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The outcomes of trade conflicts and negotiations between the United States and South Korea, 1980--2000

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The outcomes of trade conflicts and negotiations between the United States and South Korea, 1980--2000

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Content THE OUTCOMES OF TRADE CONFLICTS AND NEGOTIATIONS
BETWEEN THE UNITED STATES AND SOUTH KOREA, 1980-2000
Copyright 2004
by
Hak-Do Kim
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(POLITICAL ECONOMY AND PUBLIC POLICY)
December 2004
Hak-Do Kim
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UMI Number: 3155432
Copyright 2004 by
Kim, Hak-Do
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ACKNOWLEDGEMENTS
I have incurred many debts in completing this dissertation. The Korean
government, the Ministry of Commerce, Industry and Energy, provided me with four
years of leave which were devoted to taking a doctoral coursework at the University
of Southern California and completing this dissertation. I am very grateful for their
support and understanding.
Most of my debts are to the individuals who helped me during the period of
my entire doctoral study at the University since 2000. First of all, I owe the greatest
debt to my adviser, Professor John S. Odell, who provided me with continuous
guidance and encouragement throughout all of my graduate school years. Other
committee members, Professor Peter Rosendorff and Professor Krishna B. Kumar,
made valuable criticisms and suggestions with respect to the substance of this
dissertation. I am deeply grateful for all their support.
For thoughtful and extremely helpful comments on my theoretical framework
and its substantiation, I am most grateful to Heajin Ryoo, Kwihee Bae, Sunghan Tak,
Junkyu Lee, Yongwook Lee, and Yooil Bae, my fellow graduate students at the
University of Southern California. Pavel Nikitin, a fellow graduate student as well,
assisted me with editing the text of my dissertation.
Several friends significantly enhanced my ability to complete my study in the
United States. I am grateful to Pastor Andy Pak, Pastor Hyunjoon Park, Pastor Frank
Roh, Kiweon Cha, Changkeun Kim and other members in Berkland Baptist Church
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iii
in Irvine for providing me their devoted care and help. Their love for my family and
me made it possible for me to devote myself to study throughout all the years of
living here in Los Angeles. I would like to thank Honggun Choe, Youngkyo Oh,
Youngho Oh, Chemin Lim, Iljun Park, Kapsuk Yoon, Shinhak Moon, Byungchul
Moon, Hyebum Choi, and many other colleagues in my Ministry of Commerce,
Industry and Energy for encouraging and helping me to collect the materials
necessary for my study.
I owe an especially huge debt to my wife, Eunyoung. She spent a great deal
of time in taking care of our two sons, Hyukki and Taeki, as well as me. Without her
support and encouragement, this dissertation would not exist. Furthermore, I am
grateful to my two sons for growing up healthy and well despite their father not
having been there for them as much as he probably should have. I am supremely
grateful to my parents, Kisik Kim and Kyusuk Kim, and my parents-in-law, Jungkyu
Kim and Jungok Ha, for their constant devotion, unwavering support, and care. Their
support also enabled me to complete my study in the United States.
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TABLE OF CONTENTS
ACKNOWLEDGEMENTS ii
LIST OF TABLES AND FIGURES viii
ABBREVIATIONS x
ABSTRACT xiii
PART I: INTRODUCTION AND ANALYTICAL FRAMEWORK 1
Chapter I: Introduction 1
1.1. The empirical puzzle 4
1.2. Definitions and assumptions 7
1.3. Analytical perspectives 23
1.4. Trade conflicts between the U.S. and Korea as a data set 26
1.5. Hypothesis 30
1.6. The arguments and methodology 35
1.6.1. Statistical analysis 36
1.6.2. Comparative case studies 38
1.7. The organization of this paper 46
Chapter II: Literature Review and Analytical Framework 49
2.1. Existing literature on the negotiation outcomes in unequal trade
relationship 50
2.2. The existing literature’s inadequacies 57
2.3. Alternative explanations 62
2.3.1. The realist paradigm and the negotiation outcome 62
2.3.2. The domestic politics approach and the negotiation outcome 67
2.3.3. Existing literature about U.S.-Korea trade conflicts 68
2.4. An analytical Framework 72
2.4.1. Defining a comparative advantage 74
2.4.2. Explaining the objective of the initiating country 76
2.4.3. Defining a negotiation process 77
PART II: STATISTICAL ANALYSIS 80
Chapter III: Statistical Analysis 80
3.1. Dependent and independent variables 83
3.1.1. The dependent variable: the negotiated outcome 85
3.1.2. Independent variables 91
3.2. Model specifications 104
3.2.1. The interaction variables 106
3.2.2. The descriptive statistics of the interaction variables 108
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3.3. Estimation results 114
3.3.1. Interpretations of the significance of the coefficients of
the independent variables (focusing on the Pooled Model) 117
3.3.2. The probabilities of the dependent variables
for the independent variables 122
3.4. Implications 124
PART III: CASE STUDIES 126
Chapter IV: The Victory of the American Strategy in the Automobile
Market-opening Bilateral Negotiations, 1993-1995 126
4.1. The basic context of the U.S.-Korea automobile market-opening
negotiations 128
4.1.1. The imbalance in the automobile trade between the U.S.
and Korea 128
4.1.2. The main issues in the U.S.-Korea automobile negotiations 130
4.1.3. The initial reactions of Washington and Seoul to the bilateral
automobile conflict 135
4.2. The negotiation process: the American threat to open the Korean
automobile market 137
4.2.1. The development of the automobile trade conflict between
the U.S. and Korea 137
4.2.2. The Impasses in the automobile negotiations 139
4.2.3. The preliminary meeting on the tax issue (September 11-12,
1995, Washington, D.C.) 145
4.2.4. The first negotiation (September 19-21, 1995,
Washington, D.C.) 148
4.2.5. The second negotiation (September 25-27, 1995,
Washington, D.C.) 152
4.2.6. The negotiation outcome 154
4.3. Analysis 156
4.3.1. The objective of the initiating country and strategies 157
4.3.2. The comparative advantage in the U.S.-Korea trade relations 167
4.3.3. Alternative interpretations 169
Chapter V: The Victory of the Korean Strategy in the U.S.-Korea
Semiconductor Antidumping Negotiations, 1992-1993 173
5.1. The basic context of the U.S.-Korea semiconductor antidumping
conflict in 1992-1993 175
5.1.1. The market situation of the world semiconductor industry
in the 1980s and the early 1990s 175
5.1.2. The administrative procedure of the antidumping investigation
in the U.S. 178
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5.1.3. The general process of negotiation between governments
in the case of an antidumping petition 180
5.2. The negotiation process: Korea’s strategies for addressing
the U.S. antidumping investigations 181
5.2.1. The U.S. semiconductor makers initiated an antidumping
petition against the Korean industry 182
5.2.2. Korea decided to react actively to the preliminary determination
by the U.S. government 185
5.2.3. The first negotiation (December 12-17,1992,
Washington, D.C.) 188
5.2.4. The second negotiation (January 12-17, 1993,
Washington, D.C.) 190
5.2.5. The third negotiation (February 8-12, 1993,
Washington, D.C.) 193
5.2.6. The U.S. government imposed lower rates of the dumping
margin against the Korean semiconductors in its final ruling 195
5.2.7. The negotiation outcome 198
5.3. Analysis 199
5.3.1. The objective of the initiating country and strategies 200
5.3.2. The comparative advantage in the U.S.-Korea trade relations 209
5.3.3. Alternative interpretations 212
PART IV: CONCLUSION 216
Chapter VI: Some Recommendations for Creating More Constructive
Trade Relationships between Stronger and Weaker Countries
in the 21st Century 216
6.1. Explaining the reasons for variance in the negotiation outcomes
between stronger and weaker countries 216
6.2. The contributions of this study 221
6.3. Future research 224
6.4. The direction for constructive trade relationships between stronger
and weaker countries in the 21st century 225
BIBLIOGRAPHY 230
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APPENDICES
Appendix A: Operational definitions of the negotiation cases and
the non-negotiation cases for Chapter I
Appendix B: The chronology of the trade relations between the U.S.
and Korea, 1980-2000 for Chapter I
Appendix C: Operational definitions of the dependent and independent
variables for Chapter III
Appendix D: The chronology of the automobile market-opening
negotiations between the U.S. and Korea, 1993-1995
for Chapter IV
Appendix E: “Korea-U.S. Automotive Memorandum of Understanding
to Increase Market Access for Foreign Passenger Vehicles
in the Republic of Korea” for Chapter IV
Appendix F: The chronology of the semiconductor antidumping
negotiations between the U.S. and Korea, 1992-1993
for Chapter V
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LIST OF TABLES AND FIGURES
Table 1.1: The frequency of the trade conflicts and negotiations between
the U.S. and Korea, 1980-2000 27
Table 1.2: The target industries in the trade conflicts between the U.S.
and Korea, 1980-2000 29
Table 1.3: Selected cases explaining the negotiation process that affects
variations in the negotiation outcomes 43
Table 2.1: The frequency of the U.S.-Korea trade conflicts by ranking,
1980-2000 67
Figure 2.1: An analytical framework for the relationship between the variables
that affect the position and strategy of a weaker country in the
negotiation process between stronger and weaker countries 73
Table 3.1: Trade conflicts between the U.S. and Korea by ranking
of the outcome, 1980-2000 86
Table 3.2: The U.S. trade balance with Korea, 1979-1999 (unit: in millions of
U.S. dollars, %, and number) 102
Table 3.3: The distribution of all the variables in the 178 pooled data
by ranking 103
Table 3.4: The distribution of all the variables in the 54 negotiation cases
by ranking 103
Table 3.5: The probit estimates of the model including the explanatory factors
by alternative interpretations 105
Table 3.6: The correlation matrix for all the variables in the Pooled Model
regression results 106
Table 3.7: The distribution of all the variables in the 178 pooled data
by ranking in the modified model with the interaction variables 112
Table 3.8: The distribution of all the variables in the 54 negotiation cases
by ranking in the modified model with the interaction variables 113
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Table 3.9: The probit estimates of the two models about the outcomes
of trade conflicts and negotiations between the U.S. and
Korea, 1980-2000 115
Table 3.10: The probabilities of the outcome over main variables
(in the Pooled Model). 123
Table 4.1: Demand and supply of automobiles in the Korean market,
1992-2002 (unit: in thousands and %) 129
Table 4.2: The annual vehicle tax for passenger vehicles, 1995 131
Table 4.3: Tariff rates for passenger vehicles of major countries, based on
the outcome of the U.S.- Korea automobile negotiations
in September 1995 131
Table 4.4: Change in the U.S. and Korean positions during the negotiations 132
Table 4.5: Price gap between domestic and imported cars due to cumulative
tax structure (based on the year of 1993 before negotiation, and
in thousands of Korean Won and %) 134
Table 4.6: The sales amount of foreign cars in Korea, 1988-2000
(unit: number and %) 156
Table 4.7: Leading exporters of automotive products in world trade, 1980-1995 168
Table 5.1: Dumping margin rates against DRAMs one mega and above from
Korea, determined by the U.S. Department of Commerce (the period
covered to investigation: November 1, 1991 - April 30, 1992) 182
Table 5.2: Comparison of the U.S. and Korean positions about the conclusion
of the Suspension Agreement 192
Table 5.3: Market share of DRAM in world market by country, 1985-2000
(unit: %) 210
Table 6.1: The relationships between strategy and outcome in the U.S.-Korea
automobile and semiconductor cases 220
Table C.l: Examples of the world market shares of U.S. and Korean products
and its coding for the comparative advantage variable (COMPAD)
(unit: in millions of U.S. dollars and %) 254
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ABBREVIATIONS
AAMA American Automobile Manufacturers Association
AD antidumping
AEA American Electronics Association
CEA Council of Economic Advisers (U.S.)
GIF cost, insurance and freight
CVD countervailing duty
DEC Dialogue for Economic Cooperation
DOC Department of Commerce (U.S.)
DOL Department of Labor (U.S.)
DRAM Dynamic Random Access Memory
EPROM Erasable Programmable Read-Only Memory
LTFV less than fair value
FAS free along shipment
FTA Free Trade Agreement
GATT General Agreement on Tariffs and Trade
GSP Generalized System of Preferences
IMF International Monetary Fund
IPR intellectual property rights
ITC International Trade Commission (U.S.)
KAMA Korean Automobile Manufacturers Association
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KITA Korea International Trade Association
KNSO Korean National Statistical Office
KOBACO Korea Broadcasting Advertising Corporation
KOTRA Korea Trade and Investment Promotion Corporation
KSIA Korean Semiconductor Industry Association
MFA Multi-fiber Arrangement
MOCIE Ministry of Commerce, Industry and Energy (Korea)
MOF Ministry of Finance (Korea)
MOTIE Ministry of Trade, Industry and Energy (Korea)
MOFA Ministry of Foreign Affairs (Korea)
MOU Memorandum of Understanding
MTI Ministry of Trade and Industry (Korea)
MTN Multilateral Trade Negotiation
NIB Non-Tariff Barrier
NTE National Trade Estimates
OECD Organization for Economic Cooperation and Development
PEI Presidents’ Economic Initiative
PFCP Priority Foreign Country Practice
SA Suspension Agreement
SA/DCP Suspension Agreement by Data Collecting Program
SA/FMV Suspension Agreement by Fair Market Verification
SEMI Semiconductor Equipment and Materials International (U.S.)
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SI A Semiconductor Industry Association (U.S.)
TAG Trade Action Group
TPRM Trade Policy Review Mechanism
UR Uruguay Round
USTR United States Trade Representative (U.S.)
VER Voluntary Export Restraints
VLSI Very Large Scale Integrated circuits
WTO World Trade Organization
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ABSTRACT
What determines the outcome of a bilateral trade conflict between a weaker
country and a stronger country, and how can a weaker country gain despite the
unequal relationship? The central argument is that the outcomes are shaped by
comparative advantage, the objective of the country that initiates the negotiation or
conflict, and the negotiation process they follow. For our purposes the objective
means either opening a foreign market or increasing the level of protection in the
home market. The negotiation process refers to strategies and tactics used by
governments.
This study concentrates on conflicts and negotiations between the Republic of
Korea and the United States between 1980 and 2000. Two empirical methods are
used. A data set representing all bilateral trade conflicts and negotiations between the
two countries during this period is constructed and analyzed. Case studies of two of
these negotiations allow more thorough observation of the negotiation process.
This study makes several original contributions to the literature. First, it
supplies new quantitative and qualitative evidence about the phenomena. Second,
given the assumptions and methods used, this evidence shows that when a
government initiates a conflict or negotiation to protect the home market, the
outcome is more favorable to the country whose industry has a comparative
disadvantage. Third, in this data set comparative advantage does not seem to affect
the outcome of a negotiation designed to open a foreign market. Fourth, the study
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provides evidence that the negotiation process decisively affects the outcomes. In the
statistical analysis of the universe of cases, when the US government used legal
authority that signifies a threat to penalize Korea if it does not concede, the US
gained more than when it used this offensive value-claiming strategy. The case
studies add that US tactics influenced the credibility of its threats. Korea reduced its
losses in both cases by using defensive value-claiming tactics—such as delaying
concessions until the last moment—and, in semiconductors, by using value-creating
strategy—such as proposing an agreement that would satisfy competing US
producers and asking US importing industries to voice a preference for compromise.
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PART I: INTRODUCTION AND ANALYTICAL FRAMEWORK
Chapter I: Introduction
Fluctuations in the trade negotiations between the United States of America
(hereafter the U.S.) and Republic of Korea (hereafter Korea) are a complex matter.
One may even describe these processes as mystifying, particularly when Korea
yields less and even gains more than its powerful partner, the U.S. in some instances
while accepting almost all of the U.S. demands in others. This paper aims to shed
some light on the political economy of a weaker country’s behavior in its bilateral
trade conflicts and negotiations with a stronger country. Two lines of analysis will be
pursued: examining the reasons for variances in the outcomes of bilateral trade
conflicts and negotiations; scrutinizing the reaction of a weaker country to the
demands of a stronger country.
What do we mean by weaker and stronger in terms of power? Power comes
in so many forms and has many definitions. What is common among the various
concepts of power is that it is determined by the resources one controls, the
relationships one has, and the perceptions one holds.1 Although Korea is not a weak
country compared to most other countries, Korea is perceived as a weaker country
compared to the U.S. in terms of its resources and its military and economic
relationships. The outcome in this paper is measured by how much Korea gains and
by how much the U.S. gains in relation to the value of the status quo prior to
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bargaining. The reference point is the observed values of the status quo ante, such as
trade volume, and the existence of tariff and nontariff measures that the target
country was taking in a base period prior to bargaining.
The existing literature on the unequal trade relationships which exist between
weaker and stronger countries has shown that outcomes are mainly affected by such
explanatory variables as economic conditions, domestic politics, international rules,
and social contexts rather than by the international power structure (Zeng 2002;
Schoppa 1999; Ryan 1995; Bayard and Elliott 1994; Zartman 1987; Odell 1985).
However, much of the literature focuses solely on gains or losses from the U.S.
perspective. That is, it treats the factors of the partner country’s behavior as
exogenous, not considering either the responsiveness or the strategy of that country.
It also pays little attention to the intergovernmental negotiation process as a factor in
and of itself. However, bilateral trade negotiations are the product of interaction
between two countries. When one country presents its agenda, the other country
usually must consider numerous other factors, including the international political
situation, domestic politics, economic conditions, and the social context.
To fully understand the outcome of bilateral trade conflicts, we must
understand the negotiation process. The negotiation process may be viewed as
strategies and tactics government negotiators and related interest groups or
individuals employ in relation to a negotiation. As the negotiation process advances,
both countries act and counteract using varied strategies and tactics. The strategies
1 Zartman and Rubin. 2000; Hart 1976
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and tactics of government negotiators and related interest groups or individuals
determine how one country reacts to the demands of the other country in a
negotiation. On the other hand, both countries determine their negotiation positions
and strategies based on their initial political and economic situations. These positions
depend on whether the objective of the country initiating the issue is to open a
foreign market or to increase the protection of its own market. We may suppose that
trade-related government agencies in a weaker country prefer trade policies which
improve its market share in the short run even though, in the long run, it may agree
to participate in a free and open trade system through bilateral agreements and/or a
multilateral trade regime. It is also implied that the negotiation gains of the weaker
country accrue mainly to its producers and exporters, not to its society as a whole.
Thus, this paper suggests that the outcomes of trade negotiations between unequal
trade partners are determined by the comparative advantage of each country, the
initial objectives of the initiating country, and the negotiation process.
These arguments will be explored both via statistical analysis and
comparative case studies. For statistical tests, we use cases containing 178 trade
conflicts between the U.S. and Korea during the 1980-2000 time period. To examine
the effect of the negotiation process on outcomes, the pooled data is divided into two
different data sets, depending on whether there was a negotiation process or not.
Then, we run two regression models: the pooled model which includes both
negotiation and non-negotiation observations and a negotiation process model with
54 negotiation observations. Detailed case studies confirm the findings of the
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statistical analysis and examine the influence of the negotiation process on the
variation in the outcomes: greater gains in some cases and smaller ones in others. For
example, in the U.S.-Korea automobile negotiations of 1995, the U.S. government
gained, as was generally expected. However, in the U.S.-Korea semiconductor
antidumping negotiation in 1993, the U.S. gain was much smaller.
1.1. The empirical puzzle
The central focus of this paper relates to why the negotiation outcomes
between the U.S. and Korean governments vary. An examination of the trade
conflicts between the U.S and Korea over the last two decades presents an empirical
puzzle. We must consider which factors most decisively affected the outcomes of the
negotiations between the U.S. and Korea during the 1980-2000 time period, placing
a particular focus on Korea. Then, according to 54 negotiation cases, we select two
cases.
We present two main questions in this paper. The first has to do with why, in
bilateral trade negotiations, the Korean government yields less to its more powerful
partner in some cases than in others. An understanding of the difference in outcomes
- greater gain in some cases while smaller ones in others - must be addressed.
Another question to be asked has to do with how a weaker country reacts to the
governmental negotiations with its powerful partner, the U.S., and what strategy the
Korean government chooses in order to produce a favorable outcome.
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To answer these questions, this paper considers both quantitative and
qualitative evidences. In the statistical analysis (Chapter III), we determine the
degree to which it is able to capture the effect of the negotiation process on outcome.
For this, we focus on how the negotiation outcome affected by whether there is an
intergovernmental negotiation process or not. This is why we divide the total 178
pooled data of the U.S.-Korea trade conflicts into two separate data sets.
According to international trade theory about comparative advantage,
countries export goods in which they have a comparative advantage and import good
in which they have a comparative disadvantage. Traditionally, international trade
theory assumes that goods are produced and exchanged in a perfectly competitive
market. However, the world market is not perfectly competitive. Thus, as Ryan
(1995) predicts, since an industry that has a comparative advantage can sell its goods
and services in world markets, it attempts to influence its home government with the
purpose to eliminate other countries’ trade barriers and to expand its market share in
a more global competitive market. Yet, the case of an industry that has a
comparative disadvantage, is the opposite. In this case, the industry endeavors to
defend its home market against a competitive foreign industry. Thus, the industry
that has a comparative advantage initiates market-opening negotiations while the
industry that has a comparative disadvantage initiates antidumping and
countervailing negotiations. Thus, we can predict that the factor of comparative
2 Ryan 1995, 341. He used the terminology of “commercially competitive” as the same meaning as
that of comparative advantage in my paper.
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advantage plays an important role in determining initial positions in both market-
opening and antidumping negotiations.
Via detailed case studies, the focus is on how the negotiation process affects
negotiation outcomes and what kinds of strategies participating countries choose.
Then, we select the two cases in which the outcomes in trade conflicts and
negotiations between the U.S. and Korea vary. In the U.S.-Korea automobile market-
opening negotiation case of 1995 (Chapter IV), the U.S. government gained and
expanded market access of the American industry, as could be generally expected by
realists. However, Korea lost much less than expected relative to the status quo (it
made a rather small concession on taxes). This loss was rather insignificant judging
from the failure of imports to increase after the deal. This chapter, thus, questions
how much the negotiation process affected the outcome and what strategies the U.S.
chose to adopt in the negotiation process. Then, we consider how Korea reacted to
the demands of a stronger country.
In the second case of the semiconductor antidumping negotiation in 1993
(Chapter V), the U.S. gains were even smaller. In the antidumping case filed by a
U.S. semiconductor maker in April 1992 against the Korean dynamic random access
memory (DRAM) producers, the U.S. government made a preliminary determination
of the rates of dumping margin which were very high (5.9% - 87.4%). However, in
the final determination, Korea succeeded in getting these margin rates to be much
lower (0.82% - 11.6%) than those which were proposed in the preliminary
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determination. Thus, the semiconductor chapter questions how Korea’s negotiation
strategy functioned during the negotiations of that bilateral trade conflict.
1.2. Definitions and assumptions
< Conflicts and negotiations >
The issue of international conflict among nations is one of the central topics
in international relations, both in terms of security and economics. This paper
focuses on bilateral trade conflicts and negotiations between the U.S. and Korea. In
this paper, we use terminologies of conflict and negotiation in different ways. A
conflict is defined as a set of actions which a government takes or threatens to take,
such actions causing harm to its foreign partner country, including to its foreign
government and its individual foreign companies. The term also includes private
meetings between a government and companies or between private companies, as
well as an official negotiation between governments. A negotiation means a
sequence of actions and reactions between two governments starting with the initial
time when the issue is raised officially and ending with an agreement or a deadlock.4
The negotiation process in this paper includes only an official intergovernmental
negotiation and does not include private meetings between a government and
J This definition is based on Odell’s (1985: 265) definition o f “an interstate conflict” as “a sequence of
actions in which governments take or threaten to take actions that would cause harm to one or more
other states.”
4 Odell (2000: 4) defines “a negotiation” as “a sequence of actions in which two or more parties
address demands and proposals to each other for the ostensible purposes of reaching an agreement and
changing the behavior o f at least one actor.”
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companies or between private companies. Negotiations do not include an informal
request to about another government’s opinion of a bilateral trade conflict case. The
negotiation process should be discussed officially on the negotiation table between
appointed government delegations of each country. Thus, cases of conflict include
negotiation cases that have gone through the intergovernmental negotiation process.
In other words, negotiation cases and non-negotiation cases are differentiated terms.
< Negotiation cases and non-negotiation cases >
We differentiate between negotiation cases and non-negotiation cases
depending on whether a specific intergovernmental negotiation occurred during a
conflict. If the intergovernmental negotiation did not take place, as in many
antidumping cases, such case is classified as a non-negotiation case, while if it did
take place such case is classified as a negotiation case. We need a more thorough
description of what is meant by negotiation cases or non-negotiation cases in terms
of the start date, the end date, the specific types of activity during the process of
interaction, and the sources of evidence of such activities to determine whether a
negotiation has taken place. (For operational definitions of negotiation cases and
non-negotiation cases, see Appendix A).
The thesis of this paper concerns trade negotiation outcomes. Nevertheless,
the reason why we examine both negotiation cases and non-negotiation cases is
because even non-negotiation cases can become a negotiation case at any time. It
would be hard to figure out exactly when an intergovernmental negotiation process
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did or did not occur. In practice, an intergovernmental negotiation begins when a
government wants to discuss an issue with another government formally through a
diplomatic channel. However, in most of trade conflict cases between two countries,
both governments do not necessarily get involved in resolving a conflict. In some
cases, a government might raise directly an issue with its partner, while in others it
might not. There is no regular diplomatic rule for the specific procedure of the
intergovernmental negotiation process. Also, there is no regular way in which a
government requests an intergovernmental negotiation with another government. For
example, although such non-negotiation cases as antidumping and countervailing
duty, safeguards, patent infringe investigation cases are not supposed to be
negotiated between governments, they can become negotiation cases if one
government wants to address another government directly as in the semiconductor
antidumping case discussed in Chapter V. In other words, it would be hard to
distinguish clearly between negotiation cases and non-negotiation cases, since non
negotiation cases can be transformed into negotiation cases as long as either country
wishes to do so. (For a detail process for a negotiation between the governments in
the case of antidumping petition, see section 5.2.1 in Chapter V).5
We determined whether a negotiation took place based on the existing
literature in both countries.6 We obtained these data from the U.S.
5 As we mentioned in Chapter VI, a future research is needed on why two countries sometimes
negotiate their bilateral trade conflicts through their governments and sometimes not.
6 Detailed sources are as follows:
(1) US antidumping and countervailing duty cases list: US DOC’s web site
(http://ia.ita.doc.gov/stats/pet-init.htm)
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10
antidumping/countervailing duty cases located on the web site of the U.S.
Department of Commerce; from the market opening cases under the U.S. Section
301 located at the U.S. Trade Representative office; and from the patent
infringement cases under the U.S. Section 337 and the safeguard cases under the U.S.
Section 201 located at the U.S. International Trade Commission office. For the
Korean side, we found the antidumping and safeguard cases at the web site of the
Korean Trade Commission. In addition, to see whether a negotiation took place, we
researched Baik and Chung (1998), Elms (1995), International Trade Reporter, and
the web sites of the U.S. Department of Commerce, the USTR, and the Korean
Ministry of Commerce, Industry and Energy.
< The scope of the research >
I limited this study to the bilateral trade conflicts and negotiations between
the U.S. and Korea during the 1980-2000 time period. This paper covers the total of
178 episodes pertaining to the U.S.-Korea trade conflicts and negotiations during the
period. These cases include the bilateral negotiations about trade issues in
manufacturing and service industries and about the overall investment environment
for the other country’s companies. It excludes multilateral negotiations carried out
after one side has filed a WTO/GATT complaint. During the 1980-2000 time period,
(2) US section 301 list: USTR’s web site (http://www.ustr.gov/html/act301.htm)
(3) US section 337 list: USITC’s web site (http://www.usitc.gov/us337.htm)
(4) US section 201 (safeguard) list: USITC’s web site (http://www.usitc.gov/us201 ,htm)
(5) Korean antidumping/safeguard list: Korean Trade Commission’s web site (http://www.ktc.go.kr)
(6) whether a negotiation took place: Baik and Chung (1998); Elms (1995); International Trade
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11
the Korean side filed four cases with the WTO: color-TV receivers (in 1997);
semiconductors (in 1997); and steel (in 1999 and 2000).7 The U.S. side filed six
cases with the WTO: government procurement (1999); frozen beef (1999); taxes on
alcoholic beverages (1997); inspection of agricultural products (1996 and 1995); and
shelf life (1995).8 However, out of these cases, the paper includes the case which was
discussed in a bilateral meeting first, and only which then was moved into the realm
of one multilateral trade regime: the shelf life case (1995)9.
First, all of the four cases that Korea filed with the WTO, such as color-TV
receivers (in 1997), semiconductors (in 1997), and steel (in 1999 and 2000), are not
examined in this paper. These four cases were the antidumping ones in related to the
U.S. market. In these cases, the Korean government had asked the U.S. several times
Reporter; and the web sites of the U.S. Department of Commerce, USTR, and Korea’s Ministry of
Commerce, Industry and Energy (http://www.mocie.go.kr).
7 For the period of 1995-2000, Korea brought the following four cases to the WTO Dispute Settlement
Body against the trade with the U.S. (1) (DS#202) the U.S. definitive safeguard measures on imports
of circular welded carbon quality pipe from Korea (June 15, 2000); (2) (DS#179) the U.S. anti
dumping measures on stainless steel plate in coils and stainless steel sheet and strip from Korea
(August 6, 1999); (3) (DS#99) the U.S. anti-dumping duty on dynamic random access memory
semiconductors (DRAMS) of one megabyte or above originating from Korea (August 15, 1997); and
(4) (DS#89) the U.S. imposition of anti-dumping duties on imports of color television receivers from
Korea (July 16, 1997).
8 For the period o f 1995-2000, the trade conflicts that the U.S. brought to the WTO against trade with
Korea totaled six cases: (1) (DS#163) Korea’s measures affecting government procurement (February
22, 1999); (2) (DS#161) Korea’s measures affecting imports of fresh, chilled and frozen beef
(February 4, 1999); (3) (DS#84) Korea’s taxes on alcoholic beverages (May 28, 1997); (4) (DS#41)
Korea’s measures concerning inspection of agricultural products (May 31, 1996); (5) (DS#5) Korea’s
measures concerning the shelf-life of products (May 5, 1995); and (6) (DS#3) Korea’s measures
concerning the testing and inspection of agricultural products (April 6, 1995).
9 In the shelf-life cases, American Meat Institutes filed a section 301 petition in November 1994,
which alleged that despite the existence of three bilateral agreements governing access to the Korean
market, government-mandated shelf-life limits and delays at the port has effectively prohibited U.S.
meat imports. Since the bilateral negotiation about the change o f shelf-life reached an impasse in the
spring of 1995, the U.S. initiated consultations under the WTO dispute settlement process. As a result,
Korea agreed to phase-out its current system and to allow manufacturers to set their own “sell-by”
dates (USTR. 1996,1995 Annual Report of the President o f the United States on the Trade
Agreements Program)
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12
to take some actions concerning the issue, but the latter had not taken any action.
Thus, the Korean government took the cases to the WTO. For example, after the
color television receiver antidumping case was initiated by an American business
association in May 1983 and in February 1984, the U.S. government imposed high
rates of final dumping margin against the Korean companies.1 0 After the final
dumping, the Korean companies moved their working plants to the U.S. and Mexico
and became subject to the minimal amount of the dumping margin as a result of it.1 1
Subsequently, a Korean company had requested the U.S. government to terminate the
antidumping duty but the U.S. government had rejected the request. In 1997, the
Korean government complained to the WTO that the U.S. antidumping duty on the
Korea color television receivers violated the WTO rule.1 2 Finally, the WTO ruled that
the antidumping duty had to be terminated.
