on January 12 and needs to wait for a while until the annual washing machine production volume of plant reaches one million units. LG Electronics’ plant in Tennessee is scheduled to be put into operation in October this year. “The TRQ is applied not by manufacturer but on a customs clearance basis and, as such, the South Korean companies may have to compete with themselves to avoid the 50% tariff and be subject to the 20% tariff,” said an industry source.
As far as solar panels are concerned, a tariff of 30% is predicted to cause the exports to drop by about one-third. South Korea’s photovoltaic cell and module exports to the U.S. currently total more than US$1 billion a year and no tariff has been imposed on the products so far. Due to the import restrictions, however, solar cell products exceeding a cumulative capacity of 2.5 gigawatts have to face a tariff of 30% on a yearly basis.
Fortunately for South Korea, though, the import restrictions on solar panels are scheduled to be applied to multiple countries, such as Malaysia, unlike in the case of washing machines, and thus South Korean solar panel exporters are unlikely to face the worst-case scenario. Their counterparts in China are already subject to anti-dumping tariffs and American photovoltaic cell and module manufacturers are smaller in size than their counterparts in South Korea. “Although a downward price pressure is likely to continue, the unit price of modules is unlikely to actually go down as the module price is currently at the lowest level in history,” Hanwha Q CELLS explained, adding, “The U.S. is one of the countries in dire need of our products.”
South Korean Trade Minister Kim Hyun-jong, in the meantime, said on behalf of the government that the safeguard measures are excessive and constitute a clear violation of WTO rules. “We will work with the other countries subject to the same measures and implement a suspension of concessions unless the U.S. agrees to an appropriate compensation through bilateral negotiations,” the trade minister continued to say.