The South Korean government decided not to accede to the Agreement on Trade in Civil Aircraft (TCA) of the World Trade Organization (WTO).
Private airlines such as Korean Air Lines have called on the government to join the TCA to get customs duties exemption on imported aircraft parts.
In addition, an extension of the current tariff exemption on aircraft parts imports, which was mentioned as an alternative to the accession to the TCA, is hard to expect due to to the recent uproar involving former Korean Air senior managing director Cho Hyun-min.
“We have nothing to gain by acceding to the TCA,” a high-ranking government official said on April 23, adding, “Besides, the accession will negatively affect the local manufacturing industry because the government’s R&D on civil aircraft development and support for overseas sales become impossible.”
The tariff on aircraft parts is 0% now under an exemption program. it will be reduced in stages from next year and completely abolished in 2023. Late last year, South Korean airlines asked the government to accede to the TCA as they have to bear an additional tariff burden of 227.6 billion won (US$204 million) during the four years.
The government has a different view though. Under the TCA, government subsidies and incentives are banned with regard to civil aircraft development, manufacturing and marketing and policy monitoring and information disclosure are obligatory. According to the South Korean government, TCA accession does more harm than good with South Korea’s civil aircraft manufacturing capabilities not enough.
At present, the TCA has 32 member countries, including aviation and aerospace industry leaders such as the United States, Britain, France, Germany, Italy and Japan. China and Russia have not acceded to it in view of their civil aircraft manufacturing capabilities.
The extension of tariff exemption, in the meantime, has no rational basis at all with the government raising corporate taxes imposed on large corporations and reducing R&D tax credits. Furthermore, the Korea Customs Service is currently probing into Korean Air for alleged customs evasion. Tariff exemption limited to airlines is likely to backfire under the circumstances.