Seoul faces threat of WTO action

Date: 11/07/1996

By Elizabeth Wise

HOPING to strike a lucrative market-opening telecommunications agreement with South Korea by the end of the month, the European Commission has warned Seoul that failure to do so could lead to action in the World Trade Organisation (WTO).

After two years of fruitless attempts to win access for European telecoms equipment suppliers to Korean operators, the threat of WTO action over a separate dispute about network infrastructure has produced results in both fields, say Commission officials.

“It has made the Koreans nervous enough to come forward,” said one.

Since 10 May, when the Commission complained to the global trade body that Seoul was discriminating against European manufacturers by barring them from supplying network equipment to Korea Telecom, the two sides have been engaged in formal consultations at WTO headquarters in Geneva.

That helped jump-start talks in Brussels and Seoul which formally began a year ago on a bilateral accord aimed at getting European equipment makers into the Korean market.

Commission officials are now linking the two sets of discussions, saying success in the bilateral negotiations could help avoid the start of a formal WTO dispute settlement procedure.

According to the trade body's rules, if the EU is still unsatisfied with consultations after two months of talks it may ask for an arbitration panel.

“If we get the bilateral agreement, we close the WTO case. If not, we can still use the dispute settlement procedure,” said one official, although he added that the Commission had not yet decided what course of action to take if negotiators do not reach an accord this month.

“We would like to reach agreement by the end of July, but that is not a deadline,” he said, adding that Korean negotiators have agreed to work to conclude talks this month.

A US-Korea bilateral agreement has partly opened the market to American suppliers since 1993. “We are anxious to have the same treatment,” said the Commission official.

If the complaint about Korea Telecom does go to the WTO dispute panel, it will be one of the first since the organisation was founded in January 1995.

The complaint concerns Korean legislation which obliges Korea Telecom to buy network equipment (switches, wires, the large computers that transmit phone calls and other infrastructure elements) from domestic suppliers, unless Korean technology does not exist.

The Commission says Dacom, Korea's second national operator, also appears to apply the same procurement rule - and claims it costs European manufacturers more than 700 million ecu a year in lost profits.

The Union suppliers most interested in Korea's procurement market are Alcatel (France), Siemens (Germany), Ericsson (Sweden) and Nokia (Finland). They want to produce fixed infrastructure as well as mobile network equipment.

European companies were successful in Korea until the mid-1980s, when the current legislation replaced them with domestic suppliers.

Now, more than 90&percent; of the supply is local.

Most of the market is occupied by Korea Telecom, the mainly state-owned operator which holds some 80&percent; of the market, so it will be difficult to make inroads there.

But Union firms are pinning their hopes on private operators starting up in Korea which need to buy infrastructure.

EU negotiators say the main political stumbling block to resolving the dispute is Seoul's resistance to a Union demand that the government promise not to interfere with Korea's private telecoms operators, leaving them free to buy parts from foreign companies.

An agreement would require both European and Korean approval, so would probably not come into force before next year.

But Union negotiators say they want to install a system under which telecoms firms could bid and begin qualifying for contracts in Korea as soon as the accord is initialled. The qualification procedure can take up to two years in Korea.

The Union has only one such telecoms procurement agreement already - with Israel - but is negotiating similar accords with Switzerland and Central and Eastern European countries.

The Commission has not attempted to strike a similar deal with Japan because European companies are more interested in Seoul, where they feel more capable of competing with domestic rivals than in highly-competitive Japan.

Commission officials believe the threat to Seoul of WTO arbitration has already produced results.

“Before, they said no agreement could possibly enter into force before 1998. Now they have agreed to try and put one into force as soon as possible. That is a big step,” said one.