[Lee Jae-min] FTAs and trade remedy measures

Import restrictions are detested by trade agreements. The purpose of such agreements, most notably FTAs, is to dismantle trade restrictions between the signatories. There is one important exception to this general rule: raising an import barrier against unfairly traded goods is permitted. 

Unfair trade, as the term is used in trade agreements, refers to two situations. One is “dumping” where a foreign exporter sells a product at an illegitimately low price. The other is “subsidization” where a foreign exporter’s competitiveness is artificially enhanced by the provision of monetary support from its home government.

In both situations, the domestic industries of the importing country are harmed and the importing country is permitted to impose extra tariff rates to the amount commensurate with the level of such dumping or subsidization.

Every country has one agency designated for anti-dumping and anti-subsidy measures (collectively called “trade remedy measures”). In Korea, the Korea Trade Commission was established in 1987 as an agency in charge.

All FTAs stand on the proposition that trade partners will resort to these measures against unfairly traded goods. As long as substantive and procedural requirements are satisfied as stipulated, these are legitimate measures against unfair imports.

In fact, these trade remedy measures are not only permitted, but stand to play an important role when tariff rates are eliminated as a result of FTAs. A surge of foreign imports would arguably increase the likelihood of products being unfairly traded.

So, in a sense, the FTAs necessitate vigorous pursuit of such regulation. As much as the tariff barriers are gone, the policing of dumped or subsidized products will become that more important. It is no wonder the NAFTA countries have been actively applying anti-dumping and anti-subsidy measures against each other.

When 30-plus FTAs are in operation in the next 10 years as Korea envisions, surges of foreign imports will be observed in all sectors. This is a perfectly natural result of FTAs and foreign imports should never be subject to illegitimate trade barriers in Korea. But, at the same time, if there are dumped or subsidized imports arriving in the domestic market, they should be addressed so as to preserve the basic premise of trade agreements.

The problem is, the application of anti-dumping or anti-subsidy measures requires extensive prior preparation. Challenges are mainly presented in three different fronts: they involve logistical, procedural and substantive aspects.

From the logistical aspect, the administration of anti-dumping or anti-subsidy proceedings requires significant manpower and resources. The United States and the European Union have been able to stay active in this area due largely to the abundant logistical infrastructure they enjoy. Recently, China has been expanding its trade remedy investigation agency to cope with the increase of foreign products in China.

The fact that the KTC has yet to make its first anti-subsidy action may probably offer a telling glimpse of the current situation. This is in contrast with neighboring Japan or China, let alone other major trading partners such as the United States and the European Union. Thus, if the FTA drive requires the KTC to be a more active player as in other FTA partners, the infrastructure of the agency will have to be enhanced accordingly.

A challenge in the substantive front is the complexity arising from multiple FTAs. Although FTAs do share things in common in terms of anti-dumping or anti-subsidy measures, different FTAs have different requirements for the application of specific measures. So, in the future officials at the KTC would have to look at a particular FTA with the country in question on a case-by-case basis. If 30-plus FTAs are ultimately in place, this would mean having thirty different sets of rules. This would also mean that different rules apply in the same process depending upon the nationality of the products.

Thirdly, a challenge in the procedural aspect. These proceedings are composed of a long list of procedural hurdles which should be cleared by the government imposing anti-dumping or anti-subsidy measures. Other countries have been quick (and Korea has been quick) in taking issue with any minor procedural shortcomings in the course of lengthy proceedings. Procedural integrity and transparency would be further underscored in the new environment.

Anti-dumping and anti-subsidy measures should never be abused to restrict foreign imports. That said, they are the only measures available to address the surge of unfairly traded goods and the FTAs envision that these measures will be vigorously applied. As the FTA drive is in full swing, Trade Adjustment Assistance is being considered by government agencies in Seoul. But one of the most effective ways of ensuring adjustment may lie in setting an effective trade remedy mechanism in motion.

By Lee Jae-min 

Lee Jae-min is a professor of law at the School of Law, Hanyang University, in Seoul. Formerly he practiced law as an associate attorney with Willkie Farr & Gallagher LLP. ― Ed.