Secondly, this paper excludes the cases which, although the two governments
had repetitive bilateral meetings, were not settled and were attended only partially by
the multilateral trade regime: government procurement (1999); frozen beef (1999);
tax on alcoholic beverages (1997); inspection of agricultural products (1996, 1995).
Besides, Korea was not accustomed to solving a conflict with the U.S.
through the multilateral dispute settlements. For example, the antidumping review
case against the Korean color-TV receivers in July 1997 was historically the first one
1 0 We include the antidumping case in 1983 as one case out of the 178 observations in our data.
1 1 According to the U.S. antidumping rules, if a dumping margin is less than 0.5 percent for three
consecutive years the U.S. government can terminate the imposition of this antidumping duty.
1 2 According to the WTO antidumping rules, Article 11 says, “An anti-dumping duty shall remain in
force only as long as and to the extent necessary to counteract the dumping which is causing injury.”
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13
that resulted in the Korean government using the multilateral trade system. Before
the WTO regime was launched in 1995, Korea had never questioned trade measures
of the U.S. government using the dispute solution mechanism of the GATT. When
considering the security alliance relationship between the U.S. and Korea, it was not
likely that Korea would fight with the U.S. using the world trade regime, let alone
make a threat against the U.S. Ultimately, it could not happen until Korea had
fulfilled all the trade requirements in accordance with the internationally advanced
trade regime. Thus, Korea’s behaviors changed after Korea officially had entered
into the Organization for Economic Cooperation and Development (OECD) on
December 12, 1996.1 3 In its bilateral relations with the U.S., Korea has had a special
alliance relationship and has also been dependent on the U.S. in terms of both
security and economy. Since the Korean War in 1950-1953, Korea has been
separated into North Korea and South Korea. Thus, militarily, the U.S. has helped
South Korea with the national security of the Korean peninsula for the past 50 years.
It is partially for this reason that the Korean people feel that are indebted to the
U.S.1 4 Economically, Korea’s trade has been dependent on the U.S., even if the
dependence rate had been decreasing to 18.4 % in 2001 from 21 % in 1995 and the
WTO 1994, 187
1 3 It is the date o f entry acknowledged officially by the OECD, when Korea deposited its instrument
of ratification with the OECD. For detail, see the web site of OECD (Organization for Economic
Cooperation and Development) (http://www.oecd.org).
1 4 We can notice how the Korean feels about the relationship with the U.S. in the following. In the
50th anniversary of the U.S.-Korea military alliance, Korean President Roh Moo-hyun said his
country would contribute to international stability as an expression of gratitude for five decades of
U.S. assistance. And he said "The Korean people are well aware of getting consistent help in the past
50 years," and, "Korea will be able to repay for the big help by contributing to world peace."
(Washington Times, September 30,2003)
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14
peak of 30.7 % in 1986. Thus, the multilateral conflict cases since 1995 would need
to be examined elsewhere.
< Negotiation outcomes >
The central empirical issue in this paper is to explain the variation of the
outcomes of bilateral trade negotiations. The outcome will be measured as how
much Korea gains and how much the U.S. gains in relation to the value of the status
1 S
quo prior to bargaining. The reference point is the observed values of the status quo
ante, such as trade volume and the existence of tariff and nontariff measures that the
target country was taking in some base period prior to bargaining, not the value of
their opening negotiation position or their batna (best alternative to negotiated
agreement). When we compare the outcomes with the opening positions of the
bilateral negotiations in the cases for market-opening between the U.S. and Korea,
the U.S. won most of the cases, even if by a little, while Korea won a few
antidumping cases. In addition, the initial opening positions would be hard to
compare exactly with the outcome because both sides are likely to be bluffing. The
batna also raises a complex interpretive problem due to the difficulty of measuring it
empirically. Furthermore, creating uniform data to measure perceptions about
alternatives or other cognitive variables is no simple matter.1 6 Thus, in this paper, the
outcome will be measured in relation to the observable economic values of status
1 3 Odell (2002) defines the “outcome” of an international trade or monetary negotiation as “whether
the interaction ended in agreement or deadlock, and how much was gained or lost by each party and
by the group o f parties as a whole (46).”
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15
quo such as a change of trade volume and a change in the protectionist trade
measures of a target country.
< Negotiation process >
The main focus of this paper is the negotiation process in bilateral trade
negotiations and its effect on outcome. There is no single approach to the study of
the negotiation process. Zartman (1987) explains several perspectives of the
negotiation process such as structural, strategic, tactical, incremental process, and
phased process explanations. All of the approaches to explain outcomes start from a
common appreciation that “negotiation is a process of joint decision making that
combines conflicting positions into a common outcome - a process in which each
party is required to give something from its initial positions to attain an outcome that
is mutually beneficial and is preferable to nonagreement, i.e. to unilateral attempts at
a solution.” According to Odell (2003: 2), “international negotiation process” is
defined as “what government negotiators do in their interactions with one another
and with markets, constituents, nonstate actors, and mediators”. In other words, the
negotiation process includes “which strategies negotiators choose, how markets and
negotiators influence each other, whether they add tactics to unearth possibilities for
joint gains, how much they use tactics to guard against heir own biases, and how
they go about forming and splitting coalitions.”1 7
1 6 Odell 2002, 46.
1 7 Odell 2000, 4
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Thus, this paper defines the negotiation process as a set of strategies and
tactics that government negotiators and related interest groups or individuals choose
to purse in relation to the negotiation. The negotiation process includes what
domestic interest groups or individuals related to the negotiation do in relation to it
and the effect of their action on government negotiators. Domestic interest groups try
to deliver their varied opinions to government negotiators before and during
negotiations.
The negotiation process for market opening between stronger and weaker
countries tends to have a routine path.1 8 The domestic industry of a stronger country
requests its government to deliver its interests to the partner country; the stronger
country threatens its weaker partner; then the weaker country reacts by either
yielding completely to the stronger country’s demands, partially accepting, then, or
remaining steadfast. For example, our case of the automobile negotiation between
the U.S. and Korea in Chapter IV followed the same track. In 1993, the American
Big Three manufacturers - Chrysler, Ford and General Motors - pushed the U.S.
government to open such foreign markets as Japan and Korea. Next, on June 22,
1993, the Big Three delivered their opinions to President Clinton to pursue their
efforts to open the Korean automobile market. Following that, the U.S. government
presented the interests of its domestic industry to the partner country and started
negotiations for a market opening with Korea on October 1993. During the process
1 8 Schoppa (1997: 1) states that the economic relations between the U.S. and Japan “seem to repeat
the following paths: America threatens, Japan reacts, and the fundamental problems remain
unaddressed even as ties between the countries become more and more strained.”
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17
of the negotiation, both countries tried to get as much as they could though
negotiation strategies and tactics.
< Negotiation strategies or tactics >
The term strategy has been used to mean many different things. The
international relations scholars have suggested such varied concepts as deterrence,
compellence, coercive diplomacy, reciprocity, retaliation, coalition, and issue
linkage.1 9 Odell’s Negotiation the World Economy (2000) is useful in offering a
theoretical strategy continuum that helps pull together some of the concepts that have
been suggest separately. In this paper, we use Odell’s concepts of strategy and tactics
directly. A negotiation strategy refers to “a set of behaviors that are observable, at
least in principal, and associated with a plan to achieve some object through
bargaining,” while tactics are “particular actions that make up a strategy.” All
behavioral strategy options are grouped into two polar ideal types - a value-claiming
behavior and a value-creating behavior - as well as a mixed behavior. A value-
claiming strategy means “a set of actions that promote the attainment of one party’s
goals at the expense of those of the other parties.” An offensive value claiming
strategy “attempts to take value from the others,” whereas defensive value-claiming
21 *
strategy “aims to prevent others from taking one’s own value.” A value-creating
strategy “involves actions designed to expand the pie and promote the mutual
1 9 Odell 2000; 2002
2 0 Odell 2002, 40-44
2 1 Odell 2002, 40-41
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18
attainment of negotiating goals.” A mixed strategy mixes value-claim and value-
99
creating tactics to a varying degree. Different coalition can be used as a means to
an end. For example, in the automobile case, the U.S. government used a coalition
with European countries as a part of its value-claiming strategy, while in the
microchip case the Korean government used a coalition with American consumers as
a part of its value-creating strategy.
< Gains in negotiations>
We also address the gains in trade negotiations on the side of a weaker
country as being viewed from the perspective of its trade-related government agency.
The trade-related government agency of a weaker country, such as the Ministry of
Trade, Industry and Energy in Korea, acted as a negotiation chair ministry on the
negotiation issues in the manufacturing sector. This study focuses on the
protectionist practices of the weaker country which affects the evaluation of the
outcome of the negotiation after it has reached an agreement or a deadlock. In this
respect, we suppose that the negotiation objective of the weaker country is aimed to
benefit mostly its domestic producers and exporters, not its society as a whole. In
other words, we suppose that Korea’s Ministry of Trade, Industry and Energy did not
9-3
value gains for the nation as a whole, which is contrary to liberals’ expectations.
Liberals would say that domestic consumers could gain more from a more open
2 2 Odell 2002, 42-43
2 3 For the perspectives of liberals and nationalists on the politics of international trade, see Coughlin,
Chrystal and Wood 2000; Krugman and Obstfeld 2000; Krugman 1987; Gilpin 1987.
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economy and that, as a result of the greater openness, the Korean society as a whole
could gain more even though its producers could lose temporarily. However, a
weaker country has a relatively less open and less organized trade system than a
stronger country, so the gains from trade are difficult to distribute efficiently and
completely between the producers and the consumers within the weaker country.
That is, gains in bilateral trade negotiations on the side of the weaker country flow
mainly to domestic producers and exporters in the short-run, not to the society
including consumers and importers as a whole in the long-run.
The theory of endogenous tariff formation explains well the reason why a
political decision for trade protection is made to benefit only a small group.
According to this theory, trade protection often benefits small interests and is usually
harmful to the society’s majority (Helpman 1995; Vousden 1990; Mayer 1984;
Baldwin 1976). In other words, a small producers group can be successful in
securing important protection even though all other industries are hurt. The factor-
specific multisector model is the most appropriate one for studying such industry-
specific efforts to sustain protection. Mayer (1984: 971) says, “In such a model,
higher tariffs on a given import good lead to significant welfare gains for the average
specific-factor owner in the protected industry but to rather small welfare losses for
average specific-factor owners in all other industries. Thus, the small number of big
potential gainers has much greater incentives to participate in the political process
than the large number of small potential losers, whenever there exist significant
voting costs.”
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The trade-related government agencies of a weaker country would prefer
trade policies to improve market share in the short run, even though in the long run
the country might have benefited more from a more open trade system based on
bilateral agreements and multilateral trade regimes. When demanded to adopt an
open trading system, a weaker country tends to resist opening their markets in the
short run, trying to protect its domestic industries. From the point of view of the
weaker country, how much its government sustains a targeted industry is crucial at
the moment of its negotiation with the stronger country.2 4 This is especially true in
the stage of developing economy as the main economic objective of the weaker
country is to promote its exports in order to increase the contribution of its industry
to its national economy. The competitiveness report published by the U.S. Congress
in 1991 assessed Korea as a new country competing with the U.S. at that time 2 5 The
report evaluates the ability of Korea to move from the export of light, labor-intensive
manufactures to higher technology industries as “impressive”. It summarizes
“Korea’s policy for industrial promotion did influence market incentives and market
outcomes in a growth-promoting direction” (296). It says, “until recently, Korea had
a relatively protected home market. But this protection was aimed at assisting
protected industries to become internationally competitive.” Thus, we suppose that in
the cases of the bilateral trade conflicts and negotiations between the U.S. and Korea,
the evaluation of potential gains and losses resulting from them was determined by
2 4 Krueger (1995) argues that the U.S. demands through bilateral bargaining were made on a country-
by-country basis and extended well beyond negotiations over restricting exports to the U.S.
2 5 U.S. Congress 1991
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21
the Korean Trade Ministry’s policy preference. In that sense, this paper considers the
gains resulting from a trade negotiation from the perspective of the weaker country’s
domestic producers and exporters, not from that of its society as a whole. In Chapter
VI, we recommend to loosen this assumption in order to create more constructive
trade relationships between stronger and weaker countries be means of learning from
their past experience of negotiating with each other.
< Fixed-sum relations >
This paper also assumes that the negotiations between stronger and weaker
countries are a fixed-sum situation, where one country cannot gain except at the
expense of the other since gains flow mostly to producers and exporters only and
since it focuses on world market shares. Negotiation outcomes can be not only win-
win,2 6 but win-lose and zero-sum as well. In general business negotiations for the
sale of a product, it is possible to negotiate with customers a mutual gains outcome,
which depends on the negotiation skills of sales personnel. Also, in multilateral
government negotiations, participating countries can gain mutually through win-win
agreements by a package deal or by an issue linkage used to “tie distinct issues
77
together for joint approval or rejection” and to focus on total gains from an
agreement and on losses from a non-agreement. However, in unequal trade
negotiations, we can easily find negotiation outcomes that benefit one party at the
2 6 Zartman (1987:10) defines, “the nature of negotiation is to arrive at a satisfactory agreement for the
two or more sides, with satisfaction judged by the willingness of the sides to sign.” For details, see
Odell 2000, 10
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22
expense of the other. In this respect, we recommend that countries should focus on
mutual gains in their future trade relationships, and discuss this proposal in detail in
our conclusion.
Facing negotiations with a stronger country for a market opening, a weaker
country is concerned more about the loss of the world market share of its domestic
industry rather than about the income distributional aspects of trade openness. Thus,
if one country loses the market share of its domestic industry due to a negotiation, it
is a fixed-sum situation. For example, in the beginning of the bilateral negotiation for
a market opening the weaker country can expect to make some concessions. Korea
believes it should pay some respect to the demands of the U.S. considering its
security and economic relations with it. In this respect, the initial intention of the
weaker country lies in how less the country is to minimize its losses. The difference
in the outcome depends on the extent to which a weaker country accepts the
demands of a stronger country. One case would accept almost completely the U.S.
demands, and another would only partially do so. The third case would totally reject
the U.S. demands, but this rarely happens.
< The objectives of the initiating country >
We also suppose that a country that initiates a conflict or a negotiation has
two different types of objectives: to preserve the protection of its home market or to
open a foreign market. For example, the types of major trade conflicts between the
2 7 Davis 2002, 8
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U.S. and its trading partner are classified into two areas from the perspective of the
U.S. In one, the U.S. industry attempted to preserve its home market from the access
of foreign products by resorting to various provisions of U.S. trade laws such as
antidumping and countervailing duties (Title VII of Trade Act of 1974), safeguard
measures (Section 201 of Trade Act of 1974), and patent infringement (Section 337
of Tariff Act of 1930). In the other, the U.S. government and industries requested
Korea to open its market to U.S. goods and services through the U.S. trade remedy
regulations (Section 301 and Special 301 of Trade Act of 1974 and Section 1377 of
Omnibus Trade and Competitiveness Act of 1988) and bilateral agreements. Having
considered trade conflicts between the U.S. and Korea over these objective, our
analysis found that the U.S. gained more when it sought to open Korea (the auto
case) than when it sought to defend its markets against Korea (the semiconductor
case).
1.3. Analytical perspectives
Since the mid-1970s, hegemonic stability theorists have stressed the
importance of the international power structure in international economy relations
(Krasner 1976). They suggest that the power structure is the primary determinant of
conflict outcomes in the international economy. Thus, in bilateral negotiations, a
weaker country is expected to be more responsive during negotiations with its more
powerful counterpart. However, since the 1980s, there is a camp among negotiation
theorists that have studied the relationships and the effects of trade policy between
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24
unequal partners. These theorists have claimed that the predictions of hegemonic
stability theory with regard to conflict outcomes can and should be questioned. They
have shown that the outcomes of the negotiations between weaker and stronger
countries have been influenced by factors other than the international power structure,
such as the trade dependence of a partner country upon the U.S., the U.S. trade
deficit, domestic institutions, and social contexts (Zeng 2002; Gawande and Hansen
1999; Schoppa 1999; Noland 1997; Ryan 1995; Bayard and Elliott 1994; Zartman
1987; Odell 1985). This literature will be reviewed in detail in Chapter II.
This second group of theorists explains the outcomes of trade negotiations in
asymmetrical power relationships as follows. First, macro-economic indicators, such
as trade structure and economy conditions, are significant in their effect upon U.S.
foreign trade policy in relation to weaker countries (Bayard and Elliott 1994; Noland
1997). Secondly, micro-economic conditions also play a major role in determining
the negotiation outcome in unequal trade relationships, but the effect of sector-
specific market conditions was not so much significant in some cases (Ryan 1995;
Odell 1985). Thirdly, domestic political factors are instrumental and have an impact
upon the outcome of unequal trade negotiations (Zeng 2002). Fourthly, there is a
positive effect of the threats from the U.S. side, such as section 301 and sanctions,
upon the implementation of its trade policy (Gawande and Hansen 1999; Bayard and
Elliott 1994; Ryan 1995). Fifthly, negotiation outcomes are also the result of changes
in the social context in trading countries, which represent an important part of what
shapes international coercive bargaining outcomes (Schoppa 1999).
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The literature on unequal trade relationships helps us understand the success
of U.S. trade policy by illuminating its determinants such as economic indicators,
political factors, and social contexts. However, this literature falls short in terms of
its ability to explain our puzzle concerning the outcome of the negotiations between
the U.S. and Korea.
First, we need to examine the outcome of the negotiations between weaker
and stronger countries with respect to both sides, not merely from the perspective of
the stronger country. Much of the literature limits our analysis by focusing on the
U.S. which treating the behavior of its negotiation partners as exogenous. This
approach ignores possible answers which may be derived by looking at the partner
country. Secondly, related to the first criticism to American-centered perspective, to
analyze exactly the factors that affect the outcome of bilateral trade conflicts, we also
need to examine all kinds of trade conflicts as well as one-way market-opening
negotiation cases. Much of the literature mainly focuses on only market-opening
negotiations in unequal trade relationships. In this respect, Odell (1985) is useful to
analyze the outcome of unequal trade relationships, in that he analyzes bilateral trade
by looking at both sides and includes conflicts in the U.S. market as well as in the
Korean market.
Thirdly, the negotiation process itself has a significant impact in international
bilateral trade negotiations and the study of the determinants on the resultant
outcome should be done with reference to the process of negotiation. Furthermore,
negotiation studies need to include explanations of negotiation strategies since
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26
strategy is the most critical factor in the process of negotiation. Fourthly, we need to
consider the sector specific characteristics that are peculiar to each industry, such as
the comparative advantage of an industry, government industrial policy, and the
importance of an industry for the national economy. In practice, the agenda in
bilateral trade conflicts tends to focus on sectoral issues pertaining to particular
industries rather than an overall trade conditions.
1.4. Trade conflicts between the U.S. and Korea as a data set
In this section, we explain the characteristics of trade conflicts between the
U.S. and Korea during the 1980-2000 time period (for the Chronology of Trade
Relations between the U.S. and Korea, 1980-2000, see Appendix B). Table 1.1
shows the frequency of trade conflicts and negotiations between the U.S. and Korea
during the 1980-2000 time period. This paper uses the pooled data set including total
178 observations (Data 1) between the U.S. and Korea during the 1980-2000 time
period. To examine the effect of the negotiation process on outcomes, this paper
divides the pooled data into two different data sets. One contains the 54 negotiation
cases (Data 2) that involved an intergovernmental negotiation process. The other
consists of 124 non-negotiation cases (Data 3) that did not involve an
intergovernmental negotiation. (For the operational definitions of negotiation cases
and non-negotiation cases).
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Table 1.1: The frequency of the trade conflicts and negotiations between the U.S. and Korea,
1980-2000
Year
Total conflicts
(Data 1)
The number of
negotiation cases
(Data 2)
The number of non
negotiation cases
(Data 3)
1979 1 1 0
1980 0 0 0
1981 2 0 2
1982 7 2 5
1983 9 2 7
1984 11 3 8
1985 18 6 12
1986 10 2 8
1987 10 3 7
1988 13 8 5
1989 15 5 10
1990 11 5 6
1991 4 1 3
1992 16 5 11
1993 6 3 3
1994 6 1 5
1995 7 4 3
1996 9 2 7
1997 6 1 5
1998 7 0 7
1999 10 0 10
Total 178 54 124
In terms of the industries targeted, trade conflicts between the U.S. and Korea
during the 1980-2000 time period occurred in several areas (see Table 1.2). First,
trade conflicts concerning import restriction in the U.S. market were mainly focused
on such Korean industries as steel, textiles, semiconductors, chemicals, and
consumer electronics. These disputes were initiated by the U.S. industry and the U.S.
government trying to defend their home market, based on the U.S. trade acts of 1974,
1979,1984, and 1988, which created the legal background for antidumping and
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countervailing duties, safeguard measures, and patent infringement. Secondly, in
order to expand market access in Korea, the U.S. industry and government initiated
bilateral trade disputes in such areas as services, investment, agriculture, and
automobiles. In the cases for opening the Korean market, the U.S. industry had a
comparative advantage in the world market in the year in which the negotiations
were initiated. Since U.S. industries wanted to increase its market share in the
Korean market, it delivered the trade issue to the U.S. government. According to
Ryan (1995), most of the disputes initiated by the USTR against the Pacific countries,
including Korea, Taiwan, and Japan, involved the American industries that were
commercially competitive in the world economy (344). Third, the U.S. industries
close to trade disputes concerning import restriction in the Korean market were
chemicals, agriculture, battery, textile, and stone. In 1987, Korea introduced the
system of trade remedy laws including the investigations of dumping and
countervailing duties, and the Ministry of Trade and Industry created the Korea
Trade Commission (KTC) to investigate these cases. Since then, the KTC has
investigated 17 cases against U.S. industries. Fourthly, the trade disputes for
expanding market access into the U.S. market, which were raised by Korea, were the
textile country-of-origin (1996) and the photo album antidumping annual review
(1989).
On the other hand, when classified on the basis of which country initiated the
negotiations, the U.S. was responsible for initiating 158 cases while Korea initiated
20 (See Table 1.2).
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Table 1.2: The target industries in the trade conflicts between the U.S. and Korea, 1980-2000
Objective of
the initiating
country
Country
that
initiated
Number
of
conflicts
Industry targeted
(number of disputes)
Example cases of
negotiation between the
U.S. and Korea
1. Preserving
protection o f
the U.S.
market
U.S. side 118 Steel and metal (60)
Textile (11)
Semiconductor (10)
Chemicals (9)
Electronics (8)
Others (20)
- Steel pipe (1995)
- MFA (1982, 1986, 1990)
-DRAM (1992)
2. Opening
the Korean
market
U.S. side
* 2
41 Service (14)
Investment (12)
Agriculture (7)
Automobile (2)
Wine (2)
Steel (2)
Footwear (1)
Shipbuilding (1)
- Telecommunication
(1992); Insurance (1988)
- Super 301 (1988); IPR
(1992,1995); DEC(1993)
- Cigarette (1987); Beef
(1992); Meat (1994)
- Automobile (1995,1998)
- Wine (1985, 1988)
- Steel pipe (1995)
- Footwear (1982)
3. Preserving
protection of
the Korean
market
Korean
side
17 Chemicals (7),
Agriculture (5),
Battery (2), textile(2),
stone(l)
- Polyacetal (1990)
4. Opening
the U.S.
market
Korean
side
2 Textile (1)
Album (1)
- Textile country-of-origin
(1996)
- Photo album antidumping
annual review (1985)
Total 178
Sources: 1. Statistics before 1995 were excerpted from Baik and Chung (1998).
2. Antidumping and countervailing statistics (Title VII of Trade Act of 1974) are
supplemented from US Department of Commerce (website: http://ia.ita.doc.gov/)
3. Patent infringement (Section 337, Tariff Act of 1930) and safeguards (Section 201, Trade
Act of 1974): US International Trade Committee (website: http://www.usitc.gov/)
4. Trade enforcement (Section 301and Special 301 of Trade Act of 1974, and Section 1377
of Omnibus Trade and Competitiveness Act of 1988): United States Trade Representatives
(website: http://www.ustr.gov/)
5. Market opening: USTR annual report, Korea’ Ministry of Commerce, Industry and
Energy (http://www.mocie.go.kr), and Korean Trade Commission (http://www.ktc.go.kr).
Note: 1. “Others” include products such as footwear (3), bags (2), pharmaceuticals (2), pianos (1),
bicycles (1), albums (1), batteries (2), and tires (3).
2. The Korean government raised only one case of negotiations for market access
in the Korean cigarette market. In 1995, the Korean government requested the amendment
of “The Memorandum of Understanding” (MOU) about cigarette market access in Korea”
in order to increase the sales tax on cigarettes.
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30
1.5. Hypothesis
I have developed the hypotheses by the inductive approach which is based
comprehensively on the following: the existing analytical perspectives (section 1.3),
the simple tabulations analyzing the characteristics of the trade conflicts between the
U.S. and Korea (section 1.4), and my personal experience as a negotiator for the
Korean government. As a result, this paper suggests the following hypotheses to
explain the nature of the outcomes of the negotiations between the U.S. and Korea.
Hypothesis 1: In a conflict to preserve the protection o f the home market
(initiated by the country trying to protect its own market), its outcome is more
favorable to the country whose industry has a comparative disadvantage.
Hypothesis 2 : In a conflict to open a foreign market (initiated by the country
trying to open a foreign market), its outcome is more favorable to the country whose
industry has a comparative advantage.
In this paper, a comparative advantage refers to the degree to which an
industry can sell its products and services in world markets. The degree of a
comparative advantage is measured by comparing the market shares of the U.S. and
Korean products in the world market for the year in which the negotiation was
initiated. (The details about the operational definitions of a comparative advantage
will be explained in the analytical framework of section 2.4 in Chapter II and in
Appendix C for Chapter III). As we explained in the introduction part of this chapter,
the international trade theory of a comparative advantage says that countries export
goods in which they have a comparative advantage and import goods for which they
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31
have a comparative disadvantage. The traditional trade theory assumes that goods are
produced and exchanged in perfectly competitive markets. However, the world
market is not perfectly competitive. When one country attempts to enter into the
other country’s market, the latter tries to protect its home market. That is, the
objective of a country initiating conflicts is either opening the other market or
increasing the level of the protection of its own home market. Thus, the objectives
with which a country initiates a conflict can be different. Looking at the outcomes of
the conflicts and negotiations between the U.S. and Korea, we wonder whether a
country gained more when its industry that had a comparative disadvantage initiated
a conflict in order to protect its home market (as Hypothesis 1) or when its industry
that had a comparative advantage initiated a conflict in order to open a foreign
market (as Hypothesis 2).
The question of which country initiates a conflict and a negotiation is part of
the negotiation process. We explain the theoretical reasoning of the hypotheses from
the perspective of the initiating country rather than that of the partner country. For
example, if Korea has a comparative advantage, it means that the U.S. has a
comparative disadvantage. If the U.S. initiates a negotiation in order to protect its
home market, it also means that Korea is trying to open the U.S. market from the
perspective of Korea.
< Hypothesis 1 >
In many antidumping cases, a domestic industry that has a comparative
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32
disadvantage is likely to use an antidumping petition in an attempt to raise the barrier
to the entry for the foreign product. For example, American industries such as steel,
semiconductors, electronics, and textiles, which had a comparative disadvantage,
filed the antidumping petition due to a decrease of their market shares. The U.S.
government accepted the complaint from its domestic industry because the price of
the foreign producer was lower while its market share was increasing drastically in
the U.S. market. During the investigation process, in which the intergovernmental
negotiation process with the Korean government was absent, the U.S. government
made a determination that was favorable for the American industry and a higher
dumping margin rate was imposed on the Korean industry.
According to the U.S. antidumping regulations, dumping occurs when a
foreign producer sells a product in the United States at a price that is below that
producer's sales price in the home market or at a price that is lower than the cost of
production. The difference between the price (or cost) in the foreign market and the
price in the U.S. market is called the “dumping margin.”2 8 In practice, a domestic
industry usually uses a trade remedy tool such as an antidumping petition as a barrier
of entry to a foreign product when the foreign producer suddenly and drastically
increases its market share in the home market. For example, a Korean industry that
had a comparative advantage could sell its products at a cheaper price in the U.S.
market while an American industry that had a comparative disadvantage sold at a
relatively higher price in the market. In order to protect its less competitive industry,
2 8 See the manual about an antidumping petition at the U.S. Department of Commerce’s web site
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33
the U.S. government is likely to make a determination favorable for it by imposing a
dumping margin against a competing Korean industry.
< Hypothesis 2 >
We hypothesize that, as a result of the intervention from the initiating
country’s government, that country is likely to gain more when its industry which
has a comparative advantage initiates a conflict in order to open a foreign market.
In the cases involving demands for a greater openness of a foreign market, as
in Section 301 cases, the industry that has a comparative advantage in the world
market tends to pressure the government to open the market of the other country.2 9
Zeng (2002) found that the effect of trade competitiveness which refers to “the extent
to which two countries engage in the production and export of a similar range of
commodities,” on the outcome is significant.3 0 Ryan (1995) predicts that an industry
that has a comparative advantage has the power and strength to influence its own
government to eliminate other countries’ trade barriers in order to expand its market
share in there. On the other hand, the U.S. government is likely to intervene more
strongly when an American industry that has a comparative advantage gets
challenged. Krauss and Reich (1992) argue that “the executive will intervene more
strongly and in specific ways to the extent to which he or she perceives the
challenged U.S. industry to be both high tech and relatively competitive (or home
(http://ia.ita.doc.gov/intro/index.html).
2 9 Zeng 2002; Ryan 1995; Krauss and Reich 1992
3 0 Zeng 2002, 108.
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34
■j'y
market advantage) over the long term.” Thus, as a result of the intervention from
the initiating country’s government, that country is likely to gain more when its
industry which has a comparative advantage initiates a conflict in order to open a
foreign market.
Hypothesis 3: U.S. threats through section 301 and its equivalent are likely to
make a negotiation outcome more favorable fo r the U.S.
The negotiation process consists of the strategies and tactics which
government negotiators and related interest groups or individuals choose with regard
to the negotiation. Included are actions which could affect government negotiators.
Thus, the negotiation process refers to the negotiation strategies or tactics, including
coalitions and retaliation threats. That is, U.S. threats are one of the main factors
determining the outcomes of the negotiation process.
Retaliation threats from the U.S. in its trade negotiations with Korea will
result in Korea’s government being criticized domestically for its failure to maintain
a stable relationship with the U.S. In this respect, threats from the U.S. government,
such as section 301 and its equivalent regulations (section 201, 337, 1337, special
301, and super 301), have been effective and have brought about relatively favorable
outcomes to the U.S.3 3
3 1 Ryan 1995
3 2 Krauss and Reich 1992, 862
3 3 To see the effect of the U.S. threat in detail, Davis (2002); Noland (1997); and Bayard and Elliott
(1994)
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35
1.6. The arguments and methodology
This paper originated with a question about how a weaker country, despite its
limited power in international relations, can gain in bilateral trade negotiations with a
stronger country. It focuses on the reasons for variance in outcomes of bilateral trade
negotiations and the reaction of a weaker country to the demands of a stronger
country. From our statistical and case studies evidence it can be concluded that the
outcomes in trade conflicts between stronger and weaker countries are affected by
the comparative advantage, the objective of the initiating country, and the
negotiation process. A comparative advantage is a factor taken into account by
policymakers when determining whether they should open a market to foreign
competing companies. The objective of a country initiating a conflict is either
preserving the protection of the home market, as in the cases involving antidumping
and countervailing duty actions, or opening a foreign market. In the statistical
analysis and in the case studies, the significant effect of the objective of the initiating
country on the outcome is confirmed. With regard to the negotiation process, in the
statistical analysis we consider which country initiate a conflict or a negotiation and
whether there is a threat from the U.S. as part of the negotiation process. Then, two
case studies do not prove the findings of the statistical analysis. However, if the
negotiation process was different, then its outcome would be also different. Thus, we
suggest that the negotiation process also affects the outcome. That is, we suggest that
the pattern of variation in outcomes is determined by three major sets of variables:
(1) the comparative advantage, which refers to the degree to which an industry can
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36
sell its products and services in world markets, (2) the objective of the country that
initiates a negotiation, whether it is to open the other market or to increase the
protection of its home market, and (3) the negotiation process, including negotiation
strategies or tactics of both countries.
