S. Korea, US Agree on Prevention of Unfair Tariff Imposition

South Korea and the United States agreed on an amendment to their FTA stipulating that reasons for import restrictions must be clarified and corporate due diligence periods and details must be notified in advance. This means the United States accepted South Korea’s request for protection from unfair regulations. Still, some experts are criticizing the amendment for lacking limitation on the Adverse Facts Available (AFA) provision.

According to the stipulation regarding the obligatory clarification, the U.S. has to clarify its calculation of anti-dumping and countervailing duty rates applied to South Korean companies. At present, the U.S. is doing so at its own discretion and South Korea can raise no objection when the U.S. does not do so. According to the South Korean government, however, the stipulation is expected to be highly effective in forestalling controversial tariff imposition. The Ministry of Trade, Industry & Energy said that the stipulation is the first of its kind among the United States’ FTAs.

The compulsory prior notification, in the meantime, is expected to contribute to regulatory predictability. “U.S. investigators conduct due diligence on South Korean companies before import restrictions, and this has caused a lot of difficulties as the due diligence has been unpredictable and even quasi-confidential data have been demanded,” said a local company.

Nonetheless, the amendment includes no limitation on the Particular Market Situation (PMS) as well as the AFA provision, which the U.S. has utilized as means for excessive tariffs since last year. According to the AFA provision, the U.S. is allowed to impose a punitive tariff on a company by using every adverse fact when the company is deemed insincere during its investigation. The PMS provision allows high tariffs to be imposed on the premise that a particular country’s market is abnormal.