[Lee Jae-min] Stay vigilant when exports hit record

Korea’s annual exports set a new record of $466.4 billion last year and semiconductors did it again. Statistics just released by the Korean Customs Service listed semiconductors as the country’s No. 1 export in 2010 at $51.5 billion. Second and third on the export list were chemical products at $47.5 billion and commercial vessels at $47.1 billion. Automobiles took sixth place with $31.8 billion, but actual sales figures of Korean automobiles could be much higher than that when those manufactured by Hyundai’s Alabama plants and sold directly in the U.S. market are added. Overall, a very positive outcome.

The strong performance of semiconductors was mainly boosted by the surge in demand for new IT products such as iPhones and iPads, which require a wide range of semiconductors. Apple makes iPads, and Korean companies sell semiconductors to Apple. It is no wonder that semiconductors are called the “rice of modern industries.” Riding the wave, Korean semiconductor manufacturers continued to increase their shares in the global market last year. In the DRAM global market ― the most popular type of semiconductors ― Korean companies occupy more than 55 percent of global supply with Samsung taking up 33.8 percent and Hynix 21.4 percent. As consumer demand for new IT products is expected to continue to grow, semiconductors will probably remain near the top of the export list for the time being.

Not surprisingly, Korea’s dominance in the semiconductor market also forces foreign competitors to explore new ways to survive and compete. One of the common strategies is to increase in size either through acquisition or alliance. Just a couple of days ago, Elpida of Japan, the third-largest manufacturer with 17 percent global market share, announced its plan to purchase sixth-ranked Powerchip of Taiwan to find a breakthrough in the ever-solidifying market dominance of Korean producers.

Another conventional strategy employed by foreign semiconductor manufacturers to keep Korean competitors at bay in the global market is to seek to introduce trade restrictions. As a matter of fact, Korean companies have been under constant surveillance from competing companies and their governments, and have been slapped with trade restrictions when market shares surged. Forms of restrictions have changed depending on the circumstances at a particular point in time. Antidumping investigations and duties occupied much of the 1990s, followed by countervailing duty investigations and duties in the first half of the 2000s. Antitrust investigations and hefty fines haunted Korean companies in the second half of the 2000s. These investigations and restrictions were not confined to a single trading partner, but sometimes occurred in multiple jurisdictions simultaneously or in succession.

The robust performance of Korean semiconductor exports since the 2008 global economic recession fully deserves encouragement and compliments. But past experience also reminds us that strong performance is sometimes a precursor for trade restriction of all sorts. It is true that some restrictions were legitimate and warranted under the circumstances, but there were also instances where reasonable questions could be raised about the rationale of restrictions.

In some instances, trade restriction measures by one country are greeted by counter restriction measures by the other country. The numerous bilateral tit-for-tat maneuvers among the United States, the European Union and China provide examples. Unfortunately, Korea is inherently vulnerable in this game because its reliance on the foreign export market is much higher than that of foreign competitors’ on the Korean market due to the relatively smaller size of the domestic Korean market. As such, Korea can rarely conduct similar investigations against and impose restrictions on major foreign export items to Korea which can be comparable to Korea’s semiconductors.

At the same time, another important lesson from the previous experience is that these trade restrictions can be either preempted or effectively contained when proper preparation is implemented. All these trade restrictions do not come out of the blue: they at least require triggering events to justify investigations at issue. If these events are somehow avoided, frivolous investigations could be checked in advance.

The report of another record-breaking year of exports with continued strong performance of major export items including semiconductors is quite encouraging. But at the same time, the surge of exports in the midst of the continued economic recession for other trading partners may require us to stay alert and vigilant for the possibility of unexpected trade restrictions, as seen in the past. 

By Lee Jae-min

Lee Jae-min is a professor of law at the School of Law, Hanyang University. ― Ed.