This study seeks to make methodological as well as theoretical and
substantive contributions to the study of international negotiation theory and practice.
Focusing on identifying the explanatory variables that affect the negotiation
outcomes during the complicated process of negotiation, this paper takes two
approaches.3 4 A statistical approach is useful more in assessing the quantifiable
trends for long periods and the general factors that affect the outcomes of
negotiations. To examine the specific process and strategy of negotiations, detailed
case studies are preferred to statistical analysis. Case studies have the potential to
provide insight into the less quantifiable tactics of negotiations and the specific
characteristics of the industrial sectors involved in the negotiations between the U.S.
and Korea. In this respect, this paper needs to integrate statistical and qualitative
research methods.
1.6.1. Statistical analysis
This paper uses the probit regression technique to examine the determinants
of the negotiation outcomes between the U.S. and Korea during the 1980-2000 time
period. For statistical tests, this paper runs a “Pooled Model” using the empirical
3 4 For the research methods to combining quantitative and qualitative analyses, see Lijphart 1971;
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37
cases including a total of 178 observations between the U.S. and Korea. To examine
the effect of the negotiation process on outcomes, the pooled data set is divided into
two different data sets, depending on whether there is an intergovernmental
negotiation process or not, and runs the regressions of a “Negotiation Process
Model” with 54 negotiation observations.
The estimation results confirm our Hypothesis 1 that in a conflict to preserve
the protection of the home market (initiated by the country trying to protect its own
market) its outcome is more favorable to the country whose industry has a
comparative disadvantage. Moreover, the regression test confirms Hypothesis 3 that
the U.S. threats through section 301 and its equivalent increased the concessions
from Korea in trade negotiations and had a positive effect on outcomes on the U.S.
side. Since the U.S. threats are one of the main factors determining the outcomes of
the negotiation process, this finding indicates that the negotiation process affects
significantly the negotiation outcome. Thus, we conclude that the negotiation process
is the cause of that variation in the negotiation outcome.
However, the results reject Hypothesis 2 that in a conflict to open a foreign
market (initiated by the country trying to open a foreign market) its outcome is more
favorable to the country whose industry has a comparative advantage. When the U.S.
tried to open the Korean market, the outcome mostly depended on the degree of the
resistance from Korea. To analyze the specifics of how Korea resisted in its
Ragin 1987; King, Keohane, and Verba 1994; and Odell 2001
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38
negotiation with the U.S., we need to examine case studies, which is done in
Chapters IV and V.
1.6.2. Comparative case studies
In its comparative case studies part, this paper relies on George and
McKeown’s (1985) method of “process tracing” and examines how the negotiation
outcome has transgressed from beginning to end of the negotiation process.3 5 George
and McKeown construct the decision processing as a new variable. For example,
each decision in a sequence, or each set of measurable perceptions by decision-
• i /
makers of others’ actions and intentions, becomes a new variable. The theory that
links initial conditions to outcomes often implies a particular set of motivations or
perceptions on the part of the individual actor. Applying the process tracing method,
we considered the negotiation process as a new variable. In our paper, the
motivations or perceptions of the actor are connected to the strategies and tactics of
the negotiators in the governmental negotiation process. Our statistical analysis finds
that the results were different between the Pooled Model and Negotiation Process
Model (the model with an intergovernmental negotiation process). Complementary
to the statistical approach, case studies describe in detail the processes of trade
3 5 King, Keohane, and Verba (1994: 224-228) exemplify the method of process tracing as one of the
ways to increase the number of our observations by gathering more observations from a single case
study. George and McKeown (1985: 35) refer to this method of process tracing for the first time:
Tracing over time about examining “how various initial conditions are translated into outcomes.”
3 6 King, Keohane, and Verba 1994, 227
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conflicts and negotiations chronologically to ensure that the essential elements
affecting the negotiation outcomes are effective in the process of the negotiation.
1.6.2.1. Case selection
This study examines trade conflicts and negotiations between weaker and
stronger (in terms of their relative power) countries. Power comes in many forms and
has many definitions. What is common among the various concepts of power is that
it is determined by the resources one controls, the relationships one has, the
perceptions one holds.3 7 Korea is a weaker country compared to the U.S., in terms of
resources, military and economic relationships, and general perceptions. Thus, we
select two comparable cases between the U.S. as a stronger country and Korea as a
weaker country from the U.S.-Korea trade conflicts and negotiations during the
1980-2000 time period: the U.S.-Korea automobile case in 1995 and the U.S.-Korea
semiconductor antidumping case in 1993. The outcome of the U.S.-Korea
automobile case is assigned the value of 6, which means that the U.S. gains were
very significant whereas Korea’s losses were significant as well. The outcome of the
U.S.-Korea semiconductor case is assigned the vale of “5”, which means that both
the U.S. gains and Korea’s losses were less significant. Table 1.3 compares the two
cases to explain the negotiation process affecting this variation in outcomes.
With regard to the outcome, we tried to select the most comparable cases in
terms of their outcomes - for example, a case that was the most favorable to the U.S.
3 7 Zartman, Rubin and International Institute for Applied Systems Analysis. 2000; Hart 1976
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(i.e., the outcome with the value of 7) and a case that was the most favorable to
Korea (i.e., the outcome with the value of 1). However, the variation in the outcomes
of the U.S.-Korea conflicts and negotiations was not significant. The U.S.
government continued to win most of market opening and antidumping cases,
although by somewhat lower margins. The U.S. side won 95 cases among 178 cases
of conflicts and negotiations during the 1980-2000 time period (For details, see
Table 3.3 in Chapter III). 68 cases were neutral, which means the both governments
rejected the cases or that their respective industries withdrew them, which meant
there were no agreements. The Korean government won 15 cases during this period.
Specifically, the Korean government won 12 antidumping and safeguards cases in
the Korean market, (i.e., pork cans (1989, outcome takes 2); polyacetal (1990,
■>o
outcome 3); lithium battery (1996, outcome 3); garlic (1999, outcome 2)). In the
negotiation cases, Korea won only three cases such as textile MFA V (1990,
outcome 3), cigarette (1995, outcome 2), and textile country-of-origin (1996,
outcome 3)), each of which reflected its own peculiar reason for Korea’s gains.3 9
Thus, there was a limitation in selecting those cases that had completely comparable
outcomes. In all of the cases, the U.S. gained. However, the extent of these gains
varied.
3 8 Among the 12 cases, 11 cases did not involve into an intergovernmental negotiation process, except
for the case of polyacetal (1990).
3 9 For example, in the textile country-of-origin negotiation in 1996, Korea gained the increase of
apparel quotas as a compensation for the change of the U.S. rules of origin for textile imports. The
outcomes varied because of the technicalities of providing documentation to the U.S. government,
rather than as a result of negotiation.
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In the first case of the U.S.-Korea automobile market-opening negotiation in
1995 (Chapter IV), the U.S. government gained and expanded the market access of
the American automobile industry into Korea. During the negotiation, the Korean
government used a defensive value claiming strategy, including the delay of the
concession until the last moment to leave the U.S. little time for further demands.
Nevertheless, the U.S. government used a stronger offensive value claiming strategy,
by delivering its positions to the Korean government in a much stronger manner
relative to that of Korea’s response. Accordingly, the outcome was much more
favorable to the U.S. On the other hand, in our second case of the semiconductor
antidumping negotiation in 1993 (Chapter V), the U.S. government also gained by
imposing an antidumping duty against the Korean chips. Nevertheless, the Korean
government was able to avoid an even greater loss. In the antidumping case against
the Korean dynamic random access memory (DRAM) companies that was filed by a
U.S. semiconductor maker in April 1992, the U.S. government made a preliminary
determination of rates of the dumping margin which was very high (5.9% - 87.4%),
because the U.S. semiconductor industry opposed strongly to an increase in the
market share of the Korean chips in the U.S. market. However, the Korean
government employed various strategies such as a strategic coalition with the U.S.
computer makers that had used the Korean semiconductor chips. As a result, in the
final determination in May 1993, Korea succeeded in getting margin rates which
were much lower (0.82% - 11.6%) than those contained in the preliminary
determination.
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The selected cases are also comparable in that the initial objectives that the
U.S. pursued were different.4 0 The U.S. objective in the auto case was to open the
Korean market, while the one in the semiconductor case was to increase the
protection of its home market. Much of the literature has examined unequal trade
relationships, mainly focusing on market-opening negotiations 4 1 Thus, the
outcomes of the negotiations were supposed to be favorable to the U.S. However, to
analyze only the negotiations that were initiated by the U.S. for opening the market
of the weaker country is insufficient for explaining the outcomes of bilateral trade
conflicts between stronger and weaker countries.
Moreover, we select the two cases in which the initial comparative advantage
conditions were the opposite of each other. In the first automobile case, the U.S.
automobile industry had a comparative advantage and raised this point initially, and,
eventually, gained in the negotiation with the Korean government. In the
semiconductor case, the U.S. semiconductor industry had a comparative
disadvantage, raised this point initially, and gained. However, the U.S. gains in the
second case were smaller.
4 0 During the 1980-2000 time period, the Korean side initiated 20 cases o f conflicts and negotiations
with the U.S. side (for details, see Table 1.2). During the same period, there were only two negotiation
cases in which the Korean government initiated negotiations with the U.S. government to expand the
access into the U.S. market: photo album case (1985) and textile origin case (1996). In the textile
origin of country compensation negotiation (1996), Korea gained (outcome 3), while in the photo
album negotiation (1985) the U.S. gained (outcome 7).
4 1 Ryan 1995; Bayard and Elliott 1994;
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Table 1.3: Selected cases explaining the negotiation process that affects variations in the
negotiation outcomes
Case
The U.S.-Korea Automobile
Market-opening Negotiation
The U.S.-Korea Semiconductor
Antidumping Negotiation
Period of
conflicts
April 22, 1992-
May 6, 1993
October 14, 1993 -
September 28, 1995
Initiating country The U.S. The U.S.
Objectives o f the
initiating country
To open a foreign market. To preserve the protection of
home market.
Target market Korean market U.S. market
Characteristics o f
conflict
Market opening Antidumping investigation
U.S. legal basis Title VII o f Trade Act of 1974 Section 301 o f Trade Act of !974
Comparative
advantage
The U.S. industry had a
comparative advantage.
The Korean industry had a
comparative advantage.
U.S. strategy 1) Offensive value-claiming
strategy
2) Credible threat (the retaliation
tariff by Super 301).
3) Coalition with European
countries
1) Offensive value-claiming
strategy
2) Credible threat (the imposition
of an antidumping duty).
Korea’s strategy 1) Defensive value-claiming
strategy
2) Delay of the concession until the
last minute
1) Value-creating strategy
2) Coalition with the U.S.
semiconductor consumers and
associations
Power The U.S. was a stronger country
(Korea was a weaker country)
The U.S. was a stronger country
(Korea was a weaker country)
Administration 1) U.S. President:
Bush (Jan 1989 - Jan 1993)/
Clinton (Jan 1993 - Jan 2001)
2) Korean President:
Noh, Taewoo (Feb 1988 - Feb
1993)/
Kim, Youngsam (Feb 1993 - Feb
1998)
1) U.S. President:
Clinton (Jan 1993 - Jan 2001)
2) Korean President:
Kim, Youngsam (Feb 1993 - Feb
1998)
Negotiation
outcome
The value of “6” (more favorable
to the U.S.)
- Long-lasting conflict
- Tax and tariff reduction
- Liberalization of car import
related procedures.
The value of “5” (favorable to the
U.S., but Korea lost slightly.)
- Final dumping margin rates
(0.82-11.16%) were much lower
from those (5.9-87.4%) in the
preliminary determination.
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1.6.2.2. Overcoming validity threats
It would be hard to find perfectly comparable cases to in the social sciences.4 2
Furthermore, as Odell (2001: 171-173) points out, comparative case methods entail
several inherent disadvantages such as few atypical cases, ambiguous
representativeness, and lesser precision in claims about magnitudes of causal effects
and about the relative importance of different causes. This paper also has several
validity threats. First possible threat to validity would be posed by a counterargument
that the political change affected the negotiation outcomes. This paper assumes that
political situations are constant during the negotiation process. For example, the
party politics, advanced by Pastor (1980), can provide an alternative explanation.4 3
In the U.S., protectionism in general was regularly supported by the Republican
Party while the Democrats traditionally opposed protectionist measures. To
overcome this limitation, the cases have been drawn from a relatively focused time
period. The two industries shown in our case studies were engaged in negotiations
during the early 1990s under political situations which were as similar as possible
(see Table 1.3). The outcomes of the trade conflicts concerning automobiles and
semiconductors were determined under the same governments in both countries, the
Clinton Administration in the U.S. (January 1993 - January 2001) and the Kim
Youngsam Administration in Korea (February 1993 - February 1998).
4 2 Lijphart 1971,688
4 3 For the party politics, see Eichengreen 2000; Magee, Brock and Young 1989; Pastor 1980. Magee,
Brock, and Young (1989) argue that trade policy may change with changes in government. Noland
(1997) also hypothesizes that the determinants of a trade conflict may have changed over time. That is,
he questions whether changes in administration mark regime changes or whether the estimated
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The second threat may be a selection bias coming from a small number of
cases.4 4 We selected two trade negotiation cases concerning automobiles and
semiconductors in the early-1990s. Automobiles and semiconductors are important
industries to which any government pays a significant attention. With regard to the
significance of the two industries in the world market, a U.S. Congress report (1991)
exemplified Korea as a new country competing with the U.S. and the automobile and
semiconductor industries as emerging industries in Korea.4 5 The report says, “Korea
has developed and maintained competitiveness in a diverse array of products ranging
from technologically simple to complex” (302). The Korean automobile industry is
highly concentrated and both capital- and technology-intensive with significant
economies of scale. The Korean semiconductor industry has achieved the capability
to fabricate state-of-the-art semiconductor devices, which is highly capital-intensive.
Thus, the case selection of the automobile and semiconductor industries seems to
lessen the threat of a selection bias.
Thirdly, omitting other variables affecting the negotiation outcomes would
pose another threat to the validity of the study.4 6 To reduce the threat, we present
several possible remedies. In our statistical analysis, we attempt to examine available
variables affecting the negotiation outcomes, such as unemployment rate and trade
balance. In the case studies, we describe in detail the specific process of practical
coefficients are stable across presidencies. However, he didn’t find that a change o f an administration
on U.S. trade policy was significant.
4 4 Maxwell 1996;King, Keohane and Verba 1994
4 5 U.S. Congress 1991
4 6 King, Keohane, and Verba 1994, 176-182
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46
negotiations, highlighting factors such as domestic interest groups. The process
tracing method will help us to incorporate the characteristics of each specific
industry by analyzing in detail the relations between independent and dependent
variables.
1.7. The organization of this paper
Chapter II discusses alternative explanations of unequal trade relationships.
We show what has already been said regarding our interest in trade negotiation
outcomes and discuss how they differ from our contribution and why our analysis is
needed. Our review of the existing literature is limited to the arguments that attempt
to explain the outcome of conflicts and negotiations between unequal trade partners.
Although many scholars study outcomes of asymmetrical trade negotiation, they
focus solely on gains or losses from the U.S. perspective, treating the factors of the
partner country’s behavior as exogenous and not considering either the
responsiveness or the strategy of that country. In addition, few scholars consider both
sets of conflicts; trade conflicts initiated by the weaker country as well as one-way
market-opening conflicts initiated by the stronger country. In the next three chapters,
therefore, we will examine empirically the trade conflicts in practice between the
U.S. and Korea during the 1980-2000 time period. The analysis is organized into two
parts.
The second section of this discussion, including Chapter III, provides
quantitative evidence of negotiation outcomes, a domestic comparative advantage,
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47
the objective of the initiating country, and the negotiation process. Chapter III, a
statistical and empirical chapter, describes the general trends of outcomes of the
U.S.-Korea bilateral trade conflicts over the twenty years since 1980. It presents a
statistical analysis of the comparative advantage and at the initial objectives of the
initiating government during the period. For this, the chapter runs two different
probit regression models: the Pooled Model (the model with total 178 observations
of conflicts and negotiations) and the Negotiation Process Model (the model with 54
negotiation cases). This paper argues that the outcomes of bilateral trade conflicts
and negotiations between stronger and weaker countries are shaped by the
comparative advantage, the objectives of the initiating country, and the negotiation
process. The presence of the effect of the comparative advantage, the objectives of
the initiating country, and the negotiation process on the outcomes of the trade
conflicts is confirmed in the statistical analysis in Chapter III. Furthermore, the
significance of the negotiation process, including negotiation strategy and tactics,
will be investigated in the comparative case studies in Chapter IV and Chapter V.
The third part of this paper, including Chapter IV and V, carries out the
qualitative study with two comparative cases. The case studies confirm the findings
in the statistical analysis and, furthermore, examine the influence of the negotiation
process on the difference in the outcomes - greater gains in some cases and small
gains in others. Chapter IV deals with the U.S.-Korea automobile market-opening
negotiation cases (1995). In the automobile negotiation, the U.S. government gained,
as could be generally expected. The U.S. gained through the negotiation process
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48
which included threats and coalition strategies. Korea reacted to the demands from
the U.S. by using a strategy including the delay of its concessions. Chapter V
demonstrates the case in which the U.S. gained but Korea avoided even a greater loss
- the U.S.-Korea semiconductor negotiation case (1993).
The fourth section of this paper concludes by discussing the implications of
the findings for the study of the negotiation outcome between unequal trade partners.
Chapter VI summarizes the reasons for variance in the outcomes of the negotiations
between stronger and weaker countries. Then, it shows what contribution our study
makes to the existing literature on unequal trade relationships. In the last section, we
suggest several possible ways for future research. The objective of this research
should combine practical experience and theoretical frameworks. Furthermore, we
have some recommendation concerning how to make trade relationships between
stronger and weaker countries move constructive in the twenty-first century. To get
mutual gains, as we progress simultaneously into a multilateral trade system and a
bilateral free trade system we need to create and share new markets through sound
and fair competition.
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Chapter II: Literature Review and Analytical Framework
49
This chapter aims to review what has already been said on trade negotiation
outcomes critically and to develop an analytical framework for understanding the
unequal trade relations between stronger and weaker countries. This paper originates
with a question about how a weaker country can gain in bilateral trade negotiations
with a stronger country despite their unequal relationship. Thus, it focuses on the
reasons for variance in the outcomes of bilateral trade conflicts and negotiations and
the reaction of a weaker country to the demands of a stronger country.
Some studies on the unequal trade relationships which exist between weaker
and stronger countries have shown that outcomes are mainly affected by explanatory
variables such as economic conditions, domestic politics, international rule, or social
contexts, rather than the international power structure (Zeng 2002; Schoppa 1999;
Ryan 1995; Bayard and Elliott 1994; Zartman 1987; Odell 1985). However, much of
the literature has the limitation to focus solely on gains or losses from the U.S.
perspective. That is, it treats the factors of the partner country’s behavior as
exogenous, not considering either the responsiveness or the strategy of that country.
The literature also pays little attention to the intergovernmental negotiation process
in practice. Bilateral trade negotiations are the product of interaction between two
countries. Even when one country raises just an agenda, the other country should
consider numerous factors, including the international political situation, domestic
politics, and economic condition, as well as the social context. In the following
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50
section, this paper reviews the existing literature on unequal trade relationships
between weaker and stronger countries, and presents what the literature specifically
falls short of to answer our puzzle about the negotiation outcomes and, then, what
contexts this paper includes. Then, this paper examines how the alternative
explanations such as the realist paradigm and domestic politics can be feasible to my
puzzle. In common, these theories on international negotiation pay little attention to
the negotiation process. Thus, most of these theories need to be modified to more
comprehensive and analytical model including the negotiation process. In order to
explain the interaction of a weaker country with a stronger country in bilateral trade
negotiation, this study develops a comprehensive and analytical model focusing on
the dynamics of the objectives of the initiating country and the negotiation process.
2.1. Existing literature on the negotiation outcomes in unequal trade relationship
Since the mid-1970s, hegemonic stability theorists have stressed the
importance of the international power structure in international economy relations
(Krasner 1976). They suggest that the power structure is the primary determinant of
conflict outcomes in the international economy. Thus, in bilateral negotiations, a
weaker country will always be more responsive to negotiations with its more
powerful counterpart. However, since the 1980s, there is a camp among negotiation
theorists that have studied the relationships and the effects of trade policy between
unequal partners. These theorists have claimed that the predictions of hegemonic
stability theory with regard to conflict outcomes are ambiguous. They have shown
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51
that the outcomes of the negotiations between weaker and stronger countries have
been influenced by factors other than the international power structure, such as the
trade dependence of a partner country upon the U.S., the U.S. trade deficit, domestic
institutions, and social contexts (Zeng 2002; Gawande and Hansen 1999; Schoppa
1999; Noland 1997; Ryan 1995; Bayard and Elliott 1994; Zartman 1987; Odell
1985).1
Several points of this second group of theorists must be made explicit. First,
macro economic indicators, such as trade structure and economy conditions, are
significant in their effect upon U.S. foreign trade policy in its negotiations with
weaker countries. Bayard and Elliott (1994) examine the conditions in which they
have been a success or a failure, based on an analysis of all 72 section 301 cases in
the period of 1975-1994. And, they study in detail a selection of fifteen cases where
section 301 laws were implemented. They argue that the success of the U.S. section
301 implementation depends on such factors as the trade dependence of the target
country on the U.S. market, the size of the U.S. trade deficit, and the degree of
transparency of the targeted trade barrier. For example, they use the probit regression
technique to test the significance of several variables, based on the results of the
broad survey of section 301 cases. The regression results suggest that “a successful
outcome is more likely the more dependent the target country is on the U.S. market,
the larger the U.S. bilateral deficit with the target is, and the more transparent the
targeted trade barrier is” (86). Noland (1997) questions what issues get the attention
1 For recent literature about asymmetry in international negotiations, see Zartman and Rubin. 2000;
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52
of the US bilateral export and investment policymakers, i.e. the USTR and, once an
issue is on the agenda, what determines whether the USTR proceeds with formal
action. Based on data during the 1984-1994 time period, he argues, the U.S. Trade
Representative paid attention to countries with large bilateral trade surpluses with the
U.S., and to those with larger and faster-growing economies. Also, he finds that the
U.S. actually took greater action toward those whose identifiable barriers were high.
As a result, Japan was the target of a greater than expected number of trade actions.
And, he argues that the U.S. achieved greater change in countries whose economies
were more dependent on the U.S. market and on issues covered by international
rules.
Second, micro economic conditions also play a major role in determining the
negotiation outcome in unequal trade relationships, but the effect of the sector-
specific market conditions is not so much significant in some cases. Ryan (1995)
focuses on which issues the American government chooses to pursue the U.S. trade
policy by section 301 in the bilateral trade negotiations with the Pacific countries
such as Japan, Korea, and Taiwan. He examines the data of completed Section 301
investigations against those countries, which were carried out by USTR between
1974 and 1989. He finds that “there are decision rules to 301 implementation, that
301 implementation is neither a random exercise in American trade power nor a
prisoner of big interest groups” (334). Rather, he argues that two explanatory
variables - the commercial competitiveness of the complaining industry and GATT
Pfetsch and Landau 2000; Clark, Duchesne and Meunier 2000; Singh 2000
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53
regime utility - explain the implementation of 301 in the Pacific. According to his
model, the USTR has most often initiated 301 negotiations against Korean, Japanese,
or Taiwanese trade barriers when negotiations involved a commercially competitive
industry as well as a GATT regime utility. On the other hand, Odell (1985) analyzes
the effect of sectoral market conditions through 13 significant commercial disputes
occurred between the U.S. and Korea during the 1960-1981 time period. He
hypothesizes that international trade disputes germinate in the economic conditions
of particular sectors. That is, he puzzles that the greater the penetration of imports
into a market, the greater will be the chance of an interstate dispute over access to
that home market. However, he finds that the idea contributes little in general in the
interpretation of these U.S.-Korea outcomes (283).
Third, domestic political factors are instrumental and have an impact upon
the outcome of unequal trade negotiations. Zeng (2002) has developed a modified
two-level game model for understanding the conditions under which domestic
interests and institutions support the use of aggressive negotiation tactics. That is, he
examines how the trade structure among nations (specially, whether the parties
involved have a complementary or competitive trade relationship) systematically
affects the likelihood that threats will be ratified by domestic interest groups and
government institutions in the sender of threats. He uses a probit regression model,
based on the universe of Section 301 cases concluded between 1975 and 1995. He
argues that a system-level variable, the structure of trade, systematically affects
threat effectiveness by influencing both the level of unity among domestic interest
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54
groups and the degree of divided government in the sender of threats, the U.S.
America’s sanction threats enjoy more unified domestic support and hence are more
credible when the dispute involves a country having a competitive trade relationship
with the U.S. (such as Japan, Canada, and the European Union) rather than one
having a complementary trade relationship with the U.S. (such as China, India, and
Brazil). He argues that the degree of trade competitiveness serves to explain the
effectiveness of America’s trade policy by determining the extent to which domestic
interests and institutions are united in support of sanction threats. Then, he argues
that the U.S. find it more difficult to extract concessions from its complementary,
rather than competitive, trading partners due to the greater degree of domestic
division in the former than in the latter. Bayard and Elliott (1994) acknowledge that
the U.S. section 301 laws were the result of domestic political compromises, and
argue that political factors within the target country also affect the outcome. For
example, the existence of pro-liberalization constituency inside in the target country
increases the likelihood of success, as in Korea. According to them, “in Korea,
support for liberalization, outside of the technocratic elite that negotiated the
agreement in 1989 to avoid super 301 designation, was both narrow and shallow, and
it quickly collapsed when economic conditions soured in 1990” (94). On the other
hand, Noland (1997) analyzes whether elections matter to trade policy in the
implementation of the U.S. unilateral trade actions for 1984-1994. In his analysis,
although it might appear obvious that elections matter (386), some have argued that
incumbents and lobbyists will behave the same way regardless of which party is in
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55
power, yielding a unique equilibrium set of policies. He suggests that behavior is
invariant across administrations. He concludes that statistically the behavior of the
first Clinton administration was indistinguishable from that of its predecessor.
Fourth, there is a positive effect of the threats from the U.S. side, such as
section 301 and sanction, upon the implementation of its trade policy. Gawande and
Hansen (1999) focus on the subject of retaliation. They question how effective
strategically retaliatory trade barriers are in deterring foreign protectionism. To test
this, they use bilateral nontariff barrier (NTS) data between the U.S. and five
developed partner countries such as Japan, France, Germany, Italy, and England to
systematically examine the effectiveness of strategic retaliation. They use a
simultaneous Tobit model where the home and foreign NTB levels are determined
endogenously in a bilateral game. They argue that retaliation with any kind of
nontariff barrier (NTB) has the potential to lower the EC’s barriers, but only a
quantitative NTB will create the same effects in the case of Japan. Also, they argue
that the effects of retaliating against Japan and EC4 are different - the U.S.-Japan
NTB games are noncooperatively played, whereas US-EC games are more like
bargaining games. And, they find that the effects of retaliating are clearly different
not only among industry groups, but also heterogeneity within the same industry
group across partner countries. Bayard and Elliott (1994) view the success of section
301 as the effect of a public or explicit threat. They argue that the success of the
threat of sanctions by section 301 of the Trade of Act of 1974 depends on several
factors such as the trade dependence of the target country on the U.S. market, the
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56
size of the U.S. trade deficit, the transparency of the trade policy of the target
country. For example, they argue that the greater the transparency of the policies in
question, the greater the likelihood that threats would work. Ryan (1995) emphasizes
the effect of retaliation threats based on GATT rule violation as one of the major
factors for the implementation of the 301 policy by the U.S. in the Pacific. According
to his model, the USTR has most often initiated 301 negotiations against Korean,
Japanese, or Taiwanese trade barriers when negotiations involved a commercially
competitive industry as well as a GATT regime utility.
Fifth, negotiation outcomes are also the result of changes in the social context
in trading countries, which represent an important part of what shapes international
coercive bargaining outcomes. Schoppa (1999) places particular emphasis on social
contexts such as the reputation of a nation, procedural norms, and mutual trust. He
examines the U.S.-Japan economic bargaining outcomes over the period of 1977-
1996. He focuses on when and how the social context affects coercive bargaining
outcomes. Through this analysis, he stresses that the social context represents an
important part of what shapes international coercive bargaining outcomes. In other
words, he concludes that coercive tactics should yield less of a backlash and more
concessions, (1) when they take hierarchy and when the specific tactics employed
fall within the range that are accepted as legitimate in the terms of this relationship;
(2) when the coercion takes place within an institutionalized process that establishes
mutually accepted rules of the game; and (3) when the parties trust each other (308).
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57
2.2, The existing literature’s inadequacies
The literature on unequal trade relationships helps us understand the success
of U.S. trade policy by illuminating its determinants such as economic indicators,
political factors, and social contexts. However, the literature falls short of the
following points to explain the outcome of negotiations between the U.S. and Korea.
First, we need to examine the outcome of the negotiations between weaker
and stronger countries with respect to both sides, not merely the perspective of the
stronger country. Much of the literature fails to explain negotiation outcomes in
terms of the weaker country’s goals (Zeng 2002; Gawande & Hansen 1999; Noland
1997; Bayard & Elliott 1994). The literature takes its position so close to the edge
sometimes that it focuses only on the negotiation outcomes and its determinants from
American perspectives. It does not attempt to objectively understand and explain the
trade relations between the U.S. and its partner country. Focusing on the policy goals
of the stronger country is plausible, in the results of U.S. pressure on the target
country are dependent upon the nature of U.S. demands and its foreign trade policy
(Schoppa 1999: 326). However, it limits our analysis to examine only those factors
from the perspective of the U.S., for the partner country’s behavior is treated as
exogenous. In fact, the U.S. seems more disposed to unilateralism, based on its
internal political considerations than other country.
This kind of explanation ignores possible answers from the side of the partner
country. For example, it does not raise certain questions about the politics and
economics within the partner country. Why couldn’t the partner country help making
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58
these particular concessions at that time? Are there any variations in domestic
political situations and market conditions in the partner country? After examining the
outcome of Super 301 negotiation between the U.S. and Korea agreed in April 1989,
Bayard and Elliott (1994) notice that although the U.S. negotiators did get a political
victory from Korea at a crucial time, little actual market opening was gained as a
result of these agreements. They say that Korea does appear to be genuinely
interested in liberalization, after the country “realizes that it can no longer compete
on the basis of cheap wages and that it needs foreign investment and technology if it
is to stay competitive internationally” (186). In other words, the threats arising from
U.S. trade policy may not influence the real effect of an altered trade policy of a
target country unless the country recognizes the necessity of U.S. demands for its
own reasons. The point is that bilateral negotiations are the product of interaction
between two countries.
