Korea’s Free Trade Agreements: Its Impact on Trade Remedy Rules

Doo-Sik Kim
Partner, Shin & Kim, Seoul, Korea


I. Introduction

The World Trade Organization (WTO) provides the institutional and legal foundation for the multilateral trading system that came into being in 1995. Despite its objective to endorse multilateral trade system, the WTO permits exceptions to such objective when special circumstances exist, such as formation of bilateral/regional economic blocs through the Free Trade Agreement (FTA). Therefore, the world trade system allows coexistence of both regionalism and multilateralism under the umbrella of the WTO system. However, subsequent to the failure at the Cancun Ministerial Conference in 2003, doubts as to the further development of multilateral trade system spread
among the WTO member states. As a result, unprecedented expansion of the regional trade blocs has taken place. In fact, statistics show that the total number of FTAs reported to WTO as of 2006 is 254 and out of these FTAs, almost half of them were signed after the year 2000.

Albeit the existence of many debates contrasting regionalism with multilateralism in the academic circle, countries have been actively involving themselves in the spree towards the formulation of FTAs. The Republic of Korea, one of the major trading countries in the world, has recently joined such spree in the midst of many domestic debates on the pros and cons of Korea’s movement towards regionalism. Thus far, Korea has formed FTAs with Chile, Singapore, the European Free Trade Association (EFTA) and the Association of Southeast Asian Nations (ASEAN). From 2006, Korea has been negotiating with one of its major trade partners, the United States, to sign an FTA. Korean is also studying possibility of FTAs with European Union and Japan.


II. Trade Remedies in the FTAs signed by Korea

The primary features of FTAs are (i) greater liberalization than the WTO system covering such areas as investment and competition, and (ii) ‘WTO Plus’ trade remedies. Generally, trade remedies refer to (i) anti- dumping measures, (ii) countervailing duties and (iii) safeguard measures,
which are types of measure taken by a government to deal with the effects of trade actions by others. Trade remedies are often considered as exceptions to liberal trading regimes where trade barriers are relatively low. Most FTAs attempt to ensure transparency in operating trade remedies and to restrict excessive use of trade remedies.

In the case of past FTAs signed by Korea, the trade remedies thereunder can be characterized as mostly similar to the trade remedies regime under the WTO Agreements. Mindful that FTAs aim for deeper economic integration through bilateral/regional efforts (otherwise countries should rely upon the multilateral system), Korea appears to be more receptive towards less stringent trade remedies (although such stance may be different on case-by- case basis, as shown in the current negotiations with the United States).

Despite such general tendency, the degree of trade protection through trade remedies adopted in different FTAs varies. Such variance in the trade remedy rules in the FTAs signed by Korea has brought considerable confusions and conflicts in the context of the Korean domestic trade statues, and is calling upon the establishment of more sophisticated trade law implementation mechanism in Korea. Before addressing these issues, I will briefly explain some key elements of the trade remedies adopted in two of the earlier FTAs singed by Korea, i.e., Korea-Chile FTA and Korea -Singapore FTA, and then discuss key trade remedy issues in Korea-US FTA negotiations.

A. Korea – Chile FTA

As to the bilateral safeguard measures, Korea-Chile FTA allows the parties to take measures to restrict importation of agricultural goods if increase in quantities of importation of certain agricultural goods of the other party threatens to cause or cause serious injury or disturbance in the markets of like or directly competitive products. Given the limitation on the type of goods against which bilateral safeguard measure is permitted, the bilateral safeguard regime under Korea-Chile FTA is less stringent compared to the WTO Agreements. In the case of global safeguard measures, the standard in Korea-Chile FTA is the same as the standard in the WTO Agreements. Furthermore, anti-dumping and countervailing duties are also similar to those provided under the WTO Agreements as well.

B. Korea - Singapore FTA

Anti-dumping measures and countervailing duties under Korea – Singapore FTA adhere to the rules in the WTO Agreements. However, in the case of anti-dumping measures, use of zeroing practice, a dumping calculation methodology which consists of ignoring negative margins of dumping and therefore results in an increase of the dumping liability of exporters, was excluded while the lesser duty rule was adopted. As to the bilateral safeguard, Korea-Singapore requires that the imported goods ‘substantially’ cause serious injury to the domestic industry that produces like or directly competitive products. This standard of substantiality is more stringent than the WTO Agreements. Also, Korea-Singapore FTA adopted the global safeguard measures pursuant to the WTO Agreements.

C. Korea - US FTA Negotiations

From Korea’s perspective, one of the most important issues in an on-going negotiation for Korea - US FTA is trade remedies. Korea has been adamant that less stringent trade remedies should be adopted under Korea – US FTA based upon its bilateral trade history with the United States. For 25 years, Washington’s trade remedy measures cost Korea a total of $37.2 billion, or about 6.8 percent of the nation’s exports in the United States which means that Korean businesses sold goods to the United States, but made little money. Based upon such facts, Korea is concerned that, if an FTA is singed between the two countries without softening US trade rules, Korea -US FTA might
simply become a “half FTA.” For instance, according to the current practice of the US International Trade Commission, an antidumping investing can last up to almost a year and a half. Such extensive period of investigation would cost the investigated party substantial amount of time and costs which, in theory, is against the objective and purpose of FTAs. In the FTA negotiations, Korea has strongly demanded US to change its restrictive trade practices. But it appears doubtful that Korea would win as expected.


III. FTA’s Impact on the Korean Domestic Trade Law

Korea’s trade remedy rules are scattered in various statutes such as the Customs Act, the Foreign Trade Act, the Act on Unfair Trade Practices Investigation and Industrial Damage Recovery. In the past, these statutes provided for uniform rules and procedures for examination and imposition of
anti-dumping and countervailing duties and safeguard measures consistent with those rule under the relevant WTO trade agreements.

In order to implement the special bilateral ‘safeguard’ rules adopted by the FTAs signed by Korea, a number of special provisions or exceptions had to be added to these statutes. Moreover, special laws were enacted to implement certain safeguard rules that could not be addressed by amendment to the existing statutes. Despite such legislative changes in the areas of safeguard measure, no specific legislation has been adopted to implement the special anti-dumping and countervailing disciplines in the FTAs. While treaties signed by Korea are considered generally to have self-enforcement effect, such lack of a consistent set of trade remedy law would inevitably bring about confusions at the stage of implementing the FTAs.

To cure such a confusing status of Korean trade statutes as caused by the introduction of diverse trade remedy rules under the FTAs, trade scholars has proposed enactment of a single comprehensive statute that covers all the trade remedy rules, whether general WTO rules or special rules under the FTAs, in a more streamlined and consistent manner. Further, it is now
proposed that the functions of the Korea Trade Commission (KTC), which carries out duties similar to those of the US International Trade Commission and other trade-related bodies, be strengthened so as to have it play a more active role in studying and implementing consistently the complex and diverse trade remedy disciplines. If the FTA negotiations between Korea and US are successfully concluded, even more pressures will be added to streamline the domestic trade law and enhance the role of KTC and other trade remedy mechanism. The FTAs are giving challenges and stresses to the Korean trade law system.