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Aps Jaeminlee 2010

Aps Jaeminlee 2010

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Published by: Korea Economic Institute of America (KEI) on Nov 30, 2012
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Torn Between the Two Trade Giants:U.S.-China Trade Disputes and Korea
by Jaemin Lee
An old Korean proverb says that when two whales ght itis the shrimps whose backs are crushed. Maybe that prov
erb best describes Korea’s situation on the trade front thesedays. The United States and China are engaged in tradedisputes on many issues. All countries are holding their  breath as they watch the surge of trade friction betweenthe United States and China in various forums.
Some of the disputes are pending at the World Trade Organization(WTO) while others are addressed bilaterally through re
spective domestic proceedings. Any challenge or measure by Washington against a Chinese product has been readilygreeted by a comparable challenge or measure by Beijingagainst another U.S. product. Beijing’s condence wasfurther evidenced when it recently poked one of the sorestspots of the United States: it just initiated a countervailingduty (that is, an anti-subsidy) investigation against the U.S. bailout of the automobile industry, arguably thus far analmost taboo issue in the global trade community. In sum,the traditional scene of U.S. unilateral complaints againstand bashing of China is now apparently changing.Clearly there seems to be a sense of surprise on the partof the United States. It appears that the United States has been taken aback by China’s immediate and effectiveretaliatory measures against U.S. trade remedy measuresdirected toward China. The growing consensus amongtrade watchers seems to be that this is just the beginning,with a stronger dose of Sino-American tit for tat loomingalong the horizon of almost all trade fronts.
Washington seems to be busy formulating a strategy todeal with the new China, as this is a patch of unchartedterritory for the United States. Although the United Stateshas experienced sporadic rivalries in the trade sector withother trade rivals such as the European Union and Japan,none has had the immediacy and the back-and-forth na
ture of the relationship between the United States and China.The traditional trade tension across the Atlantic and the Paciccould be said to have been benign rather than malign, probably because both Brussels and Tokyo have maintained and tried tomaintain stable alliances with the United States in diplomaticand military sectors and because the trade disputes have largely been part of the process of resolving bona de differences amongthem. Recent disputes with China thus pose a different kind of challenge to the United States as a military and diplomatic alli
ance does not exist between the two countries as exist betweenthe United States and the EU and the United States and Japan.In fact, the U.S.-China rivalry is arguably more palpable in themilitary and diplomatic sectors.All these disputes and the new environment in the global tradesector also pose difcult questions for Korea. As China is Ko
rea’s largest trading partner and the United States the second,the trade friction and disputes between the two inevitably carrya signicant impact on the overall trade interest of Korea. Thatis particularly the case as Korea is closely linked to the UnitedStates in all respects, and it is also becoming closer to Chinain terms of trade and economy. Thus, Korea’s position in theseintense U.S.-China disputes is necessarily nuanced. As to someissues, Korea seems to share the U.S. position, most notablyregarding China’s loose protection of intellectual property rights(IPR). As to other issues, Korea seems to share China’s positionas an export-driven, government-coordinated country, most no
tably regarding issues falling under the antidumping and coun
tervailing duty investigations sector. Korea’s concern becomesmore acute because of the surge of Korean investment in Chinaand in the United States. With increasing Korean investment inChina and the United States, Chinese trade sanctions againstthe United States, or vice versa, thus may sometimes amount toindirect, though unintended, trade sanctions of Korea. Korea istherefore cautiously watching the current surge of trade friction between the two trade giants.
Dr. Lee’s paper is the thirty-fourth in KEI’s Academic Paper Series. As part of this program, KEI commissions and distrib-
utes 10 papers per year on original subjects of current interest to over 3,000 Korea watchers, government ofcials, thinktank experts, and scholars around the United States and the world. A public discussion at KEI with the author gener 
-ally follows in conjunction with distribution. At the end of the year these papers are complied and published in
On Korea
.Volume 3 of 
On Korea
was published in April 2010. For more information, please visit www.keia.org/paper_series.php.
June 2010 • Volume 5 • Number 5
 – 2 –
This paper aims to discuss the implications for Korea of U.S.-China trade disputes and how Korea can ensure thatthese disputes do not unexpectedly disrupt Korea’s tradeinterests. Basically, for Korea there are both negative as
 pects and positive aspects owing from the Sino-Americantrade disputes. The critical question is how Korea managesto ensure that it is not too exposed to negative aspectswhile it can build upon positive aspects.