Second, related to the first criterion of an American-centered perspective, to
analyze exactly the factors that affect the outcome in bilateral trade conflicts we also
need to examine all kinds of trade conflicts as well as one-way market-opening
negotiation cases. Much of the literature mainly focuses on only market-opening
negotiations in unequal trade relationships (Noland 1997; Ryan 1995; Bayard &
Elliott 1994). This model is too simple to explain the whole story of the negotiation
outcomes in unequal trade relationships. For instance, Bayard & Elliott analyze the
conditions in which the U.S. trade policy has been a success or a failure, based on an
analysis of all Section 301 cases pursed between 1975 and 1993. Their analysis
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59
results show the political and economic contexts of the U.S. aggressive unilateralism,
the term originally coined by Bhagwati (1990), including market-opening
negotiations. Ryan examines the U.S. trade policy experience during the 1974-1989
time period, focusing on forty cases in which the USTR pursued market-opening
negotiations with Japan, Korea, and Taiwan.
However, as shown in my statistical analysis, one contribution of this paper is
to analyze the negotiation outcomes in unequal trade relationship from the
perspective of the negotiation objective of the initiating country, which means
whether it is to preserve the protection of its home market or to open a foreign
market. Having considered trade conflicts between the U.S. and Korea over such
objectives, our analysis found some results in the non-negotiation cases which are
different from those in the negotiation cases. That is, in the non-negotiation cases,
comparative advantage affected the outcomes of the conflicts, while in the
negotiation cases the negotiation process had more influence on outcomes than
comparative advantage condition. In this respect, Odell (1985) is useful in analyzing
the outcome of unequal trade relationships, in that he analyzes bilateral trade
conflicts through both sides including conflicts in the U.S. market as well as in the
Korean market.
Third, the negotiation process itself has a significant impact in international
bilateral trade negotiations and the study of the determinants on the resultant
outcome should be done with reference to the process of negotiation. In this paper,
the negotiation process refers to which strategies and tactics government negotiators
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60
and related interest groups or individuals choose in relation to the negotiation. The
negotiation process includes what domestic interest groups or individuals related to
the negotiation do in relation to the negation and its effect on government negotiators.
A set of literature attempts to locate the determinants that affect outcome via
quantitative methods (Zeng 2002; Gawanda and Hansen 1999; Noland 1997).
Although being useful to identify the general trend of related variables in the long
term, it shies away from explanations in terms of the negotiation process. Another set
of literature, on the other hand, employs the qualitative method and does attempt to
explain negotiations based on the negotiation process itself (Schoppa 1999; Ryan
1995; Krauss and Reich 1992; Zartman 1987). However, the lack of depth in each
case study does not deal with enough the effect of the negotiation process. To bridge
the gap between these two opposing literatures, a third set has integrated both
statistical analysis and case studies (Bayard and Elliott 1994; Odell 1985).
Furthermore, negotiation studies need to include explanations of negotiation
'y
strategy, since the strategy is the most critical factor in the process of negotiation. In
practice, the outcome of the negotiation decisively depends on the employed strategy.
According to Odell’s (2000), “strategy” is defined as “a set of behaviors that are
observable, at least in principle, and associated with a plan to achieve some object
through bargaining” (31). In the book, he puts an emphasis on the division between
negotiating strategies that are “value claiming” verses “value creating”. Thus, with
regard to the importance of negotiation strategy or tactics, he suggests that a
2 For details, see Section 1.2 (definitions and assumptions) in Chapter I.
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61
pragmatic approach, typically involving a mix of the two strategies, often moves the
outcome closer to the ideal than an approach employing only one strategy. In
addition, the negotiation outcome would be measured differently depending on
whether it assumes zero-sum or positive-sum. For example, Bayard and Elliott argue
that through the utilization of its distributive strategy, the U.S. could gain more with
some countries and less with others. The outcomes in their analysis assume zero-sum
conflicts. On the country, Zartman (1987) argues that when agreement was reached
in the North and South negotiations, at least one party devised an alternative that was
better for both sides than the status quo. That is, his analysis on the negotiation
between the North and South is bases on a positive-sum process.
Fourth, we need to consider the sector specific characteristics that are
peculiar to each industry, such as the trade balance of the industry, the comparative
advantage of the industry, government industrial policy, and the importance of the
industry in national economy. In practice, the agenda in bilateral trade conflicts tend
to be on sectoral issues pertaining to particular industries rather than on overall trade
conditions. Nevertheless, the bulk of trade negotiation theories do not focus on the
particular characteristics of each industry, but merely stress the total trade balance
and the dependence on the market of other countries in relation to negotiated
outcome (Schoppa 1999; Noland 1997; Bayard & Elliott 1994). In this regard, Ryan
(1995), Krauss and Reich (1992), and Odell (1985) provide a means to identify the
characteristics of particular industries. Ryan analyzes the sector specific evidences of
the 301 investigation cases with the Pacific countries such as Korea, Japan, and
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62
Taiwan in the period of 1974-1989; Krauss and Reich also analyze the U.S.-Japanese
trade cases by degree of competitiveness and type of technology (high tech versus
non-high tech); and Odell examines thirteen significant trade conflicts cases between
the U.S. and Korea from 1960 to 1981, on a sectoral basis.
2.3. Alternative explanations
2.3.1. The realist paradigm and the negotiation outcome
Since the mid-1970s, hegemonic stability theorists, one group of realists,
have stressed the importance of the international power structure in international
economic relations (Kindleberger 1973; Krasner 1976; McKeown 1983). They
suggest that the distribution of power resources in the international system
determine the outcomes of international conflict. As far as international trade
negotiation is concerned, these realists assert that international negotiation outcomes
depend on the relative power resources of the parties involved in a conflict. This
systemic approach is based on the assumption that the state is a unitary actor in
international relations. Consequently, the concentration of power resources in a
hegemonic state should make national economy both more stable and more open.
This argument leads to the prediction that in bilateral negotiations, a weaker country
should readily yield to the demands of the hegemon.
However, the realist system-based paradigm has the following weaknesses.
First, as liberals have pointed out (Mansfield and Pevehouse 2000; Oneal and Russet
1997), the increase of international economic interdependence restrains the use and
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63
dominance of the international power resources and lessens the probability of
conflict among nations. The study of Oneal and Russet (1997) supports this
argument. By using pooled-regression analyses of the politically relevant dyads for
the Cold War, they confirm the liberals’ claim that economic interdependence, as
well as democracy, should reduce the incidence of interstate conflict. Also, new
institutionalists and international regime theorists suggest that states are constrained
by international institutions (Keohane and Nye 1977). By pointing out that
cooperation based on common interests requires more than a simple recognition of
those interests, Keohane stresses the importance of rules that govern patterns of
international exchange. This means that weaker states can often win in an
international trade war because of such factors as economic interdependence or the
international trade rules established by the international trade regimes such as WTO
and IMF.
Secondly, the realist paradigm is criticized for failing to give proper attention
to domestic politics. Realism assumes that the state has stable and broadly similar
domestic preferences, decision-making procedures, and abilities to extract resources
from society and deduces its strategic behavior from its position in the international
power structure. However, Milner (1997) emphasizes the significance of domestic
politics matters since different groups within the state have different policy
preference due to the fact that the impact of government policies on them is not the
same (16). The third and the most important weakness of the realist paradigm lies in
its inadequate attention to the process of negotiations formulating national interests
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64
as well as to the strategies to pursue them. That is, realism ignores the intervening
variables of domestic politics and of negotiation strategy or tactics of government
negotiators.
Since the 1980s, many negotiation scholars have studied trade relations
between unequal partners. As explained in section 2.2, they have claimed that the
predictions of hegemonic stability theory with regard to conflict outcomes are far
from being satisfactorily accurate. They have also looked at cases of asymmetrical
negotiation to demonstrate how the outcomes of the negotiations between weaker
and stronger countries have been influenced by factors other than the international
power structure, such as the trade dependence of a partner country upon the U.S., the
U.S. trade deficit, domestic institutions, and social contexts.
The results of the two case studies in the chapters IV and V also show that
the validity of the argument of realists that the power structure is the primary
determinant of conflict outcomes in the international economy can and should be
questioned. Realists argue that a stronger country usually presses a weaker country
into opening its domestic market.3 Then, the weaker country makes concessions to
the demands of the stronger country, and, consequently, allows a greater foreign
penetration of its market. That is, realists insist that a negotiation outcome is always
favorable for a stronger country, regardless of its specific objective.
3 Schoppa 1997, 1
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65
In the first case of the U.S.-Korea automobile market-opening negotiation in
1995 (Chapter IV), the U.S. government gained by expanding market access of the
American industry, as could be generally expected by realists. During the
negotiation, the Korean government used a defensive value claiming strategy,
including the delay of the concession until the last moment in order to leave the U.S.
little time for further demands. Nevertheless, the U.S. government used a stronger
offensive value claiming strategy, which meant that the strength of its pressure was
greater than that of Korea’s reaction. Accordingly, the outcome was much more
favorable to the U.S., which confirmed the realist argument. On the other hand, in
the second case of the semiconductor antidumping negotiation in 1993 (Chapter V),
the U.S. government also gained by imposing an antidumping duty against the
Korean semiconductor microchips. Nevertheless, the Korean government was able
to avoid an even greater loss. In the antidumping case against the Korean dynamic
random access memory (DRAM) companies, which was filed by a U.S.
semiconductor maker in April 1992, the U.S. preliminary determination of dumping
margin was very high (5.9% - 87.4%). Because the U.S. semiconductor industry
opposed strongly the increase of the market share of the Korean microchips in the
U.S. market, realists would be expected to argue that the U.S. government was going,
at the very least, to their high rates in the final ruling. However, the Korean
government had employed varied strategies such as a strategic coalition with the U.S.
computer makers that had been using the Korean semiconductor microchips. As a
result, in the final determination in May 1993, the Korean industry succeeded in
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66
getting the margin rates (0.82% - 11.6%) which were much lower than those in the
preliminary determination.
Statistical results demonstrate that power balances between states do not fully
explain the nature of U.S.-Korea trade conflicts. Table 2.1 demonstrates the
categorization of these trade conflicts by negotiation outcome between the U.S. and
Korea during the 1980-2000 time period, which is discussed in detail in the
statistical analysis. The points of the outcome are scored by the gains or losses of
two countries in relation to the value of the status quo prior to bargaining, such as
trade volume and the tariff and nontariff measures that the target country was taking
in some base period prior to bargaining. In other words, the outcomes are classified
into seven categories: those which are favorable to the U.S. (categories 5, 6, and 7),
those which are favorable to Korea (categories 1, 2, and 3), and those which are
neutral (category 4). Among the 178 trade conflicts between the U.S. and Korea for
1980-2000, the proportion of those whose conflict outcome (outcomes 1, 2, or 3)
was favorable to Korea was 8.4% (15 cases). Even in the 54 cases of conflicts with
the intergovernmental negotiation process, the proportion of the outcomes which
were favorable to Korea was 7.5% (4 cases).
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Table 2.1: The frequency o f the U.S.-Korea trade conflicts by ranking, 1980-2000
Outcome 1 2 3 4 5 6 7 Total
Number of 0 8 7 68 53 33 9 178
trade conflicts (0)
(1) (3) (9) (21) (17) (3) (54)
Percentage 0 4.5 3.9 38.2 29.8 18.5 5.1 100
from total (%) (0) (1.9) (5.6) (16.7) (38.9) (31.5) (5.6) (100)
Note: ( ) refers to the number and probability of conflicts with the intergovernmental negotiation
process.
2.3.2. The domestic politics approach and the negotiation outcome
Much of the existing literature explains the variation in the outcome through
domestic politics or two-level game approach (Putnam 1988; Cowhey 1993; Milner
and Yoffie 1989; Milner 1997). These authors argue that domestic politics is a
significant factor in analyzing and predicting the outcomes of negotiations between
weaker and stronger countries. The literature on domestic politics in international
trade negotiations mainly focuses on the factors such as domestic political institution,
actors’ interests, macro economic situations, and trade policy.4 However, the
systemic approaches such as Neorealism and Neoliberalism in international relations
theory assume that the state is a unitary and rational actor, which constitutes one of
its major weaknesses.
Domestic politics theory also does not fully explain the variation in the
outcomes of the negotiations between stronger and weaker countries. First, domestic
politics is not the only thing that is needed to understand the outcomes. To fully
4 Helen Milner (1997:11) views the three factors as decisive ones in defining a state’s placement in
domestic politics: (1) the policy preferences of domestic actors, (2) the institutions for power sharing
among them, and (3) the distribution of information among them. Among them, domestic actors
consist of three sets of actors, such as an executive, a legislature, and societal interest groups.
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68
understand the outcome of bilateral trade conflicts, we must understand the
negotiation process. Domestic politics theorists suppose that negotiators’ actions and
strategy are dependent only on domestic politics and disregard their ability to
influence domestic politics (Putnam 1988; Cowhey 1993; Milner and Yoffie 1989).
For instance, although domestic political institutions are important, the variable of
institution in the process of the negotiation is highly resistant to change. Second,
contrary to systemic approaches, domestic politics approach pays little attention to
such external factors as the threat from a stronger country. As is often pointed out in
the literature (Schoppa 1997; Odell 2000; Noland 1997; Bayard and Elliott 1994), in
the bilateral trade negotiations between stronger and weaker countries, threat
effectiveness from a stronger country does exist. In the cases of the U.S.-Korea
automobile market-opening negotiation in 1995, the retaliation threats by Section
301 of the U.S. Trade Act of 1974 by the U.S. government has a significant impact
on the negotiation outcome.
2.3.3. Existing literature about U.S.-Korea trade conflicts
This paper argues that the pattern of variation in the negotiation outcomes
between the U.S. and Korea can be explained by the interaction between the
objective of the initiating country and the negotiation process. This argument can be
compared with the existing literature on U.S.-Korea trade negotiations. To explore
the validity of power theories of international political economy, Odell (1985)
examines the outcomes of significant commercial conflicts which occurred between
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69
the U.S. and Korea during the 1960-1981 time period. He investigates 13 conflict
cases, in each which the value of trade at stake was more than US$ 50 million during
the year prior to the outcome, such as textiles and apparel (1963, 1965, 1967, 1972,
1974,1977,1979,1980, and 1981), footwear (1976,1977), and color TV receivers
(1979, 1980). His study confirms that the international power theory was valid in the
case of trade conflicts between the U.S. and Korea. Then, he argues that such factors
as market conditions, domestic politics, and bargaining process affect the outcome
from case to case. His analysis has the strength to analyze the factors affecting
bilateral North-South trade relationship in an analytical way. He investigates
empirically the negotiation outcomes in the industries that had significant trade value
for the two countries through examining the change of import penetration, which
means the ratio of U.S. imports from all sources to the U.S. consumption. He adds
three deviant case studies to the empirical analysis. He examines comprehensively
all available factors affecting the outcome. The importance of the negotiation process
is also addressed.
Odell’s (1985) findings may be applicable to the task of explaining the
outcome of negotiations between the U.S. and Korea during the 1980-2000 time
period.5 However, our analysis is different from Odell’s in some points. First, in
method, this paper uses total 178 cases of trade conflicts during the period of 1980-
2000 for statistical tests, including all trade conflicts including antidumping and
countervailing duty investigation. Second, while Odell’s assumes a positive-sum
5 Some scholars have replicated Odell (1985)’s paper. See Baik and Chung 1998; Elms 1995.
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70
relationship, this paper supposes a zero-sum relationship which means that one gains
at the expense of the other and focuses on market share of domestic and foreign
industries in world markets. When we regard a market share as a way of measuring
the negotiation outcome, the North-South trade relationship is supposed to be a zero-
sum game.
Ryan (1995) examines the experience of the U.S. trade policy by section 301
in the bilateral trade negotiations with Korea over the 1974-1989 period. He builds
his analysis eight cases, in which the USTR pursued market-opening negotiations
with Korea, such as insurance (1979), foot wear (1982), steel wire rope (1983),
intellectual property (1985), insurance (1985), beef (1988), cigarette (1988), and
wine (1988). In all instances in which the U.S. gained from some change in foreign
trade practices, he finds a clear pattern: two explanatory variables - the commercial
competitiveness of the complaining industry and GATT regime utility, meaning they
were based on violations of existing GATT rules - explain the outcome of the U.S.
application of 301 to Korea. He concludes that the realist theory fails to explain these
cases because the USTR responded to noncompetitive industries’ demands for
investigation. His study has the strength to analyze the sector specific evidences of
the market-opening negotiation cases. However, he examines the outcomes of the
U.S.-Korea trade negotiations only from an American perspective. By taking his
position from an American perspective, rather than from the perspective of both
sides, he does not attempt to objectively understand and explain the trade
negotiations between two countries. Furthermore, in his study, the ignorance of the
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71
negotiation process in the trade negotiations also lessens the depth of the negotiation
study.
Baik and Chung (1998) replicate Odell (1985)’s paper. They examine the
outcomes of trade conflicts and negotiations between the U.S. and Korea during the
period of 1981-1996. Unlike Odell’s study, they used a data set with 119 episodes of
trade conflicts and negotiations between two countries during the period. By
analyzing the characteristics of the legal background of the conflicts and the
asymmetry in trade balance between the two countries, they find that the trade
conflicts between the U.S. and Korea show historically different but consistent
trends: (1) for the period from the 1960s to 1970s, the trade volume was balanced
and there were few trade conflicts between two countries; (2) for the 1980s, Korea
had a surplus in the trade with the U.S. and bilateral trade conflicts occurred
frequently; and (3) for the 1990s, Korea had a deficit in the trade with the U.S. and
Korea initiated bilateral trade conflicts with the U.S. Accordingly, they argue that
the asymmetry in bilateral trade volume between the U.S. and Korea affect the
frequency of the conflict and its outcome, and in the same direction. In other words,
a change in those variables shows the same trend during the time period, especially
after the end of 1980s. Their study has the strength to analyze the relationships
between the trade asymmetry and the negotiation outcome. However, like other
literature, they do not consider the effect of the negotiation process in a bilateral
trade conflict.
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In conclusion, compared with the findings from the existing literature on
U.S.-Korea trade negotiations, my paper finds that the outcomes of trade conflicts
which occurred between them during the 1980-2000 time period can be wrapped up
as follows. First, international power structures have still been affecting the outcome
of trade disputes significantly. However, the significance of international power
structures as the primary determinant of conflict outcomes has been less than before.
Second, the Korean government has used more diversified strategies and tactics in
negotiating with the U.S. For example, Korea used a coalition strategy with the U.S.
import industry, the consumer of the Korean products, in the semiconductor
negotiation in 1992. Third, there has been no change in Korea’s technocratic
preparation and tactics in most of the negotiation cases, including the method of
delay, as it was used in the automobile negotiation in 1995. Thus, the
aforementioned theories need to be modified to include such factors as demands
from foreign governments, comparative advantage, the objectives of the initiating
country, and the negotiation process.
2.4. An analytical framework
This paper originated from a puzzle how a weaker country can gain in the
bilateral trade negotiations with a stronger country despite their unequal relationship.
That is, the dependent variable in this paper is the outcome of the negotiations
between the U.S. and Korea - the gains and/or losses of both countries.
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73
Figure 2.1: An analytical framework for the relationship between the variables that affect the
position and strategy of a weaker country in the negotiation process between stronger
and weaker countries
The Demand from
A Stronger Country
Comparative
advantage
Negotiation
Objectives
A Weaker Country’s
Position
Negotiation
Strategy/Tactics
Negotiation
Outcome
(Gain or Loss)
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74
In order to develop a specific model for understanding the unequal trade
relations between stronger and weaker countries from the perspective of the weaker
country, we examine the three variables of the comparative advantage, the
negotiation objective of the initiating country, and the negotiation process of a
weaker country when it is faced with the demands of a stronger country. Figure 2.1
shows the explanatory framework that focuses on the relationship between the
variables that affect the position and strategy of a weaker country in the negotiation
process between stronger and weaker countries.
2.4.1. Defining a comparative advantage
The factor that a weaker country considers when determining whether it will
open its domestic market is its “comparative advantage." Comparative advantage
refers to the degree to which an industry can sell its products and services in world
markets. The concept of a comparative advantage appeared in 1817 in David
Ricardo’s Principles o f Political Economy and Taxation. In terms of the Ricardian
model, international trade is due to international differences in the productivity of
labor (or comparative advantage). The reason that international trade produces the
increase in world output is that it allows each country to specialize in producing the
good in which it has a comparative advantage. In other words, countries export
goods that their labor produces with relative efficiency, and import goods that their
labor produces with relative inefficiency. This means that countries export goods in
which they have a comparative advantage.
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Traditionally, international trade theory assumes that goods are produced and
exchanged in a perfectly competitive market. However, the world market is not
perfectly competitive. Accordingly, like Ryan (1995) predicts, an industry that has a
comparative advantage can compete well in international markets and, consequently,
tends to influence its government in order to eliminate trade barriers and to expand
its market share in a more competitive market.6 Yet, in the case of an industry that
has a comparative disadvantage, the industry attempts to prevent market access to a
competitive foreign industry. The former is subject to market opening negotiations
while the latter deals with antidumping and countervailing conflict cases. On the
other hand, Krauss and Reich (1992) argue that the type of industry, which means
either home market advantage (competitive industry) or home market disadvantage
(noncompetitive industry), is crucial in determining the ideology of free trade and
role pressures to which the executive will be subject.7 That is, the embedded
American ideology of free trade implies that state intervention can be legitimized
only if the industry is perceived as a home market advantage. Thus, we can predict
that the factor of a comparative advantage plays an important role in shaping initial
positions in market-opening negotiations and antidumping conflicts.
6 Ryan 1995, 341. He used the terminology of “commercially competitive” as the same meaning as
that of comparative advantage in my paper.
7 Krauss and Reich 1992, 860. The meaning of words ‘competitive’ that Zeng (2002) and Krauss and
Reich (1992) are different each other, as Zeng (2002: 108) notes. Zeng referred to “the degree to
which two countries engaged in the production and export of a similar range of commodities, while
Krauss and Reich means that a given U.S. industry enjoys a home market advantage, or a competitive
edge over foreign products.
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2.4.2. Explaining the objective of the initiating country
The second critical factor that affects the negotiation outcome is the objective
for a country to initiate a conflict or negotiation. As we explained in section 2 in
Chapter I, we suppose that a country that initiates a conflict or a negotiation will
have two types of objectives: one is to preserve the protection of its home market as
in the cases involving antidumping and countervailing duty actions and the other is
to open a foreign market. For example, the types of major trade conflicts between the
U.S. and its trading partner are classified into two areas from the perspective of the
U.S.8 The one side is that the U.S. industry attempted to preserve its home market
from the access of foreign products by resorting to various provisions of U.S. trade
laws such as antidumping and countervailing duties (Title VII of Trade Act of 1974),
safeguard measures (Section 201 of Trade Act of 1974), and patent infringement
(Section 337 of Tariff Act of 1930). The other side is that the U.S. government and
industries also requested Korea to open its market to U.S. goods and services through
the U.S. trade remedy regulations (Section 301 and Special 301 of Trade Act of 1974
and Section 1377 of Omnibus Trade and Competitiveness Act of 1988) and bilateral
agreements. Having considered trade conflicts between the U.S. and Korea over the
objective, our analysis found that the U.S. gained more when it sought to open Korea
8 Kirn (1993: 44) classifies major trade disputes between the U.S. and Korea into three area. First,
disagreements arose over U.S. industry attempts to restrict the access of Koran products to the U.S.
market. Second, the U.S. pressured Korea to open its market to U.S. goods and services. Third, as the
U.S. trade deficit failed to shrink even after the Plaza Accord in September 1985, the U.S. asked
several East Asian Newly Industrialized Economies (NIEs), including Korea, to allow their currencies
to appreciate. But, over the 1990s, the introduction of WTO and the development of Korea’s economy
led the Korean government to begin to request its own demand. For the trade relationships between
the U.S. and Korea in more detail, see Oh 2002
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77
(such as in auto case) than when it sought to reduce Korean markets (such as in
semiconductor case).
2.4.3. Defining a negotiation process
The third critical factor that affects the outcome of trade negotiation between
stronger and weaker countries is the “negotiation process.” When a weaker country
negotiates with a stronger country, if the former is merely reacting to the power of
the latter, the negotiation outcome would be simple and always favorable to the latter,
regardless of its specific objectives. However, if there is a negotiation strategy for a
weaker country reacting to the demand of a stronger country, Korea's response to
American demands needs to be examined more closely. This is because the
negotiation process and initial competitiveness conditions are interrelated. In this
respect, the negotiation process does make a clear difference for the outcomes of the
trade conflicts and negotiations. If we had assumed away the negotiation process, we
would have missed critical reasons for the nature of the outcomes. For example, in
the U.S.-Korea semiconductor antidumping case in 1992 and 1993, could Korea
have gained without a coalition strategy with the U.S. computer makers?
Odell (2003) defines the international negotiation process as “what
government negotiators do in their interactions with one another and with markets,
constituents, nonstate actors, and mediators” (2). In other words, according to him,
the negotiation process includes “which strategies negotiators choose, how markets
and negotiators influence each other, whether they add tactics to unearth possibilities
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78
for joint gains, how much they use tactics to guard against heir own biases, and how
they go about forming and splitting coalitions.”9 Based on this concept, this paper
defines the negotiation process as which strategies and tactics government
negotiators and related interest groups or individuals choose in relation to the
negotiation.
This process is supposed to be zero-sum game, which means one gains at the
expense of the other. For the concept of negotiation process, there is no single
approach to studying it. Zartman (1987) explains five perspectives on negotiation
process: structural, strategic, tactical, incremental process, and phased process
explanations.1 0 All of the approaches to explain outcomes start from a common
appreciation that “negotiation is a process of joint decision making that combines
conflicting positions into a common outcome - a process in which each party is
required to give something from its initial positions to attain an outcome that is
mutually beneficial and is preferable to nonagreement, i.e. to unilateral attempts at a
solution.” He examines which side gains and which side loses in the North-South
negotiations. He investigates the process of North-South negotiations, especially in
terms of the ways of conflict management, conciliation, and cooperation between the
two. However, contrary to my assumption of a zero-sum game, his argument is a
positive-sum game, which means that in cases when agreement was reached, at least
one party devised an alternative that was better for both sides than the status quo. He
argues that the negotiation between the North and the South facilitates a joint attack
9 Odell 2000, 4
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79
on the problem, a common search for a formula for agreement, a cooperative
development of broader information and understanding, a network of trade-offs, and
an issue of crosscutting.
In sum, this paper argues that the negotiation outcome is shaped by the
comparative advantage of each country, the negotiation objective of the initiating
country, and the negotiation process. Especially, a weaker country gains in the
negotiation with a stronger country through the negotiation process, which implies
the need to focus on negotiation strategy and tactics. In the next three chapters, the
effect of these variables on the outcome in the trade conflicts and negotiations will
be examined. The effect of the negotiation objective and comparative advantage on
the outcome will be confirmed in the statistical analysis (in Chapter III). Furthermore,
the significance of the negotiation process, including negotiation strategy and tactics,
will be investigated in the comparative case studies (in Chapter IV and Chapter V).
1 0 Zartman 1987, 5-10
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80
PART II: STATISTICAL ANALYSIS
Chapter III: Statistical Analysis
The main objective of this statistical chapter is, first, to determine the
significance of the explanatory variables that are expected to affect the conflicted
outcome between a stronger country and a weaker country. The second is to
investigate how the estimated results differ between the models depending on
whether there is an intergovernmental negotiation process or not. As explained in
Chapter I, we use the concepts of conflict and negotiation in different ways. A
conflict implies a set of actions in which a government takes or threatens to take
actions that would cause harm to its foreign partner country, including any actions
against a foreign government and individual foreign companies. The conflict
includes a private meeting between a government and related companies, or between
private sectors, as well as an official negotiation between governments. A
negotiation refers to a sequence of actions of demands and reactions between two
governments starting from the initial time when the issue is brought officially to the
table and ending with either an agreement or a deadlock. A negotiation includes only
an official intergovernmental negotiation process, not a private meeting. Thus, in its
broad meaning, cases of conflict include negotiation cases that involve an
intergovernmental negotiation process. (For the detailed difference between non
negotiation cases and negotiation cases, see Appendix A.) We test the following
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81
hypotheses to explain the outcomes of the U.S.-Korea trade negotiations, which were
discussed in detail in the previous chapter.
Hypothesis 1: In a conflict to preserve the protection o f the home market
(initiated by the country trying to protect its own market), its outcome is more
favorable to the country whose industry has a comparative disadvantage.
Hypothesis 2: In a conflict to open a foreign market (initiated by the country
trying to open a foreign market), its outcome is more favorable to the country whose
industry has a comparative advantage.
Hypothesis 3: U.S. threats through section 301 and its equivalent are likely to
make a negotiation outcome more favorable fo r the U.S.
For this, we use the probit regression technique to examine the factors
determining the outcomes of the conflicts and negotiations between the U.S. and
Korea. We have a pooled data including the empirical cases including a total of 178
observations (Data 1) between the U.S. and Korea over the period of 1980-2000. The
pooled data set is divided into two different data sets, depending on whether there
was an intergovernmental negotiation process or not. One set of data consists of 54
observations (Data 2) that had an intergovernmental negotiation process, while the
other is comprised of 124 non-negotiation observations (Data 3).
For statistical tests, first, we run the Pooled Model with 178 observations
(Data 1), and, then, run the Negotiation Process Model with 54 negotiation
observations (Data 2). Our thesis in this paper concerns the outcomes of the
negotiations between the U.S. and Korea. We make a distinction between negotiation
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82
and non-negotiation cases. The main reason why we examine both negotiation cases
and non-negotiation cases is because even non-negotiation cases can become
negotiation cases at any time.1 One can learn about the negotiation process only by
observing 54 negotiation events (Data 2). However, once we know how the
outcomes of non-negotiation and negotiation cases are related, we can better
understand trade negotiations between two countries. The non-negotiation cases like
antidumping/countervailing duty cases are often the opening gambits in the process
of negotiation. They strengthen the position of the filing country and carry with them
implicit threats. Thus, we examine both kinds of cases in the Pooled Model (Data 1).
In practice, it would be hard to predict when a non-negotiation case changes to a
negotiation case. Although a conflict is supposed to end without any
intergovernmental negotiation, if an interest party complains to its government, both
governments may start negotiating about the issue in question. Thus, it is interesting
to examine how the outcomes of a conflict and a negotiation are related. Furthermore,
although the negotiation cases (Data 2) are a small fraction in the pooled data (Data
1), it should be noted that the negotiation variables that affected the outcomes of the
negotiations, such as the objectives of the initiating country and negotiation process
are significant even in the context of the Pooled Model.
1 For details, see Section 1.2 in Chapter I and Appendix A which explain the operational definitions of
negotiation cases and non-negotiation cases.
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3.1. Dependent and independent variables
This section outlines the variables we used to test the aforementioned
hypotheses against evidence from the data set on the trade conflicts between the U.S.
and Korea during the 1980-2000 time period.
We found 178 observations of trade conflicts between the U.S. and Korea
during the 1980-2000 time period from the following sources.2 Baik and Chung
(1998) and Elms (1995) have accumulated the data on whether a negotiation or a
conflict took place between the U.S. and Korea, and on how it was unfolding for the
1980-1995 time period. Besides, we obtained the data on the U.S. antidumping and
countervailing duty cases from the web site of the U.S. Department of Commerce;
the market opening cases by the U.S. Section 301 from that of the U.S. Trade
Representative; and the patent infringement cases by the U.S. Section 337 and the
safeguard cases by the U.S. Section 201 from those of the U.S. International Trade
Commission. For the Korean side, we found the antidumping and safeguard cases on
the web site of the Korean Trade Commission.
