This case relates to the United States Complaint to the World Trade Organisation Dispute Settlement Committee (DS161) in 1999 regarding the discriminatory behaviour towards Imported Frozen, Chilled and Fresh Beef by the Republic of Korea. The United States of America accused the Republic of Korea to have violated The General Agreement on Trade And Tariffs Agreement Article II,III, XI and XVII by taking Discriminatory Measures which demote Imported Beef and provide Imported Beef (mainly from the United States) with an unfair disadvantage over Domestic Beef.
What do these accusations involve?
They involve an array of things, however for simplicity we shall analyse and look at the main accusations put forth by the United States.
1. Korea used the Dual-Retailing System for Imported Beef.
2. Korea imposed a mark-up on sales of Imported Beef
3. Put restrictions of the organisations that could import beef.
4. Korea provided rigorous domestic support to beef in order to boost
Korean beef's competitiveness over imported beef's. (this accusation is in relation to the Agreement on Agriculture)
The Case put-forth by the United States of America
Korea using the Dual-Retailing System: It's important that before we analyse this accusation, that we know what ‘Dual-Retailing' means. Dual-Retailing in this context is a practice where there would be different and unique Retail Outlet for the sale of imported products. Which in this case translates to Imported Beef being put on sale only in special and unique retail outlets, which would require licensing by the Korean Government, making it extremely difficult for retailers to stock imported beef, thus, providing a Competitive disadvantage to imported beef.
The United States accused the Republic of Korea to have violated Article III (National Treatment on Internal Taxation and Regulation) Sub Article: 4 under this scenario.
Article III:4 States,
“The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.”
Korea imposed a mark-up on Sales of Imported Beef: This accusation revolved around Korea imposing an extremely high import duty, and other forms of indirect costs- such as high administrative costs to obtain imported beef, limited distributors allowed to posses imported beef for resale to local retailers which made these organisations sell imported beef to the highest bidding retailer. This made it extremely expensive to sell imported beef in comparison to domestic beef by the time it reached the retail outlets. The United States accuses Korea for violating Article XI (General Elimination of Quantitative Restrictions) Sub Article:1 in this regard.
Article XI:1 states,
“No prohibitions or restrictions other than duties, taxes or other
charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.”
Korea put restrictions on the organisations that could import beef: These are administrative restrictions which as mentioned above made imported beef extremely expensive by the time it reached the retail outlets, likewise discriminatory behaviour towards imported beef, made it even difficult for exporters of beef from the United States and other countries to make an optimum profit margin, since the distributers of imported beef (namely the Livestock Producer's Marketing Organisation) stocked and distributed beef that was cheapest for them to purchase, package and ship. The United States accused the Korean Republic of violating Article III:4 which was mentioned above.
Korea provided rigorous support to domestic beef: This is the trickiest, as well as one of the most controversial accusation in this entire dispute because of its difficulty to examine. Originally the United States accused the Korean Republic of increasingly providing competitive support to local cattle as imported beef started to pour into the country in the 1997-98 which ‘caused Korea to exceed its aggregate measure of support as reflected in Korea's schedule' according to the United States. The United States of America accused the Korean Republic under Article 6.2 of the Agreement on Agriculture which states,
“In accordance with the Mid-Term Review Agreement that government measures of assistance, whether direct or indirect, to encourage agricultural and rural development are an integral part of the development programmes of developing countries, investment subsidies which are generally available to agriculture in developing country Members and agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members shall be exempt from domestic support reduction commitments that would otherwise be applicable to such measures, as shall domestic support to producers in developing country Members to encourage diversification from growing illicit narcotic crops. Domestic support meeting the criteria of this paragraph shall not be required to be included in a Member's calculation of its Current Total AMS.”
In simple terms, Korea exceeded its domestic support commitments as in when beef from outside Korea started pouring in, in order to not allow imported beef to settle its presence in the Korean Beef Market. However, as stated previously, this argument is difficult to prove, considering Korea justified this to be a measure for supporting Cattle Based farming, which was an industry Koreans were moving away from; thus, the Dispute Settlement Body (DSB) of the World Trade Organisation didn't count this argument valid due to lack of solid evidence.
The Korean Republic cooperated with the World Trade Organisation's Settlement Body systematically in order to face minimum persecution by fellow trade allies, but, they did try to prove their case in return. They had two major reasons to why they didn't provide easy access to imported beef (namely American)- and that was the lack of safety of
American Beef. In the past, America's cattle industry has been infamous for lack of safety and regulation, which has caused an array of disease for Americans themselves, therefore as a method of protecting the Korean public, these steps were taken. Another reason followed a similar logic, wherein the government wanted to keep track of organisations and limit the amount of distributers of American beef, so that, in case the Beef is infected with disease, it would be easier for the Korean government to restrict its movement and call back the beef put up on retail shops.
To conclude, this was an extremely intense dispute which also called upon for comprehensive regulation regarding such aspects of trade, improvements on which were seen in the beginning of the Doha Round of 2001.
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