Recent U.S.-China Bilateral Disputes
Recently, the United States and China have been quite busyat the WTO, suing each other and criticizing each other.During 2009–10, three main disputes have been decided by panels or the appellate body of the WTO. They are theIPR protection dispute,
the trading rights and publicationdispute,
and the auto parts dispute.
At the same time, four more disputes are currently pending at the WTO. They arethe raw materials export restraint dispute,
the AD/CVDsimultaneous investigations dispute,
the poultry importrestriction dispute,
and the tires safeguards dispute.
Infact, among the six disputes resolved by the WTO in the2009–10 period, three were disputes between the UnitedStates and China.
The remaining three disputes are those between Panama and Columbia, between Thailand and theUnited States, and between the EU and the United States.
Six out of 14 pending disputes at the WTO at the momentare disputes between the United States and China.
these resolved or pending U.S.-China disputes have oc
curred since 2009.
Between November 2001—the timethat China joined the WTO—and 2009, no dispute-s between the two countries had been brought before theWTO. Not only the numbers but all U.S.-China disputeshave been high-prole ones in which many countries haveshown strong interest. Korea has also been watching andmonitoring these disputes with great interest.At the same time, the United States and China are alsoactive on the bilateral front. China has been a perennialtarget of U.S. domestic trade remedy investigations, andthe United States is becoming a new frequent target of Chinese investigations. Statistics show this trend: In termsof antidumping investigations by the United States, 14 outof 20 cases in the rst half of 2009 were against China,making China the most frequent target of the United Statesduring the period.
In comparison, 6 out of 31 antidump
ing investigations initiated by China in the second half of 2009 were lodged against the United States, which alsomakes the United States the number one target of Chinain the same period.
In terms of countervailing duty in
vestigations, which aim at foreign governments’ illegalsubsidization policies, 12 out of 17 U.S. investigationsin the second half of 2009 were against China, makingBeijing Washington’s most frequent target.
During thesame period, China initiated four countervailing dutyinvestigations, and all of them were lodged against theUnited States.
In short, on both the multilateral and the bilateral fronts, the two countries seem to be engaged inall-out trade battles.In addition, there are other major U.S.-China disputes thattake place outside the WTO proceedings or the domestictrade remedy investigation context. They include Google’sconfrontation with the Chinese government regardingcensorship of Internet materials
and China’s allegedmanipulation of the renminbi, its currency, to sustain itseconomy and exports.
Same Rules, Different Thinking
One could argue that there is a unique aspect in U.S.-Chinatrade disputes that differentiates them from other tradedisputes. The uniqueness does not simply lie in the drasticsurge of the number of disputes in recent days or in the factthat they are the two largest players in the global tradingregime. A clash between these two trade giants does merita different stature. But disputes between the United Statesand the European Union, another giant on the trade front,do not necessarily involve such a level of intensity andconfrontation.
Likewise, the uniqueness of U.S.-Chinadisputes does not lie in the fact that one is developedand the other is developing. The United States has hadhigh-prole trade disputes with other major developingcountries such as Brazil and Mexico, but they have notregistered this level of intensity and confrontation.
Given the positions and arguments on both sides in someof recent disputes, it may be the case that sometimes theuniqueness of U.S.-China trade disputes arguably lies inthe fundamental difference in perspectives between thetwo countries in terms of various trade-related economic policies. Of course, there are some easy disputes betweenthe two where one could relatively easily determine whichside is right or wrong, but increasingly some of the recentdisputes between Washington and Beijing concern issuesthat possibly touch on the fundamental difference betweenthe two in terms of formulating and implementing nationaleconomic policies. A proper role of a sovereign govern
ment in times of economic crisis,
a permissible policy boundary for a government to preserve key raw materials,legitimate administration of the criminal justice system of a government, and outer parameters of foreign exchange policies are some of the examples of issues raised in recentU.S.-China trade disputes. As one can imagine, disputesinvolving these issues defy a simple nding of violation by one country in a particular trade agreement.Most of the time, the text of an agreement rarely providessufcient norms on these rather philosophical issues, andthe outcome pretty much depends on perspective, point of 
 – 3 –
view, context, or intention of the government concerned.