2 Detailed sources for data set in this paper are as follows:
(1) Obtaining total 178 observations: Baik and Chung (1998); Elms (1995); International Trade
Reporter, and the web sites of the U.S. Department of Commerce, USTR, and Korea’s Ministry of
Commerce, Industry and Energy (http://www.mocie.go.kr).
(2) US antidumping and countervailing duty cases list: US DOC’s web site
(http://ia.ita.doc.gov/stats/pet-init.htm)
(3) US section 301 list: USTR’s web site (http://www.ustr.gov/html/act301.htm)
(4) US section 337 list: USITC’s web site (http://www.usitc.gov/us337.htm)
(5) US section 201 (safeguard) list: USITC’s web site (http://www.usitc.gov/us201 .htm)
(6) Korean antidumping/safeguard list: Korean Trade Commission’s web site (http://www.ktc.go.kr)
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84
Appendix C explains the operational definitions of the dependent and
independent variables in detail. With regard to these variables, we relied on outcome
codings by Baik and Chung (1998) who coded the outcomes of total 119 conflicts
between the U.S. and Korea during the 1980-1995 time period. In addition, we added
59 conflict cases found from the aforementioned sources, for the 1980-2000 time
period. Then, we created all independent variables such as the objective of an
initiating country, whether a negotiation took place, the degree of a comparative
advantage, which country initiated a negotiation, and other economic indicators -
such as U.S. employment by industry, unemployment rate, and trade balance with
Korea.3 For example, we researched on whether a negotiation took place by looking
at Baik and Chung (1998), Elms (1995), International Trade Reporter, and the web
sites of the U.S. Department of Commerce, the USTR, and the Korean Ministry of
Commerce, Industry and Energy. For a measurement of a comparative advantage of
an industry, we researched materials published by the United Nations and Korea’s
Ministry of Commerce, Industry and Energy.
3 Sources for all variables we used in this section are as follows:
(1) Measuring the negotiation outcome and whether a negotiation took place: Baik and Chung (1998);
Elms (1995); International Trade Reporter; Materials from US DOC’s web site
(http://ia.ita.doc.gov/stats/pet-init.htm); USTR’s web site (http://www.ustr.gov/html/act301 .htm);
from US ITC’s web sites (http://www.usitc.gov/us337.htm) and (http://www.usitc.gov/us201 .htm);
and from Korean Trade Commission’s web site (http://www.ktc.go.kr).
(2) Measuring a comparative advantage: United Nations, International Trade Statistics Yearbook,
each year, and Korea’s Ministry o f Commerce, Industry and Energy statistics in its web site
(http://www.mocie.go.kr).
(3) US employment by industry: includes the number of frill-time and part-time employees by
industry (SIC basis) in thousands, sourced by the web site of US Bureau o f Economics and
Administration (http://www.bea.gov).
(4) US unemployment rate: the web site of US Department o f Labor (http://data.bls.gov).
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85
3.1.1. The dependent variable: the negotiated outcome
The dependent variable (OUTCOME) in this paper is the outcome of the
trade conflicts and negotiations between the U.S. and Korea during the 1980-2000
time period. The points of the OUTCOME are scored by how much each country
gains or loses from bilateral trade negotiations in relation to the observed values of
the status quo, such as trade volume and the existence of tariff and nontariff
measures that the target country was taking in some base period prior to bargaining.
By referring to the value of the status quo prior to a conflict/negotiation, we divide
the OUTCOME into seven categories. That is, those which are favorable to the U.S.
are classified as categories 5, 6, and 7, while those which are favorable to Korea are
classified as categories 1, 2, and 3. Those which are neutral are classified as category
4.4 For the scoring of the OUTCOME, we used directly Baik and Chung’s (1998)
data during the period of 1980-1995, and added the cases after 1995 through 2000
based on their seven-category method.
(5) US trade balance with Korea: US DOC Census Bureau, Foreign Trade Statistics (afterl985),
Statistical Abstract of the United States (before 1985) (http://www.census.gov/foreign-
trade/balance/c5 800.html# 1987).
4 For several ways to measure outcomes, see Appendix C (operational definitions of dependent and
independent variables) and Odell (2002)
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Table 3.1: Trade conflicts between the U.S. and Korea by ranking o f the outcome,
1980-2000
Category Denotation Number of
total cases*
(negotiation
cases)
Examples of cases
1 The most
favorable to
Korea
0
(0)
(non-negotiation cases)
- In an antidumping/safeguard case, since the Korean
government imposed an antidumping/safeguards duty,
the U.S. export decreased to near zero, (no examples)
2 In between
#1 and #3
8
(1)
(non-negotiation cases)
- In an antidumping/safeguard case, the Korean
government imposed an antidumping/safeguards duty
between 10 and 50 percent, or the U.S. export
decreased by more than 10 percent, (e.g., pork can
(1989); garlic (1999)).
(negotiation cases)
- Korea asked the U.S. to change the agreement about
market access in Korea and succeeded in increasing
the sales tax on cigarettes (e.g., cigarette (1995)).
3 A Little
favorable to
Korea
7
(3)
(non-negotiation cases)
- In an antidumping/safeguard case, the Korean
government imposed an antidumping/safeguards duty
of by less than 10 percent, and the U.S. exports
decreased less than 10 percent (e.g. ethanol amin
(1996); Lithium battery (1996).
(negotiation cases)
- Korea asked the U.S. to increase an import quota
into the U.S. and the U.S. accepted some part o f the
Korean demands, (e.g., textile MFA V (1990); textile
origin-of-country (1996))
4 Neutral 68
(9)
(non-negotiation case)
- In an antidumping/CVD case, the both governments
(Korean Trade Commission and US Department of
Commerce) withdrew the case. Or, when the dumping
margin were either rescinded by a final ruling or
never imported to begin with (e.g., cordage (1992);
liquid soda (1994)).
- In a patent infringement case, the U.S. government
determined no violation o f a patent, or the petition
was withdrawn by the petitioning industry (e.g.,
memory device (1995); transport vehicle tires (1996)).
(negotiation case)
- A negotiation was in a deadlock. The both countries
reached no agreements. The petitioning industry
withdrew its case and the USTR terminated the case
(e.g., motion pictures (1985); shipbuilding (1989)).
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87
Table 3.1: continued
Category Denotation Number of
total cases
(negotiation
cases)
Examples o f cases
5 A little
favorable to
the U.S.
53
(21)
(non-negotiation cases)
- In an antidumping/CVD case, the U.S. government
imposed an antidumping/CVD duty of by less than 10
percent, or the Korean export decreased by less than
10 percent (e.g. packing lab (1989); carbon steel wire
rope (1995); stainless steel sheet (1998)).
- In a patent infringement case, the U.S. government
determined a violation of a patent, but it was settled
by an agreement between companies (casual footwear
(1989); semiconductor (1997); film for lens (1998)).
(negotiation cases)
- Although both countries escaped a deadlock and
made an agreement, Korea made a small concession
and accepted some to the demands o f the U.S. As a
result of the negotiation, there was some substantial
change of trade volume and some barriers (intellectual
property rights (1992); meat (1994)).
6 In between
#5 and #7
33
(17)
(non-negotiation cases)
- In an antidumping/CVD case, the U.S. government
imposed an antidumping duty/CVD, or Korea’s
export into the U.S. decreased by more than 10
percent (e.g., stainless steel (1986); industrial
nitrocellulose (1989)).
- In a patent infringement case, the U.S. government
determined the violation of a patent and ordered a
limited exclusion of import against the Korean
product (e.g., key (1989); flash memory circuits
(1996)).
(negotiation cases)
- Korea accepted almost half o f the demands of the
U.S., and, thus, there was a substantial change o f
more than 10 percent in the trade volume and the
elimination of a part of the barriers (e.g.,
telecommunication (1995); automobile (1993; 1997))
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88
Table 3.1: continued
Category Denotation Number of
total cases*
(negotiation
cases)
Examples o f cases
7 The most
favorable to
the U.S.
9
(3)
(non-negotiation cases)
- In an antidumping/CVD case, Korea’s exports
decreased to near zero from the decrease of more than
50 percent (e.g. color TV (1984); albums (1985))
- In a patent infringement case, the U.S. government
found the violation of a patent and ordered the
complete ban on the Korean products (e.g.,
semiconductor (1986); plastic bag (1987); mineral
manufacturing diamond (1989))
(negotiation cases)
- Korea accepted most of demands o f the U.S.,
including a change o f a regulation and the total
elimination of trade barriers (e.g., photo albums
(1985); intellectual property rights (1985); Super 301
(1988)).
Note: the number in parenthesis denotes the number of cases involving on the intergovernmental
negotiation process during the period of the conflict
Table 3.1 shows how we measure the outcomes of the non-negotiation cases
and negotiation cases and provides examples of the outcome of the trade conflicts
and negotiations between the U.S. and Korea during the 1980-2000 time period. For
example, in a non-negotiation case like an antidumping/CVD (countervailing duty)
case, if the U.S. imposed the antidumping/CVD duty against a Korean product, and,
if, as a result, Korea’s exports became almost zero or decreased by more than 50
percent, a value of 7 is assigned to such case. If the U.S. government imposed the
antidumping duty/CVD in the amount between 10 percent and 50 percent, or if
Korea’s exports into the U.S. decreased by the amount between 10 percent to 50
percent, a value of 6 is assigned to such case. If the U.S. government imposed the
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89
antidumping/CVD duty in the amount of less than 10 percent, or if Korea’s exports
decreased by less than 10 percent, a value of 5 is assigned to such case. On the
contrary, in the cases that the Korean side initiated, like an antidumping case in the
Korean market, the scores of 1, 2, and 3 are assigned following the same standard as
discussed in relation to the U.S. For example, if the Korean government imposed the
antidumping/safeguards duty of less than 10 percent, or if the U.S. exports decreased
less than by 10 percent, a value of 3 is assigned to such case. Meanwhile, a score of 4
is assigned when the initiating government withdrew their petition case, or when the
dumping margin were either rescinded by a final ruling or never imported to begin
with.
The case for patent infringement based on the section 337 of the U.S. Tariff
Act of 1930 was only applied by the U.S. side. On the Korean side, there were never
such cases of patent violation. In a patent infringement case in the U.S., if the U.S.
government found the violation of a patent and order of the complete exclusion of
the product in question, a value of 7 is assigned to the case. The Korean goods
subject to the “import exclusion order” are prohibited from being imported into the
U.S. Although the violation of a patent was found, if a settlement between both
sides was concluded, a score of 5 is assigned to the case. A value of 6 is assigned to a
case in which the violation of a patent was found and the U.S. government ordered a
limited exclusion of import.
In a negotiation case, if Korea accepted most of the demands of the U.S. and
committed itself to taking such measures as a change of a regulation or the total
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90
elimination of the trade barriers in question, a value of 7 is assigned to such case.
However, although both countries escaped a deadlock and made an agreement,
Korea may have made a small concession and accepted a little of the demands of the
U.S. If, as a result of the negotiation, there was little substantial change in trade
volume and some barriers, a value of 5 is assigned to the case. A score of 6 is
assigned when if Korea accepted almost half of the demands of the U.S., and,
therefore, experienced substantial changes such as a change between 10 percent and
50 percent in the trade volume and the elimination of a part of the barriers. In the
negotiation cases that Korea raised, there were not so many cases that could be
assigned to categories 1, 2, and 3. There was no case in which the U.S. accepted all
of the demands of the Korean side, in which case a value of 1 would have been
assigned. In one case, Korea asked the U.S. to change the agreement about market
access in Korea and succeeded in increasing some of the sales tax on cigarettes. This
case was assigned a value of 2. If Korea asked the U.S. to increase its import quota
and the U.S. accepted some part of the Korean demands, a score of 3 is assigned to
such case. On the other hand, a score of 4 is assigned when the two countries failed
to reach an agreement after an intergovernmental negotiation process.
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91
3.1.2. Independent variables
This paper employs a widely used set of explanatory variables derived from
the existing literature that analyzes the determinants that affect the negotiation
outcome. This literature was reviewed in the literature review chapter. Table 3.3 and
Table 3.4 show the distribution of all variables in the pooled data and in 54
negotiation data respectively.
Comparative advantage (COMPAD):
We test a hypothesis that the U.S. gains more when its industry has a
comparative advantage than when its industry has a comparative disadvantage.5 In
the cases involving demands for a greater openness of a foreign market, the industry
that has a comparative advantage in the world market tends to pressure the
government to open the market of the partner.6 Zeng (2002) found that the effect of
trade competitiveness, which he defines as “the extent to which two countries engage
in the production and export of a similar range of commodities,” on the outcome is
significant.7 Ryan (1995) predicts that an industry that has a comparative advantage
has the power and strength to push the government to eliminate trade barriers in
order to expand its market share in a more competitive market.8 Krauss and Reich
(1992) argue that the type of industry, which means either home market advantage
5 For the detail definition o f comparative advantage, see section 2.4 (analytical frameworks) in
Chapter II.
6 Zeng 2002; Ryan 1995; Krauss and Reich 1992
7 Zeng 2002, 108.
8 Ryan 1995
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92
(competitive industry) or home market disadvantage (noncompetitive industry), is
crucial in determining the ideology of free trade and the pressures to which the
executive is subjected.9 That is, the embedded American ideology of free trade
implies that state intervention can be legitimized if an industry is perceived as having
a home market advantage. The industries that have a home market disadvantage are
more likely to be allowed to decline and disappear if they are not sufficiently
efficient.1 0 Thus, as a result of the intervention from the government, the U.S. is
likely to gain more when its industry has a comparative advantage than when its
industry has a comparative disadvantage.
In this paper, a comparative advantage is defined as the degree to which an
industry can sell its products and services in world markets. The variable COMP AD
is measured by comparing the shares of the U.S. and Korean products in the world
market during the year in which the negotiation was initiated.1 1 In some negotiation
cases such as steel, the U.S. and Korean governments sometimes argue about the
sales inside the U.S. and the sales inside Korea, not in the world market. However,
bilateral issues in those cases are eventually connected to such global ones like as an
9 Krauss and Reich 1992, 860. The meaning of words ‘competitive’ for Zeng (2002) and Krauss and
Reich (1992) are different, as Zeng (2002: 108) notes. Zeng refers to the degree to which two
countries engage in the production and export o f a similar range of commodities, while Krauss and
Reich means that a given U.S. industry enjoys a home market advantage, or a competitive edge, over
foreign products.
1 0 Krauss and Reich 1992, 861
1 1 The trade data reflect trade that is reduced by trade barriers in importing countries, so these data are
an imperfect measure of an industry’s COMP AD. However, as a standard o f a comparative advantage,
the government tends to use physical trade data, rather than the costs of production, as a more direct
measure during a negotiation. Also, for my purposes, it would be difficult to get comparable data on
costs for all the industries. Thus, despite the imperfection in trade data, we use the measurement of a
comparative advantage by trade data.
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93
overproduction in the world market. That is why since 1990 the bilateral issue of
steel trade has been moved to a multilateral agenda, the Multilateral Steel Agreement.
The COMP AD variable is set as a dummy variable. The main reason why we
use a dummy variable is because, in some industries, we could not find the absolute
difference in the market shares of the two countries. For example, in the negotiations
about services and investment (e.g., the protection of intellectual property rights
through a special 301), it would be difficult to determine the absolute value of those
services in the world market. Thus, for the comparative advantage of service and
investment industries, we determined intuitively that the U.S. side had the
comparative advantage. Moreover, for the purposes of this paper, we focus on the
reason why the effect of a comparative advantage on an outcome is different
depending on whether the parties are involved in an intergovernmental negotiation
process or not. Thus, we examine the relative difference in the world market shares
of the two countries, rather than the absolute difference.
In our pooled data set with 178 observations, Table 3.3, 81 cases (amounting
to 45.5% of total cases) were the ones that a Korean industry had a comparative
advantage during the year in which a conflict was initiated. 97 cases (54.5% of total
cases) were the ones that an American industry had a comparative advantage during
the year in which a conflict was initiated. However, in the negotiation cases with 54
observations, Table 3.4, whereas 13 cases (amounting to 24.1% of total cases) were
the ones that a Korean industry had a comparative advantage in, 41 cases (75.9% of
total cases) were the ones that an American industry had a comparative advantage in.
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94
It implies that most of the U.S. industries that try to enter into the Korean market had
a comparative advantage.
Retaliation threat (THREATUS):
The variable THREATUS is one of the main factors determining the outcome
of the negotiation process. It is generally expected that a stronger threat of retaliation
from the U.S. government, in accordance with the U.S. regulations, produces a more
favorable outcome for the U.S. (Davis 2002; Gawande and Hansen 1999; Noland
1997; Bayard and Elliott 1994). The U.S. threat was mainly applied to the cases
dealing with opening the Korean market. In the market-opening negotiation cases, a
threat affected the outcomes mainly by presenting the possibility of retaliatory
actions in the legal background of the negotiations.
In our pooled data with 178 observations, Table 3.3, 143 cases (amounting to
80.3% of total cases) were not associated with the U.S. government’s retaliatory
measures against a Korean industry. In 35 cases (19.7% of total cases), the U.S.
government could take retaliatory measures against a Korean industry in case if the
negotiations failed to produce an agreement. However, in the negotiation cases with
54 observations, Table 3.4, 19 cases (amounting to 35.2% of total cases) were not
associated with U.S. government’s retaliatory measures against a Korean industry. In
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95
35 cases (64.8% of total cases), the U.S. government did make a threat. It implies
1
that all the negotiation cases were subject to U.S. retaliatory threat.
The THREATUS variable is included in the cases initiated by the U.S.
government and industries through Section 301, 1337, Special 301, and Super 301.
These regulations indicate that if a negotiation fails to result in an agreement, the U.S.
government can take retaliation measures against the partner under certain specified
rules. The THREATUS variable is also included in the allegations by the U.S. that
Korea violated GATT/WTO rules and that the U.S. would file a case before
GATT/WTO while conducting bilateral meetings so that it could resort to retaliation
actions in case a negotiation resulted in a deadlock. The non-threat cases include
antidumping and countervailing actions such as section 201 (safeguards), section 337
(patent infringement), and the textile quota negotiations, in which the procedure
advanced in accordance with the related regulations without any public comments
about retaliation measures.
The objective of the initiating country, either increasing the protection of the
home market or opening the other market (PROTECT):
The objective of a country initiating a conflict is either preserving the
protection of the home market, as in the cases involving antidumping and
countervailing duty actions, or opening a foreign market.1 3 In general, one would
expect that the outcomes of conflicts and negotiations should be less favorable for a
1 2 The threat variable was correlated with other negotiation variable, such as PROTECT, and we
dropped this variable in the pooled data set.
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96
country that tries to preserve the protection of its home market, while being more
favorable for a country that tries to open a foreign market.
As explained in section 1.2 in chapter I, in the negotiation cases involving a
greater openness of a foreign market, as in section 301 cases, an industry that has a
comparative advantage has the power and strength to push the government to open
the other market.1 4 As Ryan (1995) predicts, an industry that has a comparative
advantage can sell well its goods and services in international markets and tends to
influence its government in order to expand its market share in a more competitive
market.1 5 However, in the negotiation cases involving the attempts slowing on to the
U.S., the outcome depends on U.S. trade policymaking and on the reaction of the
partner country, Korea. First, the U.S. government emphasizes the efficacy of free
trade more than any other country. As Goldstein (1988) points out, in the U.S. trade
policymaking, the belief in free trade has been the basis of continued trade
liberalization and provided legitimacy for social claims for protectionism.1 6
However, the objective and legitimacy of the U.S. government initiating a
negotiation to protect its home market are not as strong as when trying to opening the
Korean market. Secondly, in such cases, the Korean industry has a comparative
advantage and it tries to enter into the U.S. market. Thus, the likelihood of an
outcome being favorable to the U.S. is less in such cases as well.
1 3 For details, see Section 1.2 (definitions and assumptions) in Chapter I.
1 4 Ryan 1995, 341
1 5 Ryan 1995, 341
1 6 Goldstein 1988. Goldstein (1988) argues that contemporary American trade policy contains three
components; a belief in the efficacy of free trade, a fair trade component, and a welfare component.
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97
In our pooled data with 178 observations, Table 3.3,135 cases (amounting to
75.8% of total cases) aimed at preserving the protection of either market, while 43
cases (24.2% of total cases) involved trying to open a foreign market. In the
negotiation data with 54 observations, Table 3.4, 11 cases (amounting to 20.4% of
total cases) aimed at preserving the protection of either market, while 43 cases
(79.6% of total cases) involved trying to open a foreign market. It implies that most
of the negotiations were focused on opening the Korean market.
Market (MARKET):
The variable (MARKET) indicates in which market a conflict took place.
Gawande and Hansen (1999) argue that the effects of U.S. retaliation are different
for Japan and EU since U.S. trade relations with Japan are fundamentally different
from those with the EU countries. This implies the U.S. trade policy affect
differently the outcome over the country. Noland (1997) hypothesizes that U.S. trade
policy may subject such specific region as Japan to special scrutiny.1 7 And he found
that Japan was significant as a subject of U.S. policy actions. Thus, we also test the
hypothesis that, when a conflict takes place in its'own market, a country gains more
or loses less than when it takes place in the other country.
In our data set with 178 observations, Table 3.3, 58 cases (amounting 32.6%
of total cases) occurred in the Korean market, while 120 cases (amounting to 67.4%
of total cases) occurred in the U.S. market. In the negotiation cases with 54
1 7 Noland 1997,372
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98
observations, Table 3.4, 42 cases (amounting to 77.8% of total cases) occurred in the
Korean market, while 12 cases (amounting to 22.2% of total cases) occurred in the
U.S. market. Like PROTECT, the MARKET variable implies that most of the
negotiations concerned in the Korean market.
Initiating country (INITIATE):
Like THREATUS, the variable INITIATE is also part of the negotiation
process. Bayard and Elliott (1994) used a dummy variable to indicate the USTR-
initiated cases and found that the USTR initiation has only been relevant since 1985
but that the coefficient is not significant.1 8 Zeng (2002) hypothesized, “USTR
initiation of a case will have a positive effect on threat credibility and the successful
pursuit of U.S. negotiation objectives,”1 9 However, he did not find the significance
of the USTR initiation of a case. Thus, we hypothesize that once an actor initiates a
negotiation, its outcome is more likely to be favorable for it. In our paper, INITIATE
denotes which country initiated the issue.
In our data set with 178 observations, Table 3.3, Korea initiated 20 cases
(amounting to 11.2% of total cases), while the U.S. initiated 158 cases (88.8% of
total cases). In the data set with 54 negotiation observations, Table 3.4, the U.S. also
initiated most of the observations (50 cases, 92.6%), while Korea initiated only 4
cases (7.4%). Thus, most conflicts were initiated by the U.S.
1 8 Bayard and Elliott 1994, 89
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99
Employment by industry in the U.S. (EMPLOYUS):
It is predicted that the size of an industry’s workforce can show its power.2 0
The higher the employment the higher the power of the industry. Ryan (1995)
predicts that the powerful industry would pressure the government to increase its
world market share.2 1 In the negotiation cases for market opening, an industry that
has the powerful influence over its government is likely to try to eliminate trade
barriers in a foreign market and to increase its benefits in a more competitive market.
Thus, it can be assumed that an outcome is likely to be more favorable for a country
with the more powerful industry. The variable EMPLOYUS measures the number
(in thousands) of yearly full-time and part-time employees by the U.S. industries. It
denotes the number of employment for an industry for the year in which the conflict
was initiated.
Our data set with 178 observations shows the values of employment numbers
by industry in the U.S. ranging from 55 thousand employees in gold industry through
35 million people in the services industry. The negotiation data shows the same
range as the pooled data.
1 9 Zeng 2002, 108
2 0 Ryan (1995: 339) states that powerful interest group should be measured in terms of such factors as
gross sales and employment.
2 1 Ryan 1995
2 2 The statistics can be seen in the web site ofU S DOC Bureau o f Economics and Administration
(http://www.bea.gov).
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100
U.S. total unemployment rate (UNEMPLUS):
In the making of its economic and trade policy, the U.S. is likely to pay
attention to the trend of its unemployment rate. Thus, it can be assumed that the
higher the total unemployment rate in the U.S., the stronger is likely to be the push of
the U.S. industry into other countries in the negotiation cases for market opening.
Furthermore, the outcomes of such negotiations are likely to be more favorable for
the U.S.
UNEMPLUS is an unemployment rate in the U.S. for the year in which the
conflict was initiated. Our data set shows the values of the unemployment rate in the
U.S. ranging from 4.2 % in 1999 through 9.7 % in 1982.
US trade balance with Korea (TBALUS):
The U.S. political discourse suggests that the U.S trade deficit has a positive
93
effect on the determination of the U.S. to impose pressure on a target country.
However, the effect of trade balance on the outcome is controversial. Noland (1997)
found that “an inverse relationship exists between bilateral trade balances and trade
conflict.”2 4 It implies that the larger the U.S. deficit is with a country, the more likely
the U.S. unilateral trade action is. Bayard and Elliott (1994) find that “the more
negative the U.S. trade balance with a target, the more likely a successful
outcome.”2 5 Zeng (2002) hypothesizes, “larger U.S. trade deficit will produce greater
2 d Zeng 2002; Noland 1997; Bayard and Elliott 1994
2 4 Noland 1997, 372
2 5 Bayard and Elliott 1994, 89
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101
protectionist pressure toward the target, increasing the chances of a positive
outcome.”2 6 Unlike Bayard and Elliott, Zeng did not find a statistical significance of
the effect of a trade balance on the outcome.2 7 Thus, we try to determine the effect of
a trade balance on the outcome in the cases of the U.S.-Korea negotiations.
In this paper, the variable TBALUS denotes the U.S. trade balance with
Korea for the year in which the conflict was initiated. Our data set shows the values
of the U.S. trade balance with Korea ranging from the deficit of 8,888 million U.S.
dollars (in 1987) through the surplus of 3,966 million dollars (in 1996). As shown in
Table 3.2, the U.S. trade balance with Korea has fluctuated in all directions. The total
trade volume between the two countries has increased about seven times, from a
mere $8.8 billion in 1980 to more than $68.1 billion in 2000. Furthermore, the U.S.
trade deficit with Korea peaked at $8.8 billion in 1987, decreased drastically, and
shifted into a surplus for 1995-1997. Then, the U.S. trade balance with Korea
returned to the largest amount of deficit of $12.5 billion in 2000.
2 6 Zeng 2002, 106
2 7 Zeng (2002: 110) analyzed, “this discrepancy in test results (between Bayard and Elliott and
himself) may be due to different sample composition.”
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102
Table 3.2: The U.S. trade balance with Korea, 1979-1999 (unit: in millions o f U.S. dollars,
%, and number)
Year
US exports to
Korea
US imports
from Korea
US total trade with
Korea
US trade
balance with Korea
1979 4,190.0 4,047.0 8,237.0 143.0
1980 4,685.0 4,147.0 8,832.0 538.0
1981 5,116.0 5,227.0 10,343.0 -111.0
1982 5,529.0 5,637.0 11,166.0 -108.0
1983 5,925.0 7,148.0 13,073.0 -1,223.0
1984 5,983.0 9,353.0 15,336.0 -3,370.0
1985 5,956.3 10,013.3 15,969.6 -4,057.0
1986 6,355.0 12,729.2 19,084.2 -6,374.2
1987 8,098.7 16,986.8 25,085.5 -8,888.1
1988 11,231.8 20,105.1 31,336.9 -8,873.3
1989 13,458.6 19,736.5 33,195.1 -6,277.9
1990 14,404.2 18,485.4 32,889.6 -4,081.2
1991 15,505.0 17,018.3 32,523.3 -1,513.3
1992 14,638.7 16,682.3 31,321.0 -2,043.6
1993 14,781.9 17,118.1 31,900.0 -2,336.2
1994 18,025.3 19,629.3 37,654.6 -1,604.0
1995 25,379.9 24,184.0 49,563.9 1,195.9
1996 26,621.1 22,654.9 49,276.0 3,966.2
1997 25,046.1 23,173.2 48,219.3 1,872.9
1998 16,485.4 23,941.7 40,427.1 -7,456.3
1999 22,958.4 31,178.4 54,136.8 -8,220.0
Sources: 1. US trade value after 1985: US Census Bureau, Foreign Trade Statistics
(http://www.census.gOv/foreign-trade/balance/c5800.html#1987)
2. US trade value before 1985: US Census Bureau, Statistical Abstract o f the United
States, each year
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103
Table 3.3: The distribution of all the variables in the 178 pooled data by ranking
Variable Coding 1 2 3 4 5 6 7 Total
OUTCOME 1 most favorable 0 8 7 68 53 33 9 178
for total
cases
to Korea;
4:neutral
7:most favorable
to US
(0) (4.5) (3.9) (38.2) (29.8) (18,5) (5.1) (100)
Variable Coding 1 0 Total
COMPAD 1:US high;
0:Korea high
97
(54.5)
81
(45.5)
178
(100)
THREATUS 1: thereat;
0: non-threat
33
(18.5)
145
(81.5)
178
(100)
PROTECT l:opening;
0: protect
43
(24.2)
135
(75.8)
178
(100)
MARKET
1: US;
0: Korea
120
(67.4)
58
(32.6)
178
(100)
INITIATE
1:US;
0: Korea
158
(88.8)
20
(11.2)
178
(100)
EMPLOYUS
Number
(Thousands)
55 (gold industry) ~
35,172 (services industry)
178
UNEMPLUS % 4.2 % (in 1999) ~ 9.7 % (in 1982) 178
TBLAUS Millions of US $ - 8,888.1 (in 1987) ~ 3,966.2 (in 1996) 178
Note: ( ) refers to the percent of cases having each value from total cases.
Table 3.4: The distribution of all the variables in the 54 negotiation cases by ranking
Variable Coding 1 2 3 4 5 6 7 Total
OUTCOME
for
negotiation
cases
1 most favorable
to Korea;
4:neutral
7 most favorable
to US
0
(0)
1
(1.9)
3
(5.6)
9
(16.7)
21
(38.9)
17
(31.5)
3
(5.6)
54
(100)
Variable Coding 1 0 Total
COMPAD l:UShigh;
0:Korea high
41
(75.9)
13
(24.1)
54
(100)
THREATUS 1: thereat;
0: non-threat
33
(61.1)
21
(38.9)
54
(100)
PROTECT 1: opening;
0:protect
43
(79.6)
11
(20.4)
54
(100)
MARKET
1 : US;
0: Korea
12
(22.2)
42
(77.8)
54
(100)
INITIATE
1:US;
0: Korea
50
(92.6)
4
(7.4)
54
(100)
EMPLOYUS
Number
(Thous)
55 (cigarette) ~
35,172 (services industry)
54
UNEMPLUS % 4.9 % (in 1997) ~ 9.7 % (in 1982) 54
TBLAUS Millions of US $ - 8,888.1 (in 1987) ~ 3,966.2 (in 1996) 54
Note: ( ) refers to the percent of cases having each value from total cases.
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104
3.2. Model specifications
To test which factors are correlated with the negotiation outcome, this
chapter uses the ordered probit model. In this paper, the outcome is not a
quantitative variable but a ranking, ranging from 1 to 7. The larger the value of
OUTCOME, the more the outcome of a conflict or a negotiation is favorable to the
U.S., and vice versa. As a result, the analysis of trade conflict outcomes requires the
ordered probit model, which has been used in many studies to date.2 9
We ran each model to regress the outcome (OUTCOME) on a constant term
and on the following variables: the comparative advantage of the U.S. and Korean
industries (COMPAD), a retaliation threat from the U.S. (THREATUS), whether a
conflict concerned preserving the protection of the home market or opening a foreign
market (PROTECT), in which market a conflict occurred (MARKET), the country
that initiated a conflict (INITIATE), the number of employees by industry in the U.S.
