Political economy of protectionism in EC-Korea trade

Abstract

This thesis examines from an international political economy(IPE) perspective the determinants and the effectiveness of the EC's protective measures against Korean exports to the EC market. Both the determinants and the effectiveness of protective measures, in countries which adopt such restraints, have been very controversial issues in the academic world. Through broad and industry-specific case analyses, I found that approaches regarding determinants of protectionism in the IPE literature are not fully applicable as determinants of EC protectionism against Korea and I extracted several determinants which are more relevant to the issue of EC-Korea trade protectionism. These are primarily divided between economic and political determinants. The economic determinants include 1)a causal relationship between protectionism by the United States against Korea and protectionism by the EC against Korea, 2)Korea's neo-mercantilist policy approach and concentration of exports on a limited range of products, and 3)inter-industry trade structure between the EC and Korea, such as growing trade disputes in specific sectors. The political determinants, I found, are l)political expediency of the EC's protectionism against Korea, which can be seen in examples of EC's policy implementation procedures, such as low rate of actual imposition of the EC's import restraints, and the use of anti-dumping investigations as a preliminary gambit in order to obtain concessions, and 2)a form of " Japan Complex" effective against Korean exports to the EC. In addition to the above determinants, there are some specific determinants(or specific procedures and incidents) in connection with individual industries--the EC's inconsistent policy implementation and the clerical errors due to the growing workload of the EC Commission(textiles and clothing case), businesscycle(iron and steel case), the EC's retaliation against closed markets abroad, and the successful experience of Italy and France in restricting imports of Korean footwear through VER5 (footwear case), and EC's built-in protectionism and failure in demand forecast, and the deep-rooted distrust of Korean CTV exporters by the EC(CTV case). In order to analyse the effectiveness of protective measures, I began by examining approaches by David Yoffie and Patrick Messerlin. For the test of these approaches, I examined the effectiveness of EC's import restraints against Korean products by comparing how Korea's exports of those products changed, in terms of volume and value, following EC action. My findings are that the EC's protective measures were successful in all cases excepting one: the footwear products from Korea, the imports of which continued to increase during the 1987- 1991 period despite EC restraints. I found that the major determinant of effectiveness of EC's VERS was Korea's international competitiveness in terms of revealed comparative advantage (RCA) ratio of the subjected products. Specifically, Korea's strong competitiveness(and some weakening of EC's competitiveness) in footwear contributed to the continued increase in shipments of Korea's footwear to the EC market. In contrast, EC's VERs against iron and steel products, in which the EC has maintained international competitive strength, were very effective in reversing growth of imports from Korea. Additionally, EC's impositions of AD duties proved to be very effective as a means of protecting EC industries against foreign threat; all Korean products subject to EC's AD measures showed a declining trend in exports to the EC market during the 1987-1991 period, regardless of any weakness or strength in international competitiveness of subjected products. I concluded that the ineffectiveness of import restraints, suggested by David Yoffie for U.S.-NIE5 trade, does not apply to EC-Korea trade. Patrick Messerlin's approach, however, is applicable in the ECKorea trade. I also found that arguments which only link job losses in the EC with foreign imports are flawed. EC companies face job losses not only as a direct result of Korean imports, but also from the inability of EC industry to restructure, and the remedial action taken by them to counter Korean competition--such as reorganization and rationalization of EC companies, offshore processing activities in cheap labour cost countries for major labour-intensive processes, and automation of production facilities.