[Viewpoint] Watching out for trade remediesConventional wisdom among trade experts holds that tough economic times tend to spur trade tension as industries resort to antidumping (AD) and countervailing duty (CVD) cases to limit foreign competition. AD duties are intended to compensate for unfairly low pricing, while CVD duties are intended to offset subsidies provided by the government of the exporting country. Dramatic exchange rate swings, as are now occurring between the Korean won and the U.S. dollar, can also cause or exacerbate trade tensions. How concerned should Korean exporters be about new U.S. trade cases directed against them?
Globally, AD and CVD cases - generally referred to as trade remedies - have risen sharply since the onset of the economic slump in 2008. The total number of new AD investigations among WTO Member States rose from 163 in 2007 to 208 in 2008. The number of new CVD investigations increased even more rapidly - from 17 during the period July 1, 2007 to June 30, 2008, to 34 during the subsequent one-year period. Reflecting these global trends, new U.S. AD and CVD cases have also increased dramatically since 2008. So far this year, U.S. industries have filed 14 new AD/CVD petitions - double the total number filed in 2008.
Fortunately, Korea has been able to avoid the full brunt of U.S. trade remedies this year. As Korea knows well, the U.S. is a heavy user of trade remedies against Korea. In recent years, U.S. trade remedy actions have targeted a wide range of Korean industries, including the semiconductor, steel, plastics and paper industries. Indeed, over the last five years, Korea was the second-most common target of new U.S. trade remedy actions. So far this year, however, the only new U.S. trade remedy case against Korea has been a minor CVD case that has already terminated with no duties imposed. Also, two recent major U.S. AD and CVD cases involving imports from multiple countries were expected to include Korea, but did not. These cases, involving steel pipes used in oil production and coated free sheet paper, instead focused on China, Indonesia and Mexico.
At least four factors seem to explain the relative paucity of new U.S. trade remedy cases against Korea. One is the exchange rate between the Korean won and U.S. dollar. While the won is currently strengthening vis-a-vis the dollar, it has been relatively weak by historical standards since the onset of the global economic slump. A rule of thumb among trade experts is that a depreciating currency decreases the risk of AD liability. This is because, even if prices in the home and export markets remain stable during a period under investigation for alleged dumping, a fall in the value of the home market currency can cause prices in the foreign market to appear relatively higher. Thus, the weak won has afforded some protection to Korean exporters against U.S. trade remedies.
A second factor is that Korean export volumes for many products declined during the global financial crisis, as sources of operating credit, as well as demand for goods, decreased. Korean export volumes also declined relative to Chinese exports to the U.S., diverting attention to the impact of Chinese-origin goods on the U.S. market.
Third, with the adoption of more market-oriented Korean government industrial development policies in recent years, it has become more difficult for U.S. industries to sustain CVD cases against Korea. Indeed, the last several U.S. CVD cases against Korea resulted in findings of no or minimal subsidies - a direct result of the success of Korea’s sound policies.
Fourth, and importantly, China has become the principal, and growing, target of U.S. AD and CVD cases in recent years. China was the target of 60 percent of the trade remedy cases filed by U.S. industries in 2005, and this percentage has steadily grown to 86 percent of the cases filed so far this year. This shift in focus of U.S. trade remedy cases to China has been helpful for Korean companies that export to the U.S.
However, these factors also point to some emerging risks. In particular, with the Korean won appreciating against the U.S. dollar quickly - and expected to continue appreciating - export-oriented Korean industries could face more exposure to allegations of dumping.
Further, with reinvigorated demand for Korean goods, rising export volumes could also contribute to new trade remedy risk. Also, Korean companies investing in Chinese production for export to the U.S. are increasingly vulnerable to U.S. trade remedy measures directed against China.
These emerging risks all point to the need for vigilance. Korean industries reliant on the U.S. market should monitor their sales strategies, in both the home and export markets, to manage the dumping risk caused by the rising Korean won. These industries should also recognize that surges in export volumes may attract the scrutiny of U.S. industries and also increase vulnerability to new trade remedy actions. And, Korean companies with production in China and other countries should analyze U.S. rules of origin - which are complex and differ by product - to better understand the likely impact of new trade cases against China. Korean companies with Chinese production should also be sure to understand the special non-market economy analysis that the U.S. applies in Chinese AD cases, which often leads to higher AD duties than in cases involving exports from market economies like Korea.
The end of the recession may carry new export opportunities for Korean firms, but also some risk of new AD and CVD actions that Korean firms will have to manage. This risk underscores the need for careful planning by Korean companies as they look at new export opportunities.
*The writer is a senior partner at the law firm of Akin Gump Strauss Hauer & Feld LLP in Washington, D.C.
by Sukhan Kim