(EMPLOYUS), the U.S. unemployment rate (UNEMPLUS), and U.S. trade balance
with Korea (TBALUS).3 0
2 8 The probit technique is more appropriate than ordinary least-squares regression for equations with
an ordered dependent variable. The probit model assumes that real players operate with rational
choice. For a more detailed issues o f the probit model, see Greene 1993; Bemdt 1991; McFadden
1984; Amemiya 1981
2 9 For the literature using the ordered probit model to analyze the outcomes in international trade
negotiations, see Zeng 2002; Hiscox 2002; Davis 2001; Bayard and Elliott 1994; Martin 1992.
3 0 Alternative interpretations can be conceivable for our puzzle on the trade negotiation outcomes.
One counterargument may be that if the outcome is coded to reflect a change in Korea’s exports after
the conflict, these trade changes could be due to lots o f other things - changes in exchange rates,
changes in the demand for the product, changes in supply from competing exporters. Another
interpretation can be that the outcome can be affected by GDP growth rates in the U.S. and Korea,
which indicates whether the negotiation takes place during good times or hard times (Davis 2002;
Noland 1997). However, when we ran the model including such economic factors as the exchange
rate, U.S. GDP growth rate, and Korean GDP growth rate, as shown in Table 3.5, it did not change
our results in Table 3.9.
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105
In order to find out whether there is a correlation between variables, we
examine the correlation matrix for all the variables in the Pooled Model regression
results. In Table 3.6 for the simple correlations the variables THREATUS,
PROTECT, and MARKET appear to be correlated with each other. The correlation
coefficient between THREATUS and PROTECT is 0.84, and those between
THREATUS and MARKET and between PROTECT and MARKET are -0.71 and -
0.76, respectively. The variables THREATUS and PROTECT appear to be highly
correlated. However, since our probit model is a non-linear model and the likely
multicollinearity is not an exact problem, we don’t need to exclude THREATUS and
PROTECT. Secondly, the problem of multicollinearity comes from that “coefficients
may have very high standard errors and low significance levels in spite of the fact
that they are jointly highly significant and the R-square in the regression is quite
Table 3.5: The probit estimates of the model including the explanatory factors by alternative
interpretations
Variable Coefficient Standard Error
P> |Z|
COMPAD -1.09* 0.21 0.000
THREATUS 1.53* 0.45 0.001
PROTECT 1.00** 0.45 0.026
MARKET 1.06** 0.46 0.019
INITIATE 1.63* 0.49 0.001
EMPLOYUS 0.00 0.00 0.496
UNEMPLOYUS 0.10 0.07 0.154
TBLAUS 0.10 0.00 0.505
EXCHANGE 0.00 0.00 0.408
GDPRATEUS 0.06 0.05 0.289
GDPRATEKOR -0.03 0.03 0.250
R-squared 0.2266
Note: 1. * indicates significant at 1 percent level, and ** at 5 percent level.
2. Other variables are the same as those in Table 3.3 and 3.4, except EXCHANGE,
GDPRATEUS, and GDPRATEKOR. ENCHANGE = foreign exchange rate (won/$);
GDPRATEUS = U.S. GDP growth rate (%); GDPRATEKOR = Korean GDP growth rate
(%)
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106
high.”3 1 However, since both THREATUS and PROTECT are highly significant, the
multicollinearity does not pose a significant problem here. Thirdly, the variables
THREATUS and PROTECT are significant for our ability to forecast using the
model. If we drop either of the two variables, there can be a bias caused by an
omitted variable, whose impact may greater than that of multicollinearity.
However, since MARKET is not significant for the outcome and, moreover,
is in the same direction as INITIATE, we choose to drop it. Having done so, we ran
regression using this modified model.
Table 3.6: The correlation matrix for all the variables in the Pooled Model regression results
OUT
COME
COM
PAD
THR
EAT
PRO
TECT
MAR
KET
INITI
ATE
EMPLO
YUS
UNEMP
LUS
TBAL
US
OUTCOME L O O
COMPAD -0.22 1.00
THREATUS 0.30 0.42 1.00
PROTECT 0.26 0.44 0.84 1.00
MARKET 0.10 -0.47 -0.71 -0.76 L O O
INITIATE 0.53 -0.11 0.09 0.08 0.44 1.00
EMPLOYUS 0.16 0.25 0.42 0.50 -0.41 0.09 1.00
UNEMPLUS 0.19 -0.08 -0.03 -0.06 0.20 0.24 -0.04 1.00
TBALUS -0.08 -0.02 0.03 -0.01 -0.06 -0.20 -0.06 0.33 1.00
3.2.1. The interaction variables
However, when we run the regression model (in Table 3.5 and Table 3.6)
with the variables COMPAD and PROTECT, the specific effect of the variables
COMPAD and PROTECT on the OUTCOME is ambiguous because each variable
interacts with INITIATE. For example, in COMPAD, if Korea has a comparative
3 1 Greene 1993,267
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107
advantage (COMPAD=0), it also means that the U.S. has a comparative
disadvantage. The interpretation of the results could be different depending on which
country initiates. Thus, we need to examine the effect of the interaction variables of
COMPAD, PROTECT, and INITIATE on the negotiation outcome. We can generate
eight interaction variables between the three variables.
With regard to the interaction variable between THREATUS and INITIATE,
we can examine only the effect of the threat initiated by the U.S., because the use of
the threat of retaliation was limited to the U.S. With regard to the interaction of
THREATUS with the negotiation process and the negotiation outcome, an explicit
threat to retaliate as stated in the U.S. codes being applied to the dispute in question
(section 301, special 301 or super 301) allows the U.S. to achieve an outcome that is
more favorable for it. It suggests that the U.S. gains more when it uses an explicit
threat of retaliation. In addition, as can be seen in the estimate results of the Pooled
Model, the U.S threats were significant for the negotiation outcomes. The threats
took place during the negotiation cases, which means that the U.S. threats were one
of the main factors determining the outcomes of the negotiation process. The
variable INITIATE specifying which country initiated a conflict is also part of the
negotiation process. The variables THREATUS and INITIATE show the effect of
the negotiation process on the outcome.
3 2 In practice, the cases of COMPROKO, DISOPEKO and DISOPEUS don’t usually take place in the
bilateral conflicts and negotiations (see Table 3.7). In addition, the case of COMOPEKO is the only
one o f the photo albums (1985). However, in our new model, we include DISOPEUS to examine the
effects of the total 158 cases initiated by the U.S. - DISPROUS, DISOPEUS, COMPROUS, and
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108
3.2.2. The descriptive statistics of the interaction variables
(1) Protectionist actions in its home market initiated by the U.S. which has a
comparative disadvantage (DISPROUS): the DISPROUS variable is coded “1” for
the cases in which the U.S. has a comparative disadvantage and initiates with the
purpose of protecting its home market and the other cases are coded “0”.
In our data set with 178 observations, Table 3.7, the U.S. industry which had
a comparative disadvantage initiated 73 cases (amounting to 41.0% of total cases) in
order to protect its home market (i.e., steel products (1982, 1998, 1999); tire (1984);
album (1985); textile (1982, 1986, 1990); DRAMs (1992)). The others were 105
cases (59.0% of total cases). In the data set with 54 negotiation observations, Table
3.8, the U.S. industry which had a comparative disadvantage initiated 10 cases
(amounting to 18.5% of total cases) in order to protect its home market. The others
were 44 cases (81.5% of total cases).
(2) Market opening actions in relation to the Korean market initiated by the
U.S. which has a comparative advantage (COMOPEUS): the COMOPEUS variable
can take two values. When the U.S. has a comparative advantage and initiates a
conflict in order to open the Korean market, the cases are coded “1 The other cases
are coded “0”.
In our data sets with 178 observations and with 54 negotiation observations,
Table 3.7 and Table 3.8 respectively, the U.S. industry which had a comparative
advantage initiated 38 cases (amounting to 21.3% of total 178 cases) in order to open
COMOPEUS. Thus, we run the regression model with the following five variables: DISPROKO,
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109
the Korean market (i.e., insurance (1988); super 301 (1988); IPR (1989, 1992, 1995);
automobile (1995, 1997)). The others were 140 cases (78.7% of total 178 cases).
(3) Protectionist actions in the home market initiated by the U.S. which has a
comparative advantage (COMPROUS): the COMPROUS variable is coded “1” for
the cases in which the U.S. has a comparative advantage and initiates in order to
protect its home market and the other cases are coded “0”.
In our data set with 178 observations, Table 3.7, the U.S. initiated 45 conflict
cases (amounting to 25.3% of total cases) in order to protect its home market, in
which the U.S. industry had a comparative advantage (i.e., steel wire nails (1981,
1982); carbon steel pipes (1983, 1994); iron pipe fittings (1985); antibiotics (1987);
oil country tubular goods (1994)). The others were 133 cases (74.7% of total cases).
However, in the data set with 54 negotiation observations, Table 3.8, the U.S.
industry which had a comparative advantage never initiated a negotiation to protect
its home market.
(4) Market opening actions in relation to the Korean market initiated by the
U.S. which has a comparative disadvantage (DISOPEUS): the DISOPEUS variable
is coded “1” for the cases in which the U.S. has a comparative disadvantage and
initiates in order to open the Korean market and the other cases are coded “0”.
In our data sets with 178 observations and with 54 negotiation observations,
Table 3.7 and Table 3.8 respectively, the U.S. industry which had a comparative
disadvantage initiated only 2 cases (amounting to 1.1% of total 178 cases) in order to
DISPROUS, DISOPEUS, COMPROUS, and COMOPEUS.
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110
open the Korean market (i.e., footwear (1982); shipbuilding (1989)). The others were
176 cases (98.9% of total 178 cases).
(5) Protectionist actions in its home market initiated by Korea which has a
comparative disadvantage (DISPROKO): the DISPROKO variable is coded “1” for
the cases in which Korea has a comparative disadvantage and initiates in order to
protect its home market and the other cases are coded “0”.
In our data set with 178 observations, Table 3.7, the Korean industry which
had a comparative disadvantage initiated 12 cases (amounting to 0.7% of total cases)
in order to protect its home market (i.e., pop com (1990); ethanol amin (1996); garlic
(1999)). The others were 166 cases (93.3% of total cases). In the data set with 54
negotiation observations, Table 3.8, the Korean industry which had a comparative
disadvantage initiated only 1 cases (amounting to 0.2% of total cases) in order to
protect its home market (i.e., cigarette (1995).
(6) Market opening actions in relation to the U.S. market initiated by Korea
which has a comparative advantage (COMOPEKO): the COMOPEKO variable can
take two values. When Korea has a comparative advantage and initiates a conflict in
order to open the U.S. market, the cases are coded “1.” The other cases are coded “0”.
In our data sets with 178 observations and with 54 negotiation observations,
Table 3.7 and Table 3.8 respectively, Korea initiated only 1 cases (amounting to
0.6% of total 178 cases) in order to open the U.S. market, in which the Korean
industry had a comparative advantage (i.e., photo albums (1985)).
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I l l
(7) Protectionist actions in relation to the home market initiated by Korea
which has a comparative advantage (COMPROKO): the COMPROKO variable is
coded “ 1” for the cases in which Korea has a comparative advantage and initiates in
order to protect the home market and the other cases are coded “0”.
In our data set with 178 observations, Table 3.7, the Korean industry which
had a comparative advantage initiated 5 cases (amounting to 2.8% of total cases) in
order to protect its home market (i.e., soda (1994); lithium battery (1996)). The
others were 173 cases (97.2% of total cases). In the data set with 54 negotiation
observations, Table 3.8, the Korean industry which had a comparative advantage
never initiated a conflict in order to protect its home market.
(8) Market opening actions in relation to the U.S. market initiated by Korea
which has a comparative disadvantage (DISOPEKO): the DISOPEKO variable is
coded “1” for the cases in which Korea has a comparative disadvantage and initiates
in order to open the U.S. market and the other cases are coded “0”.
In our data sets with 178 observations and with 54 negotiation observations,
Table 3.7 and Table 3.8 respectively, the Korean industry which had a comparative
disadvantage initiated only 1 case to open the U.S. market (i.e., textile origin (1996)).
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112
Table 3.7: The distribution of all the variables in the 178 pooled data by ranking in the modified
model with the interaction variables
Variable Coding 1 2 3 4 5 6 7 Total
OUTCOME
for total
cases
1 most favorable to
Korea;
4:neutral;
7 most favorable to
US
0
(0)
8
(4.5)
7
(3.9)
68
(38.2)
53
(29.8)
33
(18.5)
9
(5.1)
178
(100)
Variable Coding 1 0 Total
THREATUS 1 :threat by U.S.;
0:no thereat
33
(18.5)
145
(81.5)
178
(100)
DISPROUS 1: The U.S. initiates to protect its
home market and the U.S. has a
comparative disadvantage
0: others
73
(41.0)
105
(59.0)
178
(100)
DISPROKO 1: Korea initiates to protect its
home market and Korea has a
comparative disadvantage
0: others
12
(0.7)
166
(93.3)
178
(100)
COMOPEUS 1: The U.S. initiates to open the
Korean market and the U.S. has a
comparative advantage
0: others
38
(21.3)
140
(78.7)
178
(100)
COMPROUS 1: The U.S. initiates to protect its
home market and the U.S. has a
comparative advantage
0: others
45
(25.3)
133
(74.7)
178
(100)
COMPROKO 1: Korea initiates to protect its
home market and Korea has a
comparative advantage
0: others
5
(2.8)
173
(97.2)
178
(100)
DISOPEUS 1: The U.S. initiates to open the
Korean market and the U.S. has a
comparative disadvantage
0: others
2
( 1.1)
176
(98.9)
178
(100)
COMOPEKO 1: Korea initiates to open the U.S.
market and Korea has a
comparative advantage
0: others
1
(0.6)
177
(99.4)
178
(100)
DISOPEKO 1: Korea initiates to open the U.S.
market and Korea has a
comparative disadvantage
0: others
1
(0.6)
177
(99.4)
178
(100)
EMPLOYUS
Number
(Thousand)
55 (gold industry) ~
35,172 (services industry)
178
UNEMPLUS
% 4.2 % (in 1999) ~
9.7 % (in 1982)
178
TBLAUS
Millions of US $ (-) 8,888.1 (in 1987) ~
(+) 3,966.2 (in 1996)
178
Note: ( ) refers to the percent of cases having each value from total cases.
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113
Table 3.8: The distribution of all the variables in the 54 negotiation cases by ranking in the modified
model with the interaction variables
Variable Coding 1 2 3 4 5 6 7 Total
OUTCOME
for negotiation
cases
1 :most favorable
to Korea;
4:neutral
7 most favorable
to US
0
(0)
1
(1.9)
3
(5.6)
9
(16.7)
21
(38.9)
17
(31.5)
3
(5.6)
54
(100)
Variable Coding 1 0 Total
THREATUS l:threatby U.S.;
0:no thereat
33
(61.1)
21
(38.9)
54
(100)
DISPROUS 1: The U.S. initiates to protect its
home market and the U.S. has a
comparative disadvantage
0: others
10
(18.5)
44
(81.5)
54
(100)
DISPROKO 1: Korea initiates to protect its
home market and Korea has a
comparative disadvantage
0: others
1
(0.2)
53
(99.8)
54
(100)
COMOPEUS 1: The U.S. initiates to open the
Korean market and the U.S. has a
comparative advantage
0: others
38
(70.4)
16
(29.6)
54
(100)
COMPROUS 1: The U.S. initiates to protect its
home market and the U.S. has a
comparative advantage
0: others
0
(0)
54
(100)
54
(100)
COMPROKO 1: Korea initiates to protect its
home market and Korea has a
comparative advantage
0: others
0
(0)
54
(100)
54
(100)
DISOPEUS 1: The U.S. initiates to open the
Korean market and the U.S. has a
comparative disadvantage
0: others
2
(0.4)
52
(99.6)
54
(100)
COMOPEKO 1: Korea initiates to open the U.S.
market and Korea has a
comparative advantage
0: others
1
(0.2)
53
(99.8)
54
(100)
DISOPEKO 1: Korea initiates to open the U.S.
market and Korea has a
comparative disadvantage
0: others
1
(0.2)
53
(99.8)
54
(100)
EMPLOYUS
Number
(Thousand)
55 (cigarette industry) ~
35,172 (services industry)
54
UNEMPLUS
% 4.9 % (in 1997) ~
9.7 % (in 1982)
54
TBLAUS
Millions of US $ (-) 8,888.1 (in 1987) ~
(+) 3,966.2 (in 1996)
54
Note: ( ) refers to the percent of cases having each value from total cases.
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114
3.3. Estimation results
In our data analysis, we must be careful in interpreting the results from our
pooled test, where 2/3 of the observations are not negotiation cases. In addition,
since the ordered probit model assumes that the cumulative distribution of the
disturbances is normal across observations and probabilities, we must be very careful
in interpreting the coefficients in the model. As Greene (1993) says, “without a fair
amount of extra calculation, it is quite unclear how the coefficients in the ordered
probit model should be interpreted.”3 3 Thus, to interpret the meaning of the variables
in the probit model we need to obtain the marginal effects of the variables. However,
as Greene says, the approach checking the marginal effects is “not appropriate for
evaluating the effect of a dummy variable. We can analyze a dummy variable by
comparing the probabilities that result when the variable takes its different values
with those that occur with the other variables held at their sample means.”3 4 Thus,
we try to analyze the probabilities of the dependent variable (OUTCOME) for each
independent variable, rather than the marginal effects for the probabilities of the
outcomes. Table 3.9 shows the summary of the probit estimates of the two models of
the outcomes of conflicts and negotiations between the U.S. and Korea.
3 3 Greene 1993, 675
3 4 Greene 1993,675
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115
Table 3.9: The probit estimates of the two models about the outcomes of trade conflicts and
negotiations between the U.S. and Korea, 1980-2000
Pooled Model Negotiation Process
Model
Variable Coding Coefficient
(Standard
error)
P>\z\ Coefficient
(Standard
error)
P>\z\ Findings
OUTCOME 1: the most
favorable to
Korea;
7: the most
favorable to U.S.
A dependent
variable
THREATUS 0: non-threat from
U.S.
1: threat from
U.S.
1.92*
(0.52)
0.000 2.00*
(0.53)
0.000 The U.S. is likely
to gain more
when it threatens
than when it does
not make a threat.
DISPROKO 1: Korea has a
comparative
disadvantage and
initiates to protect
its home market
0: others
-2.13*
(0.56)
0.000 -1.54
(1.23)
0.210 In the Pooled
Model, Korea is
likely to gain
more when it has
a comparative
disadvantage and
initiates in order
to protect its
home market than
otherwise.
DISPROUS 1: U.S. has a
comparative
disadvantage and
initiates to protect
its home market
0: others
1.64*
(0.49)
0.001 0.26
(0.81)
0.752 In the Pooled
Model, the U.S. is
likely to gain
more when it has
a comparative
disadvantage and
initiates in order
to protect its
home market than
otherwise.
COMOPEUS l.U .S. has a
comparative
advantage and
initiates to open
the Korean market
0: others
0.35
(0.67)
0.601 -0.61
(0.87)
0.485 In both models,
the variable was
not significant and
its signs were
different. In the
Negotiation
Process Model,
the sign is
negative, which
means that there
can be some cases
in which Korea
gains more than
the U.S.
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116
Table 3.9: continued
Variable Coding
Pooled Model Negotiation Process
Model
Findings
Coefficient
(Standard
error)
P> \z\
Coefficient
(Standard
error)
P>\z\
DISOPEUS 1: U.S. has a
comparative
disadvantage and
initiates to open
the Korean market
0: others
0.40
(0.97)
0.684 -0.41
(1.07)
0.701 In both models,
the variable was
not significant and
its signs were
different. But, we
have a limitation
on comparing the
two models since
there is a small
number of
observations.
COMPROU
S
1:U.S. has a
comparative
advantage and
initiates to protect
its home market
0: others
0.74
(0.49)
0.134 In the Pooled
Model, the
variable was not
significant. The
Negotiation
Process Model
does not have any
observations
which would
satisfy these
specifications.
EMPLOYUS In thousands of
numbers
0.00
(0.00)
0.761 0.00
(0.00)
0.809 It was not
significant.
However, since
the coefficient
was almost zero,
it is hard to draw
any conclusions.
UNEMPLUS %
0 12***
(0.07)
0.064 0.15
(0.14)
0.288 In the Pooled
Model, the
variable was
significant. The
US is likely to
gain more when it
has larger
unemployment.
TBALUS In millions of
U.S. dollars
((+): surplus; (-):
deficit)
-0.00
(0.00)
0.239 -0.00
(0.00)
0.148 It was not
significant.
However, since
the coefficient
was almost zero,
it is hard to draw
any conclusions.
Number of
observations
178 54
R-squared 0.2262 0.1661
Note: * indicates significant at 1 percent level (p>\z\ = .01), ** at 5 percent level (p>\z\ = .05), and
*** at 10 percent level (p>\z\ = .10). Standard errors are in parentheses
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117
3.3.1. Interpretations of the significance of the coefficients of the independent
variables (focusing on the Pooled Model)
In this section, we examine the significance and sign of the coefficients of all
the independent variables. Although our thesis concerns the negotiations, we
i f
interpret the results mainly based on the Pooled Model with 178 conflict cases.
Table 3.9 shows the estimate results of the regression run using the two models. In
the Pooled Model, the coefficients ofTHREATUS, DISPROKO, DISPROUS, and
UNEMPLUS were significant and their signs were in the right direction, while the
results for the other variables (COMOPEUS, DISOPEUS, COMPROUS,
EMPLOYUS, and TBALUS) are not significant although the coefficients for some
variables indicate the hypothesized direction of influence.3 6
In both models, THREATUS was significant and its sign was positive. It
implies that U.S. threats through section 301 and its equivalent are likely to make a
negotiation outcome more favorable for the U.S., which confirms Hypothesis 3. We
define the negotiation process as a set of strategies and tactics that government
negotiators and related interest groups or individuals choose to purse in relation to
37
the negotiation. Since the variable THREATUS is a negotiation process factor, the
finding that THREATUS was significant in both models indicates that the
negotiation process affects significantly the negotiation outcome.
3 5 For the reason why we examine more closely the Pooled Model, see the introduction part of this
chapter.
3 6 Wald Test results show that each individual explanatory variable is significant at 1 percent level.
Test statistics shows that we should reject the hypothesis that each individual variable is insignificant.
3 7 See section 1.2 (definitions and assumptions) in Chapter I.
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118
In the Pooled Model, the variables DISPROUS and DISPROKO were
strongly significant and its signs were in the opposite direction from each other. That
is, Korea is likely to gain more when it has a comparative disadvantage and initiates
in order to protect its home market than otherwise. The U.S. is also likely to gain
more when it has a comparative disadvantage and initiates to protect its home market
than otherwise. In the actual antidumping cases, a domestic industry that has a
comparative disadvantage is likely to use an antidumping petition in an attempt to
raise the barrier to the entry for the foreign product. For example, American
industries such as steel, semiconductors, electronics, and textiles, which had a
comparative disadvantage, filed the antidumping petition out of a decrease of its
market share. The U.S. government accepted the complaint from its domestic
industry because the price of the foreign producer was lower while its market share
was increasing drastically in the U.S. market. During the investigation process, in
which the intergovernmental negotiation process with the Korean government was
absent, the U.S. government made a determination that was favorable for the
American industry and a higher dumping margin rate was imposed on the Korean
industry.
For example, in the antidumping cases in the U.S. market (in the products
such as steel products (1981-1999), textiles and apparel (1983, 1989,1999), DRAM
(1992), and color TV (1983, 1986)), which were initiated by the U.S. industry, the
U.S. government imposed the antidumping duties against Korean products and the
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119
o o « • •
outcomes were favorable to the U.S. side. Whereas, in the antidumping cases in the
Korean market (in the products such as polyacetal (1990), lithium battery (1996),
and large bean milk (1995)), the Korean government made decisions that were
favorable to the Korean side.
Thus, we confirm Hypothesis 1 which says that in a conflict to preserve the
protection o f the home market (initiated by the country trying to protect its own
market), its outcome is more favorable to the country whose industry has a
comparative disadvantage.
However, with regard to COMOPEUS, which means that the U.S. has a
comparative advantage and initiates to open the Korean market, in both models this
variable was not significant and its sign was not the same in both models. While in
the Pooled Model the variable COMOPEUS was positive, in the Negotiation Process
Model the variable COMOPEUS was negative. We should examine more closely the
results in the Negotiation Process Model, since all of the cases to open a foreign
market take place in the negotiation cases. The negative effect of COMOPEUS in the
Negotiation Process Model indicates that there can be some cases in which Korea
gains more than the U.S., even when the U.S. industry that had a comparative
advantage initiated the opening of the Korean markets. COMOPEKO was not
examined due to a very small number of the observations which would satisfy this
variables specifications. Thus, we don’t accept Hypothesis 2 which says that in a
3 8 In the photo album case (1985), even though Korean industry initiated it to lower the antidumping
duty by requesting the annual review of the antidumping duty itself, the U.S. government’s decision
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120
conflict to open a foreign market (initiated by the country trying to open a foreign
market), its outcome is more favorable to the country whose industry has a
comparative advantage.
In both models, the variable DISOPEUS, which means that the U.S. has a
comparative disadvantage and initiates a conflict in order to open the Korean market,
was not significant and its signs were different. However, we have a limitation on
comparing the two models since there is a small number of observations which
satisfy these specifications. In the Pooled Model, the variable COMPROUS, which
means that the U.S. has a comparative advantage and initiates a conflict in order to
protect its home market, was not significant. However, the Negotiation Process
Model does not have any observations which would satisfy these specifications.
We cannot draw any conclusions in relation to whether defending its home
market is easier than opening a foreign market. However, we can tentatively suggest
that the U.S. is likely to do better when protecting its home market (its coefficient =
DISPROUS’s coefficient 1.64 + COMPROUS’s coefficient 0.74 = 2.38) than when
opening the Korean market (its coefficient = COMOPEUS’s coefficient 0.35 +
DISOPEUS’s coefficient 0.40 = 0.75). In relation to Korea, we cannot make any
suggestions due to the insufficient number of cases which would satisfy the
necessary specifications.
resulted in an even higher duty. Thus, the outcome was ranked as most favorable to the U.S. side (in
number 7).
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In the Pooled Model, the U.S. unemployment rate (UNEMPLUS) was
significant for the outcome. It implies that the U.S. is likely to gain more when it has
larger unemployment. However, it is not clear whether the U.S. total unemployment
rate has a direct effect on the outcome.
With regard to the U.S. trade balance with Korea (TBALUS), in both the
Pooled Model and the Negotiation Process Model, the variable TBALUS is not
significant.3 9 As explained in section 3.1, Bayard and Elliott’s (1994) and Zeng’s
(2002) findings on the effect of trade balance with a target country were different.
While Bayard and Elliott found the significance of a trade balance on the outcome,
Zeng did not. Our regression analysis confirms Zeng (2002)’s finding that the U.S.
trade deficit is insignificant in determining the outcomes favorable to the U.S.
In all the models, the number of employees by industry (EMPLOYUS) in the
U.S. was not significant and the coefficient was almost zero. Thus, it would be
expected that the size of the employees of an industry in the U.S. be not correlated
with the outcome. However, we cannot say that the power of the industry does not
have direct and positive effect on the outcome through the pressure to the Korean
government. The point is that the effect of the power of industry on the negotiation
outcome depends on whether the industry actually pressured the Korean government
3 9 Trade statistics in the U.S. government are different from those in Korea. The countries have
different systems to calculate trade volume. For example, in terms of import statistics, the U.S. uses
the FAS (free along shipment) base, which includes only manufacturing costs, excepting freight and
insurance for shipping, while Korea uses the GIF (cost, insurance and freight) base, which includes all
fares of shipping insurance and freight in addition to the original manufacturing cost. Thus, for the
purpose of this chapter, we use the U.S. trade statistics on trade balance.
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122
to achieve its own objectives, irrespective of the size of its power. Thus, we need to
examine more carefully the effect of the power of the industry through case studies.
This result is different from the lesson taught by Samuelson and Heckscher-
Ohlin back in the 1950s that absent monopoly power in trade countries do better
when they liberalize and trade more, than when they protect and trade less. The
reason for this difference is that we are concerned with the gains/losses relevant for
specific domestic producers/exporters, whereas Samuelson and Heckscher-Ohlin are
concerned with the gains /losses relevant for a nation as a whole.
3.3.2. The probabilities of the dependent variables for the independent variables
For example, as shown in Table 3.10, when the U.S. makes an explicit threat
to retaliate as stated in the U.S. codes being applied to the dispute in question
(section 301, special 301 or super 301) (THREATUS=1), the probability4 0 of
OUTCOME=6 is 36 percent. When the U.S. does not make a threat
(THREATUS=0), the probability of OUTCOMES is 14 percent. That is, when the
U.S. makes a threat, each of the probabilities of the outcome favorable for the U.S.
(OUTCOME=5, 6, or 7) is always greater than when the U.S. objective is to increase
the protection of its home market (PROTECTED). Thus, we can say that the U.S. was
likely to gain more when THREATUS=1 than when THREATUS=0. This result also
confirms our hypothesis 3 (in the next section) that U.S. threats through section 301
4 0 The probability is subject to the average of the 178 pooled observations
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123
and its equivalent are likely to make a negotiation outcome more favorable fo r the
U.S.
When the U.S. industry has a comparative disadvantage and initiates in order
to protect its home market (DISPROUS=l), the probability4 1 of OUTCOME=6 is 23
percent. Otherwise (DISPROUS=0), the probability of OUTCOME=6 is 14 percent.
That is, when DISPROUS=l, it is obvious that each of the probabilities of the
outcome favorable for the U.S. (OUTCOME=5, 6, or 7) is greater than when
DISPROUS=0. Thus, we can suggest that the U.S. was likely to gain more when
DISPROUS=l than when DISPROUS=0. The result in DISPROKO = 1, which
means that Korea has a comparative disadvantage and initiates in order to protect its
home market, was the same as that in DISPROUS = 1. Thus, these results also
confirm our Hypothesis 1 that in a conflict to preserve the protection o f the home
market (initiated by the country trying to protect its own market), its outcome is more
favorable to the country whose industry has a comparative disadvantage.
Table 3.10: The probabilities of the outcome over main variables (in the Pooled Model)
THREATUS
=0
THREATUS
=1
DISPROUS
=0
DISPROUS
=1
DISPROKO
=0
DISPROKO=
1
Probability
(OUTCOME=2)
0.05 0.00 0.07 0.00 0.00 0.60
Probability
(OUTCOME=3)
0.05 0.00 0.06 0.00 0.02 0.28
Probability
(OUTCOME=4)
0.44 0.14 0.43 0.32 0.40 0.11
Probability
(OUTCOME=5)
0.29 0.34 0.24 0.39 0.32 0.00
Probability
(OUTCOME=6)
0.14 0.36 0.14 0.23 0.19 0.00
Probability
(OUTCOME=7)
0.03 0.16 0.05 0.05 0.06 0.00
4 1 The probability is subject to the average o f the 178 pooled observations
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124
3.4. Implications
It is possible that my interpretation has limitations because of the skewed
distribution of a dummy variable, where many observations have one value and some
have the other. Nevertheless, the estimation results from the two models give us
meaningful implications about the explanatory factors affecting the outcomes of the
conflicts and negotiations between the U.S. and Korea. The following findings add
new contributions to what Odell (1985) and Baik and Chung (1998) focus on the
outcomes of the U.S.-Korea trade conflicts. My study makes a contribution by
examining the effects of the objective of the initiating country and the comparative
advantage on the outcomes.