The problem is that, in the area of these perspective-oriented issues, textual language sometimes fails to pro
vide clear-cut guidance and leaves open the possibility of future constructive interpretation and application. In thesecircumstances, it is entirely possible that the disputing par 
ties may have different opinions, believing in good faiththat their positions are vindicated according to the textuallanguage: they may simply have different perspectives indoing business and carrying out obligations under a tradeagreement. If trade agreements explicitly spelled out thenorms, there would not be a problem. But sometimes insome areas trade agreements opt not to provide specicnorms and guidelines. This is not the problem of sloppywork of treaty negotiators; instead, this is probably caused by the lack of sufcient time for negotiations, the neces
sity for strategic ambiguity during the negotiations, andincreasing interaction between trade norms and other international legal regimes.
Specic Implications for Korea
Against this backdrop, this new trade environment of U.S.-China trade conict is currently causing specic implica
tions for Korea. These implications include both negativeand positive aspects, and they are discussed below.
Negative Implications
 Negative implications for Korea arising from Sino-Amer 
ican trade disputes include the collateral damage effect, protectionism-stoking effect, trade politicization effect, perspective mismatch effect, and free trade agreement(FTA) complication effect. Of course, there may be other negative implications as well, but these examples at leastoffer a silhouette of such implications.
Collateral damage effect.
Korean companies sometimes become victims of collateral damage from the U.S.-Chinatrade disputes. As the Sino-American trade disputes con
tinue to escalate in quantity and quality, both Washingtonand Beijing are quick and eager to initiate their respectivetrade remedy investigations against products from eachother through their domestic proceedings. These domesticinvestigations are usually the easiest trade weapons atthe ngertips of the two governments for addressing a particular problem posed. From time to time, however,Korean companies get snared in these investigations asthey are unknowingly caught in the cross re, as explained below. This could happen either when a Korean product isdragged into an investigation by Washington or Beijing or when U.S. or Chinese products produced from factoriesestablished by Korean investment become subject to aninvestigation by the other side. Then Korean companies producing these products or having made such investmentsare directly implicated.
 Dragging Korean products into an investigation.
An in
creasing tendency in Washington seems to be that a peti
tion led by a U.S. domestic industry for a trade remedyinvestigation against China can easily include Korea as acompanion target as well.
In other words, the real moti
vation and target of the petition is apparently China, butit nonetheless tends to include Korea or other countriesto make the case easier to go forward because of some of the unique legal requirements applicable to such investi
gations. The same situation is also observed in investiga
tions initiated by Beijing against U.S. products. When aninvestigation is leveled at U.S. companies and products, itincreasingly includes Korean counterparts as well.
China’s fast change of status in this regard is indeed note
worthy. For a long time, China has been by far the mostfrequent target of global antidumping investigations, butit has now become one of the most frequent users of suchinvestigations. During the period 1995–2009, China had been a leading target of foreign antidumping investiga
tions; its trading partners led a total of 544 investigationsagainst it. Korea follows China in second place, with 167investigations. The huge difference in number betweenChina in the rst place and Korea in second place indi
cates the sheer intensity of global investigations againstChina.During the same period, China registered itself as the sixthmost frequent ler of antidumping investigations, by l
ing 130 investigations against foreign countries, while theUnited States is the second most frequent ler, with 333investigations in the same period.
What is noteworthyhere is that, while the number of investigations of theUnited States is evenly spread out during the period, in
vestigations of China are back-loaded, indicating the surgeof investigations of Chinese practices in recent years.
Through its hard-earned experience, China has apparentlyunderstood the importance of initiating and utilizing traderemedy investigations in order to protect its domestic in
Unlike Korea, China has been able to turn itself into a major user of antidumping investigations as it hasa sizable domestic market, which is one of the essentialsfor having an effective trade investigation mechanism in place. So, one could assume that both the United States andChina are active users of trade remedy investigations at themoment and will remain so at least for the time being.Domestic industries in the United States and China appar 
ently enjoy benets from this multiple targeting strategy because in this way they can address multiple foreigncompetitors from different countries in single investiga
tions. Legally speaking, it becomes much easier to satisfythe so-called material injury standard, which is one of themandatory requirements for imposing most of the trade

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