Learning by Doing The Impact of a Trade Remedy Case in Korea Junsok Yang I The problem in context This study deals with a particular case submitted to the WTO Dispute Settlement Mechanism DSM dealing with restrictions on the export of Korean 1 colour televisions sets to the United States It is a story of how Korea used the WTO DSM as part of an overall strategy to eliminate a trade barrier that had been in place for fifteen years It is also a story of how Korea s attitude towards the WTO changed Thus before we start dealing with this particular case we need to look at some background at what Koreans think about trade and their initial perception of the WTO Korean development and its attitude to trade Like many other countries Koreans tend to have a mercantilist view of trade where exports are good and imports are bad Such views are quite surprising since the value of exports and imports in Korea usually exceed 70 of GDP and Koreans themselves will readily admit that the country has no choice but to import raw materials intermediate goods capital goods and technology from abroad in order to compete in the global marketplace as well as to fulfil domestic consumer demand However the average Korean often believes that Koreans must do everything they can to increase exports while limiting imports only to necessary goods This mercantilist mindset was born in the 1960s when Korea s average annual GDP per capita was around 150 During the first sixty years of the twentieth century Korea suffered thirty six years of Japanese colonial rule Then at the end of the Second World War the country was split into North and South Korea shortly followed by the three years of the Korean War By the end of this war much of Korea s industrial capacity was in ruins and the country faced political chaos Then in the late 1960s Korea began an outward oriented growth path using exports as an engine for development Korea joined GATT in 1967 around the time when it had embarked on the outward oriented development strategy While practically every Korean realizes how important exports have been and still are to the Korean economy the fact that imports also played a crucial part is sometimes neglected Korea extensively liberalized the import of raw materials and intermediate goods so that Korean manufactured goods could compete effectively in the global market However Korea maintained strict controls on imports of consumer goods in part due to the limited amount of hard currency at the time Priority for the use of the hard currency was given to exporting firms for the import of raw materials intermediate goods and capital goods The government also encouraged private savings in order to provide investment funds to the up and coming Korean industrial sector The attitudes built up during these years namely a negative view toward conspicuous consumption and imports has cast a long shadow apparent even now when Korea has eliminated almost all of those import barriers and achieved a GDP per capita of 10 000 Given the mercantilist mindset and the fact that Korea is so dependent on trade for its economic well being Koreans often think of their country as a helpless player in the harsh global marketplace where other countries limit imports of Korean goods for nationalist reasons and have forced Korea to open its markets before the economy is ready resulting in massive domestic shocks Considering that it was the gains from trade that allowed Korea to develop this mindset may be paradoxical but Korea is hardly alone in having such views about trade it was after all only forty years ago that Korea s GDP per capita was less than 200 Korean perception of trade disputes In the early 1980s Korea s GDP per capita was around US 1 600 2 000 and Korea was on its way to becoming an economic dynamo but it was still on a weak footing At that time Korean companies were beginning to break into the global consumer electronics market Electronics manufacturers such as Samsung and Goldstar now LG successfully penetrated the US and European markets However during the same period the United States which was Korea s largest export market was experiencing record trade deficits and the US press when reporting them often emphasized the growing economic strength of Japan and its neighbour Korea Thus there had been strong popular feeling in the United States that the US government should limit the market access of goods from Japan and Korea and that Japanese and Korean markets should be opened to US goods Such sentiments tended to strengthen the various US market restriction measures vis vis Korea s exports Especially bothersome to many Koreans were the antidumping measures which the United States used to limit some of Korea s most popular export items such as consumer electronics and steel The US anti dumping measure on colour televisions which is the subject of this article was also imposed around this time Koreans felt that their success in the international marketplace was due to low costs and price competitiveness rather than to unfair trading practices as the United States claimed Some Koreans felt that the international trading environment was unfair since Korea was rapidly opening up its markets due in some cases to US pressure while the United States was seemingly closing its own Partly due to the weakness of GATT and the dispute settlement mechanism at the time these trade disputes resulted in confrontations with heavy political pressure resulting in ill will on all sides People in Korea and the United States often thought of trade as an economic war rather than a win win situation for all The Korean perception of the WTO In some ways the Uruguay Round UR and the WTO were designed to reduce such confrontations on trade disputes When the UR negotiations were complete and the WTO was formed there was an expectation by Koreans that trade disputes would be solved not by political confrontation where Korea was bound to lose to other large countries but through a third party that would maintain neutrality and keep the global trading environment fair In its attempt to ensure that the WTO was such a third party Korea paid a heavy political price domestically Agriculture has always had a special place in Korea and the political institutions and even consumers would support protection for agricultural goods in order to protect the farmers even though they knew that it would result in higher prices for food Many of these protective devices for
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