First, the estimation results confirm our Hypothesis 1 that in a conflict to
preserve the protection of the home market (initiated by the country trying to protect
its own market), its outcome is more favorable to the country whose industry has a
comparative disadvantage. On the contrary, the results reject Hypothesis 2 that in a
conflict to open a foreign market (initiated by the country trying to open a foreign
market), its outcome is more favorable to the country whose industry has a
comparative advantage. The findings also contribute to the existing literature by
focusing on the effect of the objective of the initiating country and the negotiation
process on the negotiation outcome. When the U.S. tried to open the Korean market,
the outcome mostly depended on the degree of the resistance from Korea. To analyze
the specifics of how Korea resisted in its negotiation with the U.S., we need to
examine case studies, which is done in Chapters IV and V.
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125
Secondly, the regression test confirms that the U.S. threats through section
301 and its equivalent increased the concessions from Korea in trade negotiations
and had a positive effect on outcomes on the U.S. side. That is, the U.S. threats
through section 301 and its equivalent are likely to make a negotiation outcome more
favorable for the U.S. As we mentioned before, since the U.S. threats are one of the
main factors determining the outcomes of the negotiation process, this finding
indicates that the negotiation process affects significantly the negotiation outcome.
Thus, we conclude that the negotiation process is the cause of that variation in the
negotiation outcome. In the auto case in Chapter IV, the U.S. gained more due to the
U.S. strategy including the threat of retaliation to Korea.
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126
PART III: CASE STUDIES
Chapter IV: The Victory of the American Strategy in the Automobile Market-
opening Bilateral Negotiations, 1993-1995
This chapter focuses on how a stronger country gains in bilateral trade
negotiations despite strong resistance from a weaker country. Then, it examines how
a weaker country reacts to the demands of a stronger country. The chapter addresses
these puzzles, by examining the automobile market-opening negotiations between
the U.S. and Korea during the 1993-1995 time period.1 Since 1993, the U.S.
government was requesting that Korea should open its automobile market. Finally,
in 1995, the Korean government accepted much of the U.S. demands, although it
made very few concessions on taxes and tariffs. Thus, the outcome of the auto case is
classified as a gain for the U.S., to which we assign the score of “6”, while the
outcome of the semiconductor case in the next chapter is assigned the value of “5”.
As explained in Chapter I, the outcome in this paper is measured as how
much Korea gains and how much the U.S. gains in relation to the observed values of
the status quo prior to bargaining, such as trade volume and the existence of tariff
1 The author was involved in the U.S.-Korea trade affairs while working for the Ministry of Trade,
Industry and Energy in Seoul and for the Korean Embassy in Washington, D.C., and participated in
several trade negotiations between the two countries, including those focused on steel, semiconductor,
aerospace, and textiles, as well as in the automobile negotiations discussed in this paper.
2 During the 1980-2000 time period, the U.S. and Korea had total 178 cases o f trade conflicts
bilaterally. And, among those, both governments had negotiations to open Korean markets in 41 trade
conflicts cases such as footwear (1982), wine (1985, 1988), cigarette (1987), beef (1992),
telecommunication (1992), meat (1994), intellectual property rights (1992, 1995), and automobile
(1995, 1998).
3 For the operational definition of the outcome of the negotiation, see Appendix C.
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127
and nontariff measures that the target country was taking in some base period. In the
automobile case, when we compare the sales amount of foreign imported cars in the
Korean market before and after negotiations, we say that the outcome in the
automobile negotiation has the value of 6, which means that it was much more
favorable for U.S. than for Korea.
This chapter examines the question why a weaker country could not usually
gain in the negotiations for market opening with a stronger country. This kind of
outcome was usually the case in the market-opening negotiations between the U.S.
and Korea. To address the issue of why that was the case, this chapter first examines
the background of the trade conflict between the U.S. and Korea in the Korean
automobile market. It explains why the automobile conflict between the two
countries took place in 1995 by looking at the market share of foreign cars and the
exports and imports of passenger vehicles in the Korean automobile market. Second,
the chapter describes the process of the negotiation chronologically. It traces the
process by the method of “process tracing” which examines the process from starting
time of each negotiation case through its ending time.4 Finally, this chapter analyzes
the significance of the comparative advantage condition and how negotiation process
affects the outcome.
In conclusion, the outcome of the U.S.-Korea automobile negotiation in 1995
was the U.S. gain, for which we assigned the value of 6, due to the victory of the U.S
strategy. First, the U.S. gained by using an offensive value claiming strategy, which
4 King, Keohane and Verba 1994, 224-228; George and McKeown 1985, 35.
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128
means “a set of actions that promote the attainment of one party’s goals at the
expense of those of the other parties” and the “attempt to take value from the
others.”5 The strategy includes threatening trade sanctions under Section 301 of the
1974 Trade Act, such as the imposition of retaliatory duties and import restrictions
and the suspension of trade agreement concessions. The U.S. looked credible the
threat of retaliation, since the U.S. took the same procedural action in the U.S.-Japan
automobile negotiation case which ended in June 1995, before the U.S.-Korea
automobile dispute was resolved.
Second, to preserve the protection of its home market, Korea used a
defensive value-claiming strategy, which refers to “a set of actions that promote the
attainment of one party’s goals at the expense of those of the other parties” and
which “aim to prevent others from taking one’s own value.” 6 The strategy includes
the delay of the concession until the last moment to leave the other country little time
for further demands.
4.1. The basic context of the U.S.-Korea automobile market-opening negotiations
4.1.1. The imbalance in the automobile trade between the U.S. and Korea
Since the late 1980s, the Korean auto industry had been growing at a
frightening pace in the world automobile market and the nation's five major
5 Odell 2002, 40-41. For the concept of strategy and tactics, this paper used Odell (2002)’s definition
of a strategy, which is classified into value claiming strategy, value creating strategy, and mixed
strategy. For details, see Section 1.2 (definitions and assumptions) in Chapter 1 .
6 Ibid.
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129
automakers had a vision of manufacturing five million units by the end of the
century. According to USTR, Korea’s automobile industry moved from the ninth
largest motor vehicle manufacturer in the world in 1991 to the fifth largest in 1995,
and Korea was the world's third largest auto exporter after Japan and the European
Union in 1995.7 As in Table 4.1, in 1995 the Korean auto industry produced more
than 2.5 million vehicles, while the domestic demand of vehicles amounted to 1.5
million. In the same year, they exported around 1 million, which amounted to 38.7
percent of its total domestic motor vehicle manufacturing.
Table 4.1: Demand and supply of automobiles in the Korean market, 1992-2002
(unit: in thousands and %)
Year
Production Domestic Demand Export Import
Amount Change Amount Change Amount Change Amount Change
1992 1,730 15.5 1,268 14.9 456 16.9 n/a -
1993 2,050 18.5 1,436 13.2 639 40 13 -
1994 2,312 12.8 1,556 8.3 738 15.6 14 4.1
1995 2,526 9.3 1,556 0 979 32.6 19 33.8
1996 2,813 11.3 1,644 5.7 1,210 23.7 25 35.3
1997 2,818 0.2 1,513 -8 1,317 8.8 20 -19.9
1998 1,954 -30.6 780 -48.5 1,362 3.4 3 -85.2
1999 2,843 45.5 1,273 63.4 1,510 10.9 6 90.1
2000 3,115 9.6 1,430 12.3 1,676 11.1 11 96.8
2001 2,946 -5.5 1,451 1.5 1,501 -10.4 17 49
2002 3,148 6.8 1,622 11.8 1,510 0.6 30 83.3
Sources: Korean Automobile Manufacturers Association; Import: Korean Customs Service;
compiled in the homepage of Ministry of Commerce, Industry and Energy in Korea
(http://www.mocie.go.kr)
Note: The amount is based on completed passenger vehicles
7 USTR, The 1995 Annual Report and the 1996 Annual Report, which can be seen in USTR’s website
(http://www.ustr.gov/html, http://www.ustr.gov/reports/index.shtml).
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130
However, the import amount of foreign vehicles in Korea was rather small. In
1995, Korea imported only 19,000 foreign vehicles. The imbalance of export and
import in the Korean market made the U.S. industry complain that Korea's market
for autos was closed to foreign cars.
4.1.2. The main issues in the U.S.-Korea automobile negotiations
Over 1993 the U.S. automobile industry pushed its government to negotiate
with the Korean government and to correct the imbalance of automobile trade with
Korea. The U.S. industry argued that the sales gap between the Korean and foreign
cars in Korea was mainly due to the factors such as the unfair structure of
incremental annual internal tax and high tariff rate.
First, Table 4.2 shows that Korea’s tax structure was cumulative, which
would bring about the effect of increasing incrementally the price of the luxurious
cars with higher engine size. Before negotiation, the annual tax for the large car with
engine size above 3,500cc was 630 won/cc and was four times higher than the tax for
the small car with the engine size below l,500cc. The large cars were supposed to be
imported rather than domestic cars. Thus, the U.S. government demanded to the
Korean government that Korea’s accumulative internal tax be replaced with a
uniform levy for all engines, so that the change in tax structure could offer to the
Korean consumers an incentive to buy American cars with large engine size.
8 USTR, The 1995 Annual Report and the 1996 Annual Report, which can be seen in USTR’s website
(http://www.ustr.gov/html, http://www.ustr.gov/reports/index.shtml).
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131
Table 4.2; The annual vehicle tax for passenger vehicles, 1995
Engine size (cc) ~ 1,000 - 1,500 ~ 2,000 -2 ,5 0 0 - 3,000 -3 ,5 0 0
Tax rate
(Won/cc)
Before
negotiation
120 160 220 250 410 630
Negotiation
outcome
(in 1995)
tc u
“
it
310 370
Source: Ministry of Trade, Industry and Energy, 1995, White Paper (September 1995)
Secondly, the U.S. government argued that Korea’s high tariff rate made the
sales price of foreign cars incrementally higher. In October 1993 when the U.S.
raised the issue first, Korea’s tariff rate on automobile import was 10 percent. After
that, Korea changed tariff rate to 8 percent, to be effective in January 1995. However,
the U.S. continued demanding to reduce tariffs on automobiles from 8 percent to 2.5
or zero percent. For this, Korea reacted that the U.S. demand of a 2.5 tariff rate was
unreasonable, on the ground that European nations impose 10 percent and Canada
9.2 percent, even the U.S. and Japan impose 2.5 percent and 0 percent respectively
(see Table 4.3).
Table 4.3: Tariff rates for passenger vehicles of major countries, based on the outcome of
the U.S.- Korea automobile negotiations in September 1995
Korea Japan US EU Canada Australia Taiwan Brazil
8%* 0% 2.5% 10% 9.2% 20% 30% 49%
Source: Ministry o f Trade, Industry and Energy, 1995, White Paper (September 1995)
Note: Korea reduced the tariff rates on passenger vehicles from 10% to 8%, effective
January 1995, according to the Korea’s comprehensive plan on June 22, 1994.
The third issue concerned was the subway bonds that accompany car
purchases, which were more expensive for cars with larger engine capacities. Car
purchasers had to buy subway bonds equivalent to 20 percent of the price of their
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132
cars if they have an engine capacity of 2,000 cc or more. The bonds were only 4-12
percent of the price of the cars of smaller capacities. Fourthly, the U.S. called on the
Korean government to remove restrictions on the establishment of foreign car
financing firms. Foreigners could not hold equity shares of 50 percent or more in
such firms, for fear of foreign domination of Korea's car financing market, then on
the verge of creation. Fifthly, the U.S. requested the Korean government to eliminate
the “locked-time” program allocation system for television broadcast advertising
according to which meant the system that a government-held corporation allocated
advertising during prime time. The U.S. side was concerned that the allocation
system would discriminate against foreign passenger vehicle manufacturers. Besides,
red tape in type approval was also cited as another complaint of U.S. auto exporters.
Table 4.4 summarizes the positions of the U.S. and Korean governments and their
change in relation to the main issues in the automobile bilateral negotiations.
Table 4.4: Change in the U.S. and Korean positions during the negotiations
Issue
Status quo
ante
(October 14,
1993)
Initial position
Outcome
(September
28, 1995)
US
(October 14,
1993)
Korea
(June 22,
1994)
1. Annual internal tax cumulative
tax system
flat and unit
rates
no change partly change
2. Tariff 10% 2% or 0% 8% 8%
3. Subway bond 20% elimination no change partly change
4. Retail financing closed completely open partly open mostly open
5. Television
advertising
regulated completely open partly open mostly open
6. Standards and
certification procedure
regulated liberalization partly open mostly open
7. Consumption
perception
any measures
for improving
perception
no measures commit
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Finally, the effect of the annual tax and the tariff on the price was cumulative
as the price went up, although the annual vehicle tax was applied at the same rate to
both domestic and foreign cars. The U.S. side argued that the irrational Korean tax
structure did harm mainly to the American auto manufacturers that produce and
export large engine size to the Korean market, rather than to European and Japanese
auto makers that export relatively smaller engine size. Table 4.5 shows the
comparison in the price of domestic and foreign cars with the 3,000 cc of same
engine size. In 1993 before the negotiation, the original price was 14,072,300 won
for the foreign car Sable, and 21,475,100 won for the domestic car, Potentia. After
being increased by the tariff and the additional tax, such as the special excise tax and
the annual internal tax, the final price became 42,080,800 won for Sable and
43,248,800 won for Potentia. The price of domestic car increased 201.5 % and that
of foreign car 299.0% from the original price.
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134
Table 4.5: Price gap between domestic and imported cars due to cumulative tax structure
(based on the year o f 1993 before negotiation, and in thousands of Korean Won
and %)
Unit Formula
Imported Car
(Sable: 2,986cc)
Domestic Car
(Potentia: 2,954cc)
Price
Cost
Increase
Price
Cost
Increase
< Purchasing Stage >
A Original Price CIF (1,/Factory Price 14,072.3 100.0 21,475.1 100.0
Q
Tariff A *0.1 1,407.2 10.0
B Special Excise Tax (A+Q) * 0.25 3,869.9 27.5 5,368.8 25.0
C Education Tax B * 0.3 1,161.0 8.3 1,610.6 7.5
R Clearance Charge A * 0.025 351.8 2.5
S Mark-up 6,774.2 48.1
D Value Added Tax (A+Q+B+C+R+S) * 0.1 2,763.6 19.6 2,845.5 13.3
E Selling Price A+Q+B+C+R+S+D 30,400.0 216.0 31,300.0 145.8
< Registration Stage >
F Subway Bond E * 0.20 6,080.0 43.2 6,260.0 29.2
G Delivery Insurance Won 125,900 125.9 0.9 125.9 0.6
H Registration Tax E * 0.06 1,824.0 13.0 1,878.0 8.7
I Other Cost Won 16,280 16.3 0.1 16.3 0.1
J Subtotal F+G+H+I 8,046.2 57.2 8,280.0 38.6
< Ownership Stage >
K Acquisition Tax E + 0.02 608.0 4.3 626.0 2.9
L Annual internal tax cc * 410 * 1.3 1,591.5 11.3 1,574.5 7.3
M Annual Insurance 1,399.0 9.9 1,432.3 6.7
N License Tax Won 36,000 36.0 0.3 36.0 0.2
0 Subtotal K+L+M+N 3,634.5 25.8 3,668.8 17.1
P Total E+J+O 42,080.8 299.0 43,248.8 201.5
Source: Ministry o f Trade, Industry, and Energy (1997.11), White Paper
Note: (1) Original price of imported car is GIF (cost, insurance and freight) price.
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135
4.1.3. The initial reactions of Washington and Seoul to the bilateral automobile
conflict
In order to correct the imbalance of its automobile trade with Korea, the U.S.
government began to push the Korean government by threatening to investigate
Korea’s unfair trade practices in accordance wit the Super 301 provisions of the
Omnibus Trade and Competitiveness Act of 1988. Super 301 was passed by
Congress in 1988 and revived by President Clinton’s executive order in 1994.9 The
reason why Super 301 is so threatening to developing countries is because it directs
the administration to target the most harmful trade barriers erected against U.S.
companies and then impose trade sanctions if negotiations fail to remove them. In
other words, when a trade practice is cited as a priority under Super 301, negotiations
can ultimately lead to the threat of trade sanctions under Section 301 of the 1974
9 On March 3, 1994, the U.S. President signed Executive Order (#12901) reinstituting for calendar
years 1994 and 1995 the "Super 301" provisions of the Omnibus Trade and Competitiveness Act of
1988, as an amendment to section 310 of the Trade Act of 1974. Following that, on September 27,
1995, the President amended Executive Order (#12901) to extend it to calendar years 1996 and 1997.
The executive order requires that within six months of the submission of the annual National Trade
Estimate (NTE) report the U.S. Trade Representative shall review U.S. trade expansion priorities and
identify those priority foreign country practices the elimination o f which is likely to have the most
significant potential to increase U.S. exports. Since the NTE report is usually released by the end of
March of each year, the Super 301 report is supposed to be released at around the end of September.
The Trade Representative is also required to report to the Senate Finance Committee and the House
Ways and Means Committee on any such practices. The Trade Representative may also cite in the
report practices that may warrant identification in the future or that were not identified because they
are already being addressed and progress is being made toward their elimination. Within 21 days after
the report is submitted, the Trade Representative must initiate section 301 investigations of any
priority foreign country practices identified in the report. Details can be seen in the website of the
USTR (http://www.ustr.gov/html/1994_super301 .html)
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136
Trade Act.1 0 Thus, the U.S. Super 301 provisions can be a powerful threat to those of
its trading partners which are greatly dependent on their trade with the U.S. As
explained in detail in the foot note cited above, in 1995 the Super 301 report was
supposed to be released by midnight September 27 according to the related rules,
which was the last date within six months after the submission of the annual National
Trade Estimate (NTE) report. The USTR imposed the date of September 27 as the
deadline for resolving the U.S.-Korea automobile dispute.
Korea’s highest priority was to avoid being put on the priority list of unfair
trade practices of foreign countries, which would be determined on September 27. If
they were to be placed on that list, their losses, economic and politic, would be
substantial. Economically, if Korea were to be designated as a PFCP, it would have
to negotiate with the U.S. government for 12 months more and might have conceded
more to the U.S. demands to avoid retaliation tariff from the U.S. Even though Korea
would bring this issue to the WTO, the possibility of Korea’s winning the case was
not certain and would take a long time. Politically, the Korean government would be
criticized for not carrying out a reasonable foreign trade policy and for not
preventing trade conflicts with the U.S., and the Korean leading party in power
would be likely to lose some support in the next year’s congressional elections.
1 0 If the trade conflict is not resolved by bilateral negotiations during the period of 12-18 months, the
range of actions that may be taken under Section 301 is broad and encompasses any action that is
within the power o f the President with respect to trade in goods or services or with respect to any
other area o f pertinent relations with a foreign country. Specifically, the USTR may: (1) suspend trade
agreement concessions; (2) impose duties or other import restrictions; (3) impose fees or restrictions
on services; (4) enter into agreements with the subject country to eliminate the offending practice or
to provide compensatory benefits for the United States; and/or (5) restrict service sector authorizations.
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4.2. The negotiation Process: the American threat to open the Korean automobile
market
This section describes specific process of the U.S.-Korea automobile market-
opening negotiations chronologically. It traces the process over time to analyze how
the negotiation outcome was determined. In this chapter, the case of the automobile
th
trade conflict between the U.S. and Korea is examined starting from the 15 Korea-
U.S. Trade Action Group (TAG) meeting on October 14, 1993 when the U.S.
government raised the issue officially. (For detail chronology of the automobile trade
conflicts between the U.S. and Korea, see Appendix D.) After having gone through
almost two years of conflict, the two countries made an agreement on their bilateral
automobile trade in Washington D.C. on September 27, 1995. Accordingly, the
outcome of the automobile negotiation case was that Korea committed to take
actions to expand the market access of foreign cars in the Korean automobile market,
which was favorable to the U.S.
4.2.1 The development of the automobile trade conflict between the U.S. and Korea
A bilateral negotiation process for market opening between stronger and
weaker countries tends to have a routine path. A stronger country threatens its
weaker partner; then the weaker country reacts whether it concedes completely as the
stronger country demands, accepts its demands only partially, or resists accepting
them at all. The case of the automobile negotiation between the U.S. and Korea
Details can be seen in the web site of USTR (http://www.ustr.gov/reports/2003Annual/VI-
trade_enforcement.pdf).
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followed the same track. The automobile trade conflict started first between the U.S.
and Japan. In January 6, 1993, the heads of the Big Three - Chrysler Corp., Ford
Motor Co. and General Motors Corp. met with president elect Bill Clinton. In the
meeting, the U.S. automobile manufactures called for a managed trade policy and
urged President elect Clinton to craft a more stringent trade agreement that would
reduce the trade deficit with Japan.1 1 At this time, the U.S. auto industries did not
push its government to open the Korean market yet, because they had chosen to
target the Japanese market first. On June 22,1993, the Big Three delivered their
opinions to President Clinton in order to initiate their efforts to open the Korean
automobile market.1 2 At that time, the U.S. automakers contended that Korea's
barriers to foreign autos were greater than those in Japan and urged the
administration to target South Korea as a Super 301 offender.
However, since the U.S. and Korean governments were, at this time,
consulting concerning the launch of a Presidents’ bilateral consultation mechanism
between two countries, the demand of the American automakers had not
immediately addressed. In July 1993, the U.S. and Korea agreed to a framework for
a dialogue on economic issues, the so-called “Dialogue for Economic Cooperation
(DEC),” which replaced the Bush administration’s Presidents’ Economic Initiative
(PEI). DEC sought to address customs and import clearance procedures, regulatory
1 1 International Trade Reporter, January 20, 1993.
1 2 Ministry o f Trade, Industry and Energy. 1994. Korean Position Paper on the U.S.-Korea
Automobile Negotiation (June 1994)
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139
procedures, investment, and technology.1 3 While the PEI focused on current
economic issues between the two countries, the economic cooperation agreement
targeted future relations. The U.S. called on Korea to ease restrictions on foreign
participation in its financial services sector, and Korea pledged to eliminate most
restrictions on direct foreign investment by 1997. This mechanism was not based on
current economic issues. Rather, it was a comprehensive mechanism for economic
cooperation, like the Structural Impediments Initiative (SII) between the U.S. and
Japan.1 4
4.2.2. The impasses in the automobile negotiations
In October 14, 1993, the U.S. government presented its demands for opening
the Korean automobile market officially for the first time on the negotiation table in
the 15th regular Korea-U.S. TAG meeting held in Seoul. The TAG meeting between
two countries had been held regularly twice a year in Washing, D.C. and Seoul in
turn, headed by a chairperson of the working level of both governments. This
meeting aimed at conveying the current trade issues of their respective industries of
the countries to each other.
However, the Korean government did not think seriously about the U.S.
request about the automobile issue during the TAG meeting.1 5 At that time, the U.S.
side just demanded the Korean government to take any kind of measures to make
1 3 International Trade Reporter, July 7, 1993.
1 4 For the details of SII between the U.S. and Japan, see Schoppa 1997.
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Korea’s automobile market more open, which was not sufficiently specific. On the
other hand, the agreements about DEC had been implemented in a specific manner.
As is typical in trade conflicts at the initial stage, the Korean government understood
it as the U.S. industry just registering its demands with its government, and,
consequently, did not take it seriously. Instead, the Korean government thought that
the main concern of U.S. government would be the tax audit concerning luxury
goods. The U.S. was concerned that the Korean government had been using as a
selection criteria for tax audits only the fact that a taxpayer owned luxurious foreign
car. Thus, the focus of the Korean response was to appease the U.S. concern about
the tax audit. Thus, in February 1994, the Korean government issued a public
statement that the Korean Office of National Tax Administration would not use
ownership of a foreign car as a selection criterion for tax audits. The Korean
government also agreed to phase out the tax forms that required taxpayers to disclose
the make of their vehicle.
On March 31, 1994, in the USTR report of national trade estimates of foreign
trade barriers, the USTR mentioned for the first time specifically Korea's informal
and formal restrictions on motor vehicle imports. In the report, first, the U.S. main
concern was the Korean consumer's perception that a purchase of an imported motor
vehicle would subject them to governmental scrutiny and potential harassment, for
example through tax audits.1 6 The blatant anti-import campaign of the mid-1980s
1 5 Interview with a government official from the Ministry of Trade, Industry and Energy in Korea who
was preparing for the U.S.-Korea automobile negotiation in September 1995.
1 6 USTR. 1994. The 1994 Annual report on national trade estimate on foreign trade barriers.
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had waned, but the local press continued to signal that imports — especially high-
priced imports — were undesirable. The U.S. requested Korea to take a more
concerted action to reverse the effects of the past campaigns against imported cars.
Second concern was about taxes. Motor vehicles sold in Korea were subject to eight
taxes or bonds. While the taxes were applied to both imported and domestically-
produced motor vehicles, the U.S. argued that the cumulative taxes effectively
discriminated against U.S. motor vehicles since they were based on engine size.
Third, the U.S. also wanted progress in facilitating the certification of U.S. cars to
meet the Korean safety and emissions standards. Moreover, the U.S. requested Korea
to further reduce their import tariffs on vehicles and parts to levels closer to those in
the U.S. market and to liberalize residual restrictions on foreign participation in
consumer financing.
For April 4 and 5, 1994, in the 16th Korea-U.S. TAG meeting in Washington,
D.C., both countries failed to move forward on the automobile issues. However, the
first breakthrough of the trade conflict was brought out by Chulsu Kim, Korean
Minister of trade and Industry who had participated in the GATT Ministerial
Meeting held in Marakesh, Spain in April 1994. On April 13, 1994, Minister Kim
had a bilateral meeting with the US Trade Representative Mickey Kantor in
Marakesh, Spain. At that moment, he confidently committed to present a
comprehensive action plan for opening the automobile market “as soon as
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possible.”1 7 But, the automobile issue was too complicated for only one ministry to
entangle it, since several ministries were involved in resolving it. Since he thought
there were no tangible measures being implemented by the Korean government,
USTR Kantor sent a letter on May 27, 1994 to Minister Kim, which indicated the
strong intention of the U.S. government to open the Korean auto market.
At the same time, the U.S. automakers continued to press both governments
to open the Korean market. On June 14, 1994, the American automakers’ trade group
traveled to Seoul to make clear that Detroit wants access to the growing Korean
market. In this travel, they asked the Korean government to import more than 50,000
1 8
foreign vehicles per year. They estimated, “if the U.S. car industry did not face
biases on the part of the Korean government, it could sell 50,000 cars annually in
Korea.” As in the previous table, in 1993 and 1994, Korea imported 13,340 and
13,889 foreign passenger vehicles respectively.
On June 22, 1994, the Korean delegation consisting of related ministries’
representatives flew to Washington D.C. to participate in the 12th Korea-U.S.
Economic Consultation Meeting. At that meeting, the Korean government presented
the proposal for “the Comprehensive Action Plan,” which committed Korea to taking
steps to improve access for imported motor vehicles to the Korean market, including
tariff reduction and the streamlining of several restrictions related to foreign car
1 7 Ministry of Trade, Industry, and Energy. 1997. The White Paper on the U.S.-Korea automobile
negotiation (November 1997)
1 8 International Trade Reporter, June 15, 1994.
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143
imports.1 9 Specifically, the proposal included the following steps to improve access
for imported motor vehicles: (1) tariffs were reduced to 8 percent beginning January
1, 1995, following a prior reduction from 15 to 10 percent in 1994; (2) foreign
investment restrictions were eliminated on the floor space and number of automobile
showrooms; (3) radio and television advertising time was liberalized; (4) U.S.
companies would be allowed to participate in the 1995 Seoul auto show; (5)
restrictions were liberalized on foreign participation in automotive and other types of
consumer financing by allowing foreign non-controlling participation of up to 49
percent; (6) the standards approval process was modified to make it less burdensome
for importing; (7) restrictions were liberalized on foreign-owned retail distribution.
However, since this proposal did not include any measures about the tax
reduction that the U.S. government was interested most in, it did not look likely that
the U.S. would bring to a conclusion the automobile disputes by accepting only the
9 0
proposal. As was expected, on July 27,1994, the U.S. government delivered an
official opinion on the Korean proposal which stated that it was welcome but further
discussions would be needed on tariff and tax.2 1 In particular, the United States
requested Korea to take a more concerted action to reverse the effects of the
campaign against imported cars initiated in 1991, as well as to reduce taxes based on
engine size and value. But, Korea’s stance on tariff and tax was rather strong. The
1 9 Ministry of Trade, Industry and Energy. 1994. Korean Position P aper on the U.S.-Korea
Autom obile N egotiation (June 1994); International Trade Reporter, June 22, 1994.
2 0 International Trade Reporter, June 29, 1994 (Vol.l 1, p. 1039), and July 13, 1994 (Vol. 11, p. 1108).
2 1 Ministry o f Trade, Industry and Energy. 1997. The White Paper on the U.S. -Korea Automobile
Negotiation. (November 1997)
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144
Korean government insisted on making no change on its 8 percent tariff and
cumulative tax structure. As a result, the 17th Korea-U.S. TAG meeting, which was
held in Seoul in September 1994, didn’t produce any solution. Both sides remained
in the same positions.
Finally, in the 1994 report of Super 301 released in October 1994,2 2 the
USTR designated the Korean auto market as “Area of Concern” rather than “Priority
Foreign Countries Practice (PFCP)”. As explained in the previous section, the
designation as the PFCP by Super 301 was an instrument of the U.S. Trade
Representative to introduce punitive measures against trading partners. However, as
the preliminary stage for PFCP, the USTR introduced a new concept of “Area of
Concern” in 1994, which meant that the trade practice of the foreign country still
remained significant as U.S. trade negotiation issues and was being addressed by
related trade remedy measures, including bilateral trade negotiations.
Nevertheless, during about ten months since the designation of “Area of
Concern” in October 1994, several meetings between the two governments did not
produce any further progress. For example, on February 6, 1995, U.S. Trade
2 2 According to the U.S. Executive Order #12901 on the “Super 301”, on October 3, 1994, the U.S.
Trade Representative released the 1994 Super 301 report to the Congress on foreign country practices.
In the report, the U.S. Trade Representative decided not to identify any ‘Priority Foreign Country
Practices (PFCP)’ at that time, but noted that Japan's market access barriers for wood and paper may
‘Warrant Identification’ in the future. And, the USTR also defined the following practices as ‘Area of
Concern’, which remained significant as U.S. trade negotiation issues and were being addressed either
by the other provisions o f the U.S. trade law, or by existing bilateral agreements or by trade
negotiations: Korea’s market access for automobiles, European Union’s utilities directive, Canada’s
dairy and poultry measures, India’s market access for textiles, intellectual property rights protection in
China, financial services market access negotiations, telecommunications market access negotiations
and negotiations on accession to the WTO. The original contents can be seen in the web site o f USTR
(http://www.ustr.gOv/html/l 994_super301 .html).
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Representative Mickey Kantor and Korea’s new Minister of Foreign Affairs Gong
Ro-Myong had a bilateral trade talk.2 3 Moreover, although both countries had the
18th Korea-U.S. TAG meeting and trade ministers meeting reciprocally in
Washington, D.C. in April and July 1995 respectively, there still was no progress.
Korea, however, in June 1995 at the Korea-U.S. Automobile Working Group
meeting in Seoul, proposed a little more developed action plan which left the tax and
the tariff rates unchanged.2 4
4.2.3. The preliminary meeting on the tax issue (September 11-12, 1995,
Washington, D.C.)
