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When FTAs fail

Talks on the Korea-U.S. FTA have begun at the demand of Washington. We can use them.
Nov 28,2017
The global trade climate has turned unfavorable for Korea Inc. The government has worked for years to bring down tariff rates for Korean exports through free trade agreements. The government and Korean companies are dumbfounded and depressed by the barrage of antidumping and other trade complaints about Korean products.

Higher duties can deal a fatal blow to an exporter. Trade remedies through the three fearful duties — antidumping, countervailing, and safeguard tariffs — have troubled Korean companies for a long time. Antidumping investigations and levies are the first things that come to the minds of traders when addressing the World Trade Organization or FTAs. New trade issues related to digital commerce, autonomous cars and artificial intelligence are of less immediate concern for them. To Korean manufacturers, what matters most is to get a good price for their products. Profitability is the key in commerce.

FTA partners are increasingly turning to trade barriers against Korea’s products. In a free trade system, import restrictions should be removed. But the world is now going in the opposite direction. Governments under free trade deals are resorting to additional duties for domestic political reasons. Since tariffs have been removed, they are making excuses to mount remedial levies to protect domestic industries and companies.

Regardless of any faults with domestic products, they are pinning the blame on offshore enterprises and products and punishing them with antidumping charges. They slap countervailing duties on imports, accusing the products of having benefited from subsidies from producing countries, and invoke safeguard actions when a certain product’s market share shoots up due to popularity with consumers.

This poses a dilemma for companies. Both increasing and decreasing shipments could become a headache. FTAs are useless if the zero tariff rates don’t actually stay at zero. Although they are temporary actions, they can eventually become a “kill switch” for FTAs.

Antidumping investigations can also have a chilling effect on companies. Fearful of charges and investigations, exporters may have to adjust shipments. They won’t be able to ship more even if they can or push down prices even if they can — all to avoid the hassle of being summoned by trade commissioners. If there are signs of an investigation, they may choose not to export the item at all and seek other markets.

FTAs lack provisions against the three provisional duties. Korea’s FTAs as well as other countries’ only list simple procedural rules and promise compliance to WTO regulations.

Regulations hostile to imports won’t change unless the fundamental WTO rules are adjusted. The government, meanwhile, must do whatever it can to help exporters. Even when rules annexed to the WTO agreement cannot change, it must try to find a solution through improvements in bilateral FTAs.

First of all, we can introduce mechanisms to allow discussions about an investigation into unfair trade practices. The ceremonial bilateral consultative meetings should be vitalized to serve as a forum for practical discussions and information sharing. Important issues should be included in the FTA even if they can be redundant. They may not be a great help, but nevertheless can contribute to containing arbitrary investigations and duties.

Seoul and Washington are revisiting their bilateral FTA. Many topics will emerge. Seoul must aggressively raise the issue of the additional levies. The renegotiations have begun at the demand of Washington, but we can use the momentum to advocate and stand up for interests of domestic industries and companies. Success will be entirely up to the negotiating skills of our trade officials.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Nov. 27, Page 33

*The author is a professor at the Seoul National University School of Law.

Lee Jae-min