South Korea’s temporary trade barriers before and during the crisis

Moonsung Kang, Soonchan Park, 4 September 2011

a

A

During the global crisis there was a severe decline in trade known as the Great Trade Collapse (Baldwin 2009). As described by the OECD (2010) and WTO (2010), in 2009 world merchandise exports fell by 12% while world GDP fell by 2.5%. South Korea (hereafter, Korea) was no exception. In 2009, its exports fell by 13.9% while imports dropped by 25.8%. In this column, we explore the manner through which the global crisis affected economic and political determinants of Korea’s temporary trade barriers, focusing mainly antidumping measures (see Kang and Park 2011 for more detail).           

Using the Temporary Trade Barriers Database (Bown 2010), we find that the stock of imported products subject to antidumping duties in Korea has increased moderately over time. Korea’s initiations and final decisions in antidumping cases have been countercyclical, with evidence of a dramatic increase during the Asian financial crisis of 1997-98 and immediately before the recession of 2000. During the financial crisis of 2008-09, there were only 5 new initiations in 2008 and none in 2009, but the Korea Trade Commission approved 12 cases that had been initiated earlier.

Figure 1. Share of Korea’s imported products, based on counts of HS 06 products subject to antidumping measures

Source: Figure 5.3, Kang and Park (2011)

It also turns out that antidumping measures have functioned as a substitute for tariff protection measures in Korea during this period – ie domestic producers are more likely to file antidumping petitions over products receiving low tariff rates. Furthermore, Korea exhibits a very high percentage of observations in which the antidumping margins exceed the tariff overhang, defined as the bound-tariff level minus the applied-tariff level.

We also conclude that antidumping duties imposed during the Asian financial crisis persisted for 3 or 4 years. The stock of import value subject to antidumping measures increased moderately, but since 2005 it increased dramatically, reaching a peak level of 0.37% in 2008. The sudden increase in this share since 2005 can be attributed primarily to a cumulative effect of the stock of antidumping measures. As the number of tariff lines subject to antidumping measures continues to increase, the import values subject to antidumping measures continue to accumulate, thus resulting in an increase in the share.

Figure 2. Share of value of Korea’s imports subject to antidumping measures

Source: Figure 5.4, Kang and Park (2011)

Prior to the global financial crisis of 2008-09, Korea’s dominant user of antidumping measures was the wood and paper industry. Other frequent users included the chemicals, machinery, metal, stone and glass, prepared food, and plastics and rubber industries. During the crisis of 2008-09, the most frequent user was again the wood and paper industry and its relative share increased sharply. Interestingly, during this period, Korea targeted a wider set of sectors even though plastics and rubber as well as stone and glass had large shares of the total value of Korea’s imports subject to antidumping duties.

Korea’s use of antidumping has most frequently targeted China, with 50 products (24.4%) subject to antidumping, followed by Japan and the US. Nevertheless, Korea’s principal target has been high-income countries as a group – the OECD countries account for 91 products and the non-OECD high-income countries account for 19 products, for a total of 110 products (53.7%). This suggests that the majority of domestic producers in Korea that use antidumping compete with producers from high-income countries. We also find mixed results in terms of practical changes to Korea’s use of antidumping before and after a free-trade agreement (FTA) enters into force. Chile and the European Free Trade Agreement (EFTA) countries have never been targeted by Korean antidumping measures, but such measures in Korea against imports from Singapore and ASEAN members have increased. We also note a slight increase in Korea’s use of antidumping measures against its FTA partners during the financial crisis of 2008-09. One potential explanation for Korea’s differential antidumping use across its FTA partners may be found in its FTA rules. Even though all of Korea’s FTAs allow members to maintain rights and obligations under the WTO Agreement on Antidumping, the FTA legal texts contain different rules. Korea’s FTAs with India, EFTA, the EU, and Singapore have been progressive in terms of the design of disciplines that limit the opportunity for governments to misuse antidumping measures. On the other hand, Korea’s FTAs with Chile, the US, and ASEAN countries provide more freedom for participants to use antidumping measures.

Moreover, the Korean use of antidumping measures is consistent with the theory put forward by Grossman and Helpman (1994) that politically organised sectors tend to receive more protection than unorganised ones, especially in terms of antidumping duty use during the global crisis of 2008-09. Therefore, taking into consideration the empirical analysis, we conclude that Korean industries and government did indeed use antidumping measures to protect domestic producers’ commercial interests during the global crisis.

References

Baldwin, Richard (ed.) (2009), The Great Trade Collapse: Causes, Consequences and Prospects, A VoxEU.org Publication, 27 November.

Bown, CP (ed.) (2011), The Great Recession and Import Protection: The Role of Temporary Trade Barriers, CEPR and the World Bank.

Bown, CP (2010), “Temporary Trade Barriers Database”, The World Bank, July [available at http://econ.worldbank.org/ttbd/].

Grossman, GM and E Helpman (1994), “Protection for Sale”, American Economic Review, 84(4):833-850.

Kang, M and S Park (2011), “South Korea: Temporary Trade Barriers Before and During the Crisis”, in Chad P Bown (ed.), The Great Recession and Import Protection: The Role of Temporary Trade Barriers, CEPR and the World Bank.

OECD (2010), Trade and Economic Effects of Responses to the Economic Crisis, OECD Trade Policy Studies, Paris, OECD.

WTO (2010), World Trade Developments in 2009, International Trade Statistics 2010, available at http://www.wto.org.

Topics: International trade
Tags: antidumping duties, global crisis, great trade collapse, murky protectionism, South Korea, temporary trade barriers

Moonsung Kang

Associate Professor of International Economics, Division of International Studies, Korea University

Soonchan Park

Professor of International Trade and Commerce, Kongju National University

Most Read