Korea falling prey to growing protectionism

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Korea falling prey to growing protectionism

Last week, the U.S. International Trade Commission (ITC) approved antidumping duties and countervailing duties on three Korean washing machine makers, accusing them of denting the profitability of American companies.

The ITC’s decision epitomizes the growing trend of protectionism in international trade amid the drawn-out global economic slowdown.

Korea, as suggested by the latest U.S. case, has become a bigger target for countries afraid of growing trade competition since it emerged as the world’s seventh-largest exporter.

There are worries about growing protective trade measures against Korean businesses, as the country is trying hard to keep exports as its biggest growth engine while global recovery is forecast to come at a slow pace.

“Korea is one of major targets of trade protectionism because it ranks as the world’s seventh-largest exporter by volume,” said Cho Seong-dae, a researcher at the Institute for International Trade (IIT) at the Korea International Trade Association.

There are three measures overseen by the World Trade Organization (WTO) that its member countries can use when they need to protect their industries from unfair trade: antidumping duties, countervailing duties, and the activation of safeguards.

According to a report by the institute, Korea has so far received the second-largest amount of antidumping duties after China, with 297 such cases having been investigated. Another 180 were concluded as related companies ended up paying the duties.

In the first half of 2012 alone, there were 13 antidumping duty inspections on Korean companies, marking the largest number since 2004.

The country is also in second place for being slapped with countervailing duties after China. There were 55 investigations on Korean companies to impose countervailing duties on them. Thirteen exporters were slapped with the duties.

A total of 52 safeguards have been activated against Korean goods in various countries, almost half of the world’s total 118 since the establishment of the WTO.

“Especially last year, antidumping and countervailing duty investigations on Korean businesses increased remarkably,” Cho said. “Korean exporters need to be warned.”

Trade protectionism became an issue after the 2008 global financial crisis and the euro zone debt crisis. Countries including the U.S. began taking protective measures against imported goods in order to protect the profits of local businesses, since global financial crises affected their real economies including domestic demand, causing consumers to cut spending.

“Coincidentally, the inauguration of new governments in the U.S., Japan and China this year, countries that have close economic ties with Korea, is likely to further increase trade protectionism as they tend to focus on boosting their domestic economies and supporting their local businesses,” said Jeong Young-sik, a researcher at Samsung Economic Research Institute. The steel industry is most vulnerable to trade protectionism, according to data compiled by the IIT. Until last year, a total of 1,168 antidumping duties were imposed on steelmakers around the word, followed by 840 on petrochemical businesses and 528 on plastic makers.

“The steel and petrochemical industries require large sums of investments and mass production,” said Bae Ji-hyun, a researcher at the IIT. “The bigger the industry, the more competitive it is, so countries are on increasing alert about foreign players’ expansion.”

The total global steel production capacity stands at 2 billion tons a year, but there is a 500 million ton supply glut currently, according to the Korea Iron & Steel Association.

“Korean and Japanese steelmakers are facing an increasing number of allegations about dumping, because of Chinese steelmakers that pour out cheap steel products,” said a spokesman at Posco, the country’s largest steelmaker.

Posco, Dongkuk Steel and Hyundai Hysco were accused of dumping in Taiwan last year, but the case was acquitted by the Taiwanese authority.

The Australian customs authority is currently investigating possible dumping charges regarding Posco and Hyundai Steel.

“There are worries that a domino effect of trade protectionism could reappear in the global steel industry again as the current oversupply problem continues to be aggravated,” Bae said.

The domino effect refers to the activation of safeguards in many countries in the late 1990s in order to limit imports of Korean and Japan steel products. The U.S. blocked cheap steel imports from the two Asian countries as the imports spiked at the time. Those imports that couldn’t enter the U.S. market were sent to other countries, but they activated safeguards one after another in a keep a lid on the situation.

“Trade conflicts between the U.S., EU and China are on the rise, which could directly and indirectly affect trade conditions of Korean businesses that have made investments in China,” Cho at the IIT said.

According to the researcher, the U.S. Treasury Department said in a report in 2012 that it will put pressure on the Korean government to limit its intervention in the foreign exchange market. “This means there are potential risks the U.S. could take issue with Korea’s growing exports,” he said.

The EU is also carefully watching Korean, Japanese and Taiwanese businesses’ exports that are shipped out from their production sites in China, the researcher said.

By Song Su-hyun [ssh@joongang.co.kr]
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