In August 1995, the conflict became urgent. According to the Super 301
related regulation, the USTR began to identify priority foreign countries’ practices
which were due on September 27, 1995.2 5 By August 4, 1995 the USTR received
complaints about unfair trading practices of foreign countries in the process of
selecting targets for PFCP. The U.S. automakers and the U.S. automobile association
96
filed complaints with the USTR about Korea’s unfair trading practices. In their
comments to the USTR, the U.S. Big Three automakers expressed dissatisfaction
with their limited access to the Korea’s automobile market and gave suggestions to
2 3 International Trade Reporter (February 8, 1995, Vol. 12, p.254) says, “discussions on the subject of
autos were brief and also frustrating to U.S. officials.”
2 4 Ministry o f Trade, Industry and Energy. 1995. Position report for the U.S.-Korea automobile
negotiation
2 5 According to Executive Order #12901 on the "Super 301", also in 1995, the U.S. Trade
Representative should review U.S. trade expansion priorities and identify those priority foreign
country practices (PFCP) by September 27, the date o f six months after annual National Trade
Estimate (NTE) report is released. The USTR publicizes its findings in order to receive public
comments from interest groups about foreign unfair practices by August 4.
2 6 International Trade Reporter, August 9, 1995 (Vol. 12. p .1338); Korea Times, August 7, 1995
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use 301 threats to Korea. The American Automobile Manufacturers Association
(AAMA) also recommended that Korea’s car market be cited as a U.S. market access
priority under the annual process referred to as Super 301. These strong complaints
from the U.S. industry forced the Korean government to respond to the filing. In
general negotiation cases, the U.S. government had been reacting depending on the
demand of the U.S. domestic industry. Thus, prior to its consultations with the USTR,
the Korean government started preparing a comprehensive proposal to convince the
U.S. government and the U.S. car industry that maximum efforts were being made to
improve the import conditions for foreign products. Nevertheless, the full-scale war
between the two countries was getting continuing to unfold.
In early September, both governments agreed to hold a face-to-face meeting
in mid-September to resolve the thorny issue before Washington named Seoul an
unfair trading partner on September 27. And, this agreement was secured via the
Korean embassy in Washington. At this time, the U.S. government held the strong
stance that if Korea would not propose more additional measures about the tax and
the tariff, the U.S. would designate Korea as a PFCP country.2 8 The U.S. automobile
industry also asked the USTR to consider some kind of a multilateral action through
2 7 Interview with a government official from the Ministry of Trade, Industry and Energy in Korea who
was preparing for the U.S.-Korea automobile negotiation in September 1995. At this time, the Korean
government admitted some problems as mentioned in the filing and began to talk to the U.S.
government in order to resolve the issue amicably. Details can be seen in Automotive News (August
14, 1995)
2 8 International Trade Reporter, September 20, 1995 (Vol. 12. p. 1565); Ministry of Trade, Industry and
Energy. 1995. Position report for the U.S.-Korea automobile negotiation (September 1995); Korea
Times, September 7, 1995
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90 •
the WTO in addition to U.S. trade law remedies. Unless there was some progress in
Korea's car import policy, Korea was certainly expected to be put on the action
priority list that could lead to U.S. sanctions in accordance with Super 301, with the
automobile case with Japan in June serving as the precedent. However, Korea
wanted to avoid being put on the priority list of unfair trade practices of foreign
countries.3 0 If Korea were to be placed on the PFCP list, it would take a political risk
of being criticized for having failed in its foreign trade policy with its biggest trading
partner.
Strategically, the Korean side proposed to hold a preliminary meeting on tax
in Washington, D.C. before the formal meeting set for September 19-21, which gave
both parties their first chance to achieve a breakthrough. The Korean negotiators
thought if it resolved first the most critical issue in the negotiation - the reduction of
the tax and the tariff, - it would have more available alternatives in the other issues
such as standards and certification procedure, retail financing, and television
advertising.3 1 In September 11 and 12, Christina Lund, Deputy assistant USTR and
Chung Duck-Koo, Korean director general in charge of external trade affairs at the
* 32
Ministry of Finance and Economy had a secret meeting in Washington, D.C.
In this meeting, the Korean government proposed to lower the special excise
tax rate from the current 25 percent to 20 percent in 1996. The special excise tax was
2 9 International Trade Reporter, September 20, 1995 (Vol. 12. p. 1565)
3 0 Interview with a government official from the Ministry of Trade, Industry and Energy in Korea in
September 1995.
3 1 Interview with a government official from the Ministry of Trade, Industry and Energy in Korea in
September 1995.
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148
levied on the major consumer products such as cars, air conditioners and cameras to
prevent their excessive consumption.3 3 The reduction of the special excise tax was
the government's symbolic acknowledgement that such goods as cars, cameras, air
conditioners, wristwatches and TV projectors were no longer luxury consumption
goods subject to punitive taxes. Deluxe cars with an engine capacity of more than
2,000 cc were included among the items subject to the reduction of this special
excise tax. However, the pre-meeting on the tax issue turned out to be fruitless. The
U.S. government and industry contended that the effect of the reduction of the
special excise tax rate would be insignificant.3 4 Then, just after the preliminary
meeting, the Big Three automakers sent a letter to the White House to ask the U.S.
government to pressure Korea into opening its market to more American-made cars.
4.2.4. The first negotiation (September 19-21, 1995, Washington, D.C.)
Finally, on September 19, with a view to the Super 301 review, the American
and Korean delegations sat in a conference room at the USTR in Washington, D.C.
to negotiate market access for foreign passenger vehicles in the Korean market. The
U.S. side was led by Deputy Assistant USTR Christina Lund, and the head of Korean
10-man delegation was Hahn Young-soo, Director General for international trade in
Ministry of Trade, Industry and Energy (MOTIE). However, to increase the political
3 2 Korea Times, September 15, 1995
j3 Korea Times, September 16, 1995
3 4 United Press International, September 15, 1995
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149
weight of the Korean delegation,3 5 the Korean government had Deputy Minister in
MOTIE, Han Duck-soo, the boss of the chief Korean negotiator Hahn Young-soo,
sent to Washington together with it. Deputy Minister Hahn assumed the role of
quickly coordinating the issues and of discussing them with the related Ministries in
Korea. His negotiation counterpart in the U.S. was the Assistant U.S Trade
Representative Robert Cassidy.
The U.S. and Korea negotiators were initially scheduled to meet for three
days from the 19th until the 21st. During the first day, both delegations didn’t narrow
differences in several issues, because both the Korean and U.S. delegations didn’t
hold a flexible attitude about the tax and the tariff cuts.3 6 With regard to the tariff, the
U.S. delegation insisted on a reduction from the current import tariff of 8 percent to
as low as 2.5 percent or 0 percent. With regard to the tax, the U.S. insisted on easing
the cumulative tax structure by basing on a flat rate or reducing the tax rate. The
Korean government maintained its initial insistence on no further reductions in either
the tax or the tariff, except for the special excise tax on luxury automobiles with
engine capacities of more than 2000cc during the September 11th meeting. Thus,
3 5 The author participated in the preparatory meeting for the U.S.-Korea automobile negotiation on
September 18, 1995. The additional visit to Washington by a Korean higher level official could show
to the U.S. government Korea’s willingness to resolve the trade issue. Furthermore, the higher-level
delegation could contribute to making a quick determination and to being more flexible when a
negotiation position needed to change. The higher-level negotiator could also save time to make the
U.S. side understand more easily the position of the related ministers, so that the negotiation could
finish in time. For example, in the U.S.-Korea automobile meeting in Washington, D.C., Deputy
Minister Hahn, a senior level negotiator, could explain the situation directly to the Korean Ministers
in Seoul. He was also able to ask them more easily to establish its final position on the tax issue. As a
result, in the morning o f September 27, Deputy Premier-Finance and Economy Minister Hong Jae-
Hyong chaired a trade-related ministers meeting and could give a quick approval of Korea’s changed
positions to the Korean delegation.
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even before the negotiation began, trade experts saw little likelihood that the dispute
could be resolved quickly in the sense that Korea's barriers, consisting of cumulative
-in
tax structure and tariff, continued to remain substantial.
To bring about a breakthrough in the negotiation, Korea offered to reduce its
annual taxes on vehicles with large engine capacities. At the second day, the Korean
delegation proposed a changed position on the tax reductions, promising to
rationalize the accumulative tax structure applied to large vehicles. Initially,
Korea’s strategy was that the Korean headquarter would not give any discretion
about the tax reduction to the Korean delegation lest the delegation should succumb
to a U.S. value claiming strategy.3 9 If they needed to change their mandate on the tax
issue, they had to report to the headquarters of the related ministries to receive a
permission to do so. Leaving received the approval from the headquarters, the
Korean delegation offered to cut the annual tax on automobiles with engine
capacities of between 2,500cc and 3,000cc and of over 3,000cc, from 410 and 630
won per liter respectively to 330 and 410 won.4 0 This change of the position was
made largely in recognition of the fact that the tax for automobiles between 2,000cc
3 6 Ministry o f Trade, Industry and Energy. 1997. The White P aper on the U.S.-Korea Automobile
Negotiation. (November 1997)
3 7 Korea Times, September 19, 1995
3 8 Ministry of Trade, Industry and Energy. 1997. The White P aper on the U.S.-Korea Automobile
Negotiation. (November 1997)
3 9 Interview with a government official from the Ministry of Trade, Industry and Energy in Korea in
1995
4 0 Ministry o f Trade, Industry and Energy. 1997. The White P aper on the U. S. -Korea Automobile
Negotiation. (November 1997)
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151
and 2,500cc, in which category 75 percent of European cars fall, was considerably
cheaper at 250 won per liter.4 1
During the third day, September 21st, the U.S. side insisted on its position of
a flat 250-won auto tax for all cars above 2,000cc.4 2 The U.S. side asked the Korean
delegation to have the Assistant USTR Robert Cassidy and Deputy Minister Duck-
soo Hahn join the real negotiating team, both of whom had remained in the back.
The background in which the U.S. proposed officially a meeting of these higher-
level negotiators was that there had not been any significant progress on such critical
policy issues as the tax.4 3 The three-day negotiations were not very fruitful for the
U.S. side. Thus, the American automakers complained strongly about the outcome of
the three-day negotiations between the two countries. President Card of the
American Automobile Manufacturers Association (AAMA) commented “the round
of talks has been disappointing and Korean offers are inadequate.” And he said,
“America’s Car Companies stand behind our government taking the strongest
measures needed to open Korea’s auto market.4 4
As far as Korea’s change of its position in relation to the tax rates is
concerned, the U.S. still insisted on its initial position. The U.S government needed
some time to review Korea’s proposal with its industry. The Korean delegation
stayed during that weekend at a hotel, impatiently waiting to see whether the Korean
4 1 Korea Times, September 23, 1995
4 2 Ministry o f Trade, Industiy and Energy. 1997. The White Paper on the U.S.-Korea Automobile
Negotiation. (November 1997)
4 3 Ministry of Trade, Industry and Energy. 1995. Position report fo r the U.S.-Korea automobile
negotiation
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152
offer was unacceptable and whether they could expect more demands to open the
Korean market wider to American automakers. The U.S. government needed more
time to discuss with the U.S. automakers the Korean proposal on the tax reductions
and whether it could make the Korean market more accessible to American
automakers.
On the other hand, the Korean industry planned to have a campaign to
support the position of the Korean government while it was negotiating with the U.S.
On September 19*, 1995, a delegation from the Korea Automobile Manufacturers
Association (KAMA), headed by chairman Han Seung-jun, left for Washington for a
dialogue with representatives of the American Automobile Manufacturers
Association. The Korean industry delegation explained recent changes in the Korean
market and sought long-term means for resolving outstanding issues. However, this
kind of move was too small for the U.S. government and industry to regard it as
significant.
4.2.5. The second negotiation (September 25-27, 1995, Washington, D.C.)
After the weekend, in the early Monday morning of September 25, the U.S.
notified its intention to resume the negotiation on 10:30 on that day. The new agenda
of the U.S. side focused mainly on how much Korea should reduce the tax rate on
luxury automobiles with large engines. However, the second round of negotiations
seemed not to be easy because in the third day the Korean government thought that
4 4 PR Newswire, September 21, 1995
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153
the reduction in the tax was a concession made after the Korean delegation had
vowed not to give in to pressure for further tax reductions. However, the USTR
called for further cuts so as to realize an overall reduction in the cost of American
vehicles by as much as 20 percent compared to the 15-percent proposed by the
Korean government.
On September 26, Korea finally revised its proposal on a cut of the
automobile tax on cars with engine capacity of 2,500cc or more. In the revised
proposal, the Korean delegation proposed that the automobile tax on cars with more
than 3,000cc would be slashed from 630 won per cc to 370 won and that on 2,500-
3,000cc cars from 410 won to 310 won. The quadrennial tax was to be levied on both
locally-produced and imported cars. The revised proposal was approved by a trade-
related ministers’ meeting chaired by Deputy Premier-Finance and Economy
Minister Hong Jae-hyong in Korea just an hour before the start of the negotiations in
Washington, D.C. Just after receiving the approval from the headquarters, the
Korean delegation conveyed Seoul's revised proposal to the U.S. Trade
Representative Mickey Cantor. The time was around 10:30 p.m. on September 26,
one day before Trade Representative Mickey Cantor was to report the deal with
Korea to the U.S. Congress. Korea also proposed that the ban on TV commercials of
foreign cars during prime hours would be renegotiated between the U.S. Embassy
and the Korea Broadcasting Advertising Corporation (KOBACO) later. On
September 27, without knowing whether the U.S. Trade Representative accepted
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Korea’s tax proposal, both parties discussed only a draft of the agreement, with a
blank in place of the tax-related paragraph in it.
Around the midnight of September 27, the U.S.-imposed deadline for
resolving the dispute, Assistant USTR Robert Cassidy gave a phone call to Deputy
Minister Hahn at the hotel to come over to the Office of USTR Kantor with Korean
Ambassador Park in the morning of the next day. In the morning on September 28, in
the Office of USTR Kantor, USTR Kantor accepted Korea's proposal on the tax cut
for cars. Successfully, USTR Kantor got the concession from Korea of the tax
change, even if its magnitude was rather small.4 5
4.2.6. The negotiation outcome
Finally, the U.S. and Korean governments concluded a Memorandum of
Understanding (MOU) on market access for foreign passenger vehicles. Main
agreements that the Korean government made are as follows: (1) to liberalize
standards and certification procedures, (2) to reduce taxes that discriminate against
imported vehicles, (3) to permit foreign advertisers equal access to television
advertising time, (4) to allow foreign majority ownership of auto retail financing
entities, (5) to improve consumer perception of auto imports in Korea, and (6) not to
introduce any new measures that adversely affect market access.4 6 Specifically, in
terms of the tax, Korea would reduce the cumulative internal tax on cars with engine
4 5 Korea Times, September 29, 1995
4 6 For the original contexts o f the MOU on automobile negotiation between the U.S. and Korea in
September 1995, see Appendix E.
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155
capacities of 2,500- 3,000cc to 310 won from the current 410 won and those over
3,000cc to 370 won from 630 won (see Table 4.3). The tax cut would be put into
force January 1, 1996 along with a reduction in the excise tax on cars with engines
larger than 2,000cc from the current 25 percent to 20 percent. At the same time, the
restrictions on television commercials for imported vehicles during the prime time
would be lifted on October and those on the establishment of financing companies
specializing in automobile installments in 1997. Safety tests would also be conducted
on every 1,000th car instead of the current 100th on an annual basis from 1998 as
part of the homologation process for accepting the technical evaluation from the
government of the imports. On the question of changing consumers’ sentiment
against foreign cars, the Korean delegation pledged that Seoul would continue to
make efforts to dispel negative perceptions allegedly fueled by frugality-oriented and
other national campaigns. As for the tariff was concerned, it was not ever mentioned.
What was the outcome of the automobile negotiation in 1995? How favorable
was it to the U.S.? Table 4.6 shows the change in the sales amount of foreign cars in
Korea. The sales amount of foreign cars in Korea has been increasing year by year,
after the import of foreign cars to Korea was liberalized in 1988. For example, in
1994, the sales amount of foreign cars in Korea had increased at a rate of 95 percent
comparing to the previous years, and in 1995 and 1996, at a rate of 79 percent and 49
percent.4 7
4 7 The drastic fall of the sales amount in 1997 and 1998 was due to economic crisis in Korea in
November 1997.
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Table 4.6: The sales amount o f foreign cars in Korea, 1988-2000 (unit: number and %)
Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Total
sales
(% )
263
(-)
1293
(392)
2325
(80)
1736
(-25)
1817
(5)
1987
(9)
3865
(95)
6921
(79)
10315
(49)
8136
(-21)
2075
(-74)
2401
(16)
4414
(84)
Source: Korean Automobile Import Dealers Association (2000)
Note: The parentheses denote the increasing rate of sales amount o f foreign cars in Korea,
comparing to previous year
As explained in Appendix C, for this automobile case, Korea accepted much
of the demands of the U.S., and there was a substantial change such as the change of
more than 10 percent in trade volume after the negotiation. Thus, we classify the
outcome of the auto negotiation as having the value of “6.” This trade volume
change could also be due to lots of other factors’ changes in exchange rates and
changes in the demand for the product, rather than the effect of the negotiation. We
consider this supposition as an alternative interpretation in the next section.
4.3. Analysis
This section analyzes under what comparative advantage conditions and how
the U.S. government gained in the automobile negotiation with Korea. In the final
analysis, the outcome of the U.S.-Korea automobile negotiation in 1995 was due to
the victory of the U.S. strategy. The U.S. gained by using an offensive value
claiming strategy, including the threatening of trade sanctions under Section 301 of
the 1974 Trade Act, such as the imposition of retaliatory duties and import
restrictions and the suspension of trade agreement concessions.
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157
4.3.1. The objective of the initiating country and strategies
The U.S. objective for initiating the automobile negotiation in 1995 was to
open the Korean automobile market. As our hypothesis says, the U.S. industry
gained more in the automobile case (in Chapter IV), in which the U.S. objective was
to open the Korean market, than in the semiconductor case (in Chapter V), in which
the U.S. objective was to increase the protection of its own market.
4.3.1.1. U.S. offensive value-claiming strategy: threat and coalition
We argue that the U.S. strategies affected decisively the extent of the U.S.
gain in the case of the automobile trade conflict. The U.S. gained in the bilateral
automobile negotiation in 1995, by using an offensive value claiming strategy
AQ
including the trade sanction threat to the Korean government. Through the
retaliation threat and a coalition strategy with European automobile exporting
countries, the U.S. government managed to maximize the credibility of its threat to
the Korean government. As a result, the outcome allowed the U.S. gain the
advantage of the expanded market access the Korean market.
The credibility of the threat from the U.S. government
The U.S. government increased the credibility of threat in several ways. First,
the U.S. could increase the credibility of the threat of a retaliation, since the U.S.
took the same procedural action, in the U.S.-Japan automobile negotiation case,
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158
which had been resolved in June 1995 before the U.S.-Korea automobile issue was
processed. In its talks with Japan in early 1995, Washington threatened to
unilaterally impose 100 percent tariffs on luxury Japanese car imports if Tokyo
failed to open up its auto market to U.S. imports. The threat of a trade war between
Japan and the United States was averted at the 11th hour when a compromise
agreement was hammered out in June in Geneva.
The U.S. threat was credible to Korea, a trading partner which is especially
dependent on its trade with the U.S. Korea really wanted to avoid being put on the
priority list of unfair trade practices of foreign countries under the Super 301
provisions of the Omnibus Trade and Competitiveness Act of 1988.4 9 Politically, the
Korean government couldn’t accept the risk that would be originating from Korea’s
designation as a PFCP by Super 301. If Korea were to be placed on the PFCP list, the
government would have to accept the political risk of being criticized for having
failed in its foreign trade policy with the biggest trading partner. Economically, even
though there seemed to be only a small possibility of the U.S. government imposing
sanctions in accordance with Super 301, if negotiations failed, the U.S.
administration could impose trade sanctions against the target country under Section
301 of the 1974 Trade Act.5 0
4 8 For the definition o f offensive value-claiming strategy in general, see Section 1.2 (definitions and
assumptions) in Chapter I and the introduction part in this chapter IV
4 9 Interview with a government official from the Ministry of Trade, Industry and Energy in Korea in
September 1995.
5 0 If the trade conflict is not resolved by bilateral negotiations during the period o f 12-18 months, the
range o f actions that may be taken under Section 301 is broad and encompasses any action that is
within the power o f the President with respect to trade in goods or services or with respect to any
other area of pertinent relations with a foreign country. Specifically, the USTR may: (1) suspend trade
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159
Second, the U.S. government announced publicly several times its
willingness to retaliate against Korea. In a testimony to the hard-line stance of the
U.S. government, U.S. Trade Representative Mickey Kantor emphasized, “sanctions
are inevitable should no acceptable market opening measures be offered before the
end of the month.”5 1 In addition, it was reportedly around early 1995 when the U.S.
was considering taking steps through the WTO to address chronic trade problems
with Korea.5 2 Above all, unusually even just one day before and during the period of
an official meeting, U.S. Trade Representative Mickey Kantor pressed the Korean
government publicly. During his interview by CNBC, Kantor warned that the U.S.
administration might resort to punitive measures, under Super 301, if South Korea
did not redress the huge auto trade imbalance, a measure which could spark a trade
war between the two countries.5 3 Also, Kantor charged “Korea with using taxes and
other approaches to keep U.S. and other foreign cars out of the country.”5 4
Third, the strong recommendation from the automobile industry to the U.S.
government looked most plausible, since the government had usually been very
responsive to the position of the domestic industry. Whenever they had chance,
America's three major auto companies - General Motors, Ford and Chrysler - pushed
agreement concessions; (2) impose duties or other import restrictions; (3) impose fees or restrictions
on services; (4) enter into agreements with the subject country to eliminate the offending practice or
to provide compensatory benefits for the United States; and/or (5) restrict service sector authorizations.
Details can be seen in the web site of USTR (http://www.ustr.gov/reports/2003Annual/VI-
trade_enforcement.pdf).
5 1 Korea Times, September 20, 1995
5 2 International Trade Reporter, February 8, 1995. Vol.12. P.253
5 3 Korea Times, September 20, 1995
5 4 International Trade Reporter, September 27, 1995. Volume 12
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160
the U.S. government to launch a formal investigation against Korea that could lead to
punitive tariffs on the Korean products in a year if no deal was reached.5 5
Finally, there were other speculations that the U.S. would be taking a more
flexible approach to the automobile issue with Korea in view of the fact that an
outright clash would not help the Clinton administration in its election campaign of
1996.5 6 However, in fact, the U.S. had continued using its value-claiming strategy
through sanctions under Super 301 until Kantor accepted Korea’s final offer about
the tax issue in his office on September 28.
The U.S. coalition with European automobile industry
On the other hand, the U.S. industry sought a coalition with the European
industry to push Korea to open up its markets. Agence France Presse reported that
“in an interview with the German magazine Stem, the head of U.S. auto giant
Chrysler, Robert Eaton, said the U.S. should close its market to South Korean cars,
and urged European nations to do the same.”5 7 However, these appeals failed to
produce any reaction from the European auto industry which would be relevant to
trade conflict in question.
5 5 For example, on June 22, 1993, the Big Three pushed President Clinton to pursue its effort to open
Korean market. On August 4, 1995, the three automakers also suggested USTR to use Super 301
threat to Korea. For details, see Appendix D.
5 6 Korea Times, September 22, 1995
5 7 Agence France Presse, March 29, 1995
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161
The victory of the U.S. negotiation strategies
Why did USTR Kantor accept Korea's proposal on the tax cut for cars
without any additional conditions at the Office of USTR Kantor in the morning on
September 28, 1995? Had the U.S. been not completely satisfied with the outcome, it
would have carried out its threat by designating Korea as a Priority Foreign Country
Practice (PFCP) by Super 301 and taking any actions for retaliating. First, the USTR
noticed that the U.S.-Korea automobile negotiation would not be possible to come to
an end at one time, based on its experience of the automobile negotiation with the
Japan.5 8 On June 28, 1995, the U.S. government concluded the two-years’
automobile negotiation with the Japanese government started in July 1993, but it
failed to gain as much as it intended initially, as many observers have indicated
(Schoppa 1997; Bhagwati 1996; Bergsman 1996).5 9 Second, the U.S. target of the
designation of Super 301 in 1995 was not supposed to be Korea.6 0 The U.S. National
Economic Council (NEC), the government agency led by the President, was
concerned that the designation of Super 301 to foreign countries would not
5 8 Interview with Oh, Youngho in June 2004, who was a Korean negotiator of the Korean delegation
in the automobile negotiation in 1995. In July 1995 after theU.S.-Korea auto negotiation was
concluded, in his interview with a U.S. negotiator from the U.S. Commerce Department, Oh (2004)
examined the positions o f the U.S. government agencies such as Department o f Commerce and
National Economic Council.
5 9 In addition, the New York Times thus evaluated the outcome of the U.S.-Japan automobile
negotiation, “it wasn't surprising that even as Japanese Government officials were claiming a huge
victory in the trade talks, a few doubts were arising here about whether the victory was really that
secure.” (New York Times, June 30, 1995). And the newspaper added, “in the end, Mr. Clinton settled
for a deal that requires far less change in Japanese business practices than his political oratory
suggested would have been acceptable.” (New York Times, June 30, 1995). For details, see Kim 1998.
6 0 Oh 2004
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practically benefit the U.S. government.6 1 As a result, in September 1995, the USTR
decided not to identify any priority foreign country practices (PFCP), excluding
Korea from the priority list of foreign countries subject to Super 301 trade
fi)
sanctions. In stead, the U.S administration designated Korea as an “Area of
Concern,” indicating that Washington would not turn off the pressure to fully open
Korea's car market and would continue to monitor the implementation of the
agreement to seek further market opening measures from Korea. Eventually, USTR
Kantor succeeded in inducing the concession from Korea to the issue of taxes
through the threat, even though this concession was rather small.6 3
Thus, in its negotiations with Korea, the U.S. government selected a post
monitoring system of checking continuously the practices in the Korean market,
rather than the diplomatic burden of using Super 301. The U.S. Trade Representative
6 1 In July 1995 after the negotiation was concluded, through his interview with a U.S. negotiator from
the U.S. Commerce Department, Oh (2004) examined the positions o f the U.S. government agencies
such as the Department o f Commerce and National Economic Council.
6 2 In the 1995 Super 301 report to the Congress, released on September 28, the USTR decided not to
identify any ‘priority foreign country practices (PFCP)’, but did note that the following practices may
‘warrant identification’ in the future: Japan's market access for wood and paper products, and China's
market access for agricultural products. The USTR also defined the following practices as ‘Area of
Concern’, which are being addressed by the other provisions o f U.S. trade law, existing bilateral
agreements or in trade negotiations and remain significant U.S. trade negotiating objectives: Korea's
market access for autos, medical devices and agricultural products, European Union utilities directive
and ecolabeling directive, and German market access for power generation equipment. The report also
noted that the United States is addressing the following barriers in the WTO dispute settlement
proceedings: EU banana import regime, EU market access on grains, EU scallops, Japanese excise
taxes on distilled spirits, and Korean residue testing and inspection requirements. The United States is
addressing Canadian dairy and poultry measures and access to the Mexican market for small package
delivery services in NAFTA dispute settlement proceedings. The U.S. continued to seek market
access openings for goods and services in accession negotiations with the 28 countries seeking
membership in the WTO. On the same day the Super 301 report was released in 1995, the Trade
Representative announced an agreement to increase market access for U.S. and foreign autos into
Korea. Details can be seen in the web site of the USTR
(http://www.ustr.gov/html/1996_tpa_monitor_4.html).
6 3 Oh 2004, Korea Times, September 29, 1995
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Mickey Kantor had a news conference in the morning of September 28, 1995, just
after the U.S. and Korean negotiators reached an agreement. He indicated that the
U.S. government preferred post-monitoring the Korean market to designating it
under the Super 301, stating "while more needs to be accomplished to fully open the
Korean auto market, this agreement is a significant step forward in creating a more
competitive environment for U.S. autos".6 4
Finally, the automobile negotiation in 1995 ended, even though the American
car industry was not totally satisfied. American industry issued a statement about the
negotiation results, just after the automobile negotiation ended on September 28,
1995. In this statement, the American Automobile Manufacturers Association
welcomed the progress but said, “significant barriers remain in Korea, including high
tariffs and discriminatory taxes. Much more must be achieved in these areas before
Korea can be considered a truly free and open market for imported autos.”6 5 The
Korean media and automakers also evaluated that the agreement was too damaging
the Korean side, arguing that Korea conceded too much to the U.S. They criticized
that to avoid trade sanctions from Washington, Korea gave in to the demands against
which it had ardently stood firm before.6 6
Thus, the National trade estimate report, which is annually reported to the
U.S. Congress by the USTR in March regarding foreign trade barriers to U.S. exports,
shows well the U.S. position on Korea’s trade barrier in the Korean automobile
6 4 The Associated Press, September 28, 1995
6 5 The Associated Press, September 28, 1995
6 6 Korea Times, September 29, 1995; Chosun Ilbo, September 29, 1995
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164
market. The National trade estimate report, which was released in March 1996,
showed that the U.S. government agreed with Korea but that the latter was still under
the monitoring of the U.S. government. The report said, “in September 1995, as a
result of bilateral consultations held under Super 301, Korea signed an agreement
with the United States to increase access for U.S. and foreign passenger vehicles. ...
The United States views the agreement as a first step in liberalizing one of the most
protected auto markets in the world. We will continue to monitor the implementation
of the agreement and seek further market opening measures from Korea in 1996.”6 7
4.3.1.2. Korea’s defensive value-claiming strategy
In reaction to the U.S. offensive value-claiming strategy, the Korean
government used a defensive value-claiming strategy, including the delay of the
concession until the last moment to leave the U.S. little time for further demands.6 8
Korea’s strategy can be can be seen by looking at the following perspectives. During
the negotiation, the Korean government predicted that the U.S. had three options
about its auto trade dispute with Korea.6 9 One possibility was that the U.S. would
accept the proposal that Korea presented to the U.S. in the preliminary meeting about
the tax and the tariff on September 12, 1995. However, this prediction was far from
being plausible, in that the U.S. government had enough time to negotiate with
Korea and to gain more by the deadline of the designation of Super 301, September
6 7 USTR. 1996. 1996 National Trade Estimate (March 1996), which can be seen at the web site of
USTR (http://www.ustr.gov/reports/nte/1996/korea.html)
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165
27, 1995. The second possibility for the U.S. was to decide to target Korea under
“Super 301" and to move towards imposing sanctions. Due to Korea’s strong stance
of the tax and the tariff cuts, the possibility that the U.S. would choose to impose
sanctions as it did in the case of its auto dispute with Japan could be expected to be
stronger. The third option was bringing a case against Korea before the WTO in
Geneva, which probably would gain more support from the U.S. trading partners and
produce less backlash in Korea. The U.S. could spur Korea to seek arbitration
through the WTO. If the U.S. were to find market-opening measure in Korea
“unacceptable,” the USTR could launch an investigation and retaliate through the
WTO. Under this process, both sides would have a year to negotiate. If the talks
failed, the U.S. could slap punitive tariffs of up to 100 percent on the Korean
products.
However, from the perspective of the U.S., the WTO option had the
weakness of taking too long to get the effect of opening of the Korean automobile
70
market. If the U.S. government could get more concession from the Korean
government by bilateral negotiations and if it believed Korea would consider the
negative effect of Super 301, it would be better for the U.S. government to select the
second option. On the other hand, from the perspective of Korea, the Korean
6 8 For the definition of defensive value-claiming strategy in general, see Section 1.2 (definitions and
assumptions) in Chapter I and the introduction part in this chapter IV
6 9 Ministry of Trade, Industry and Energy. 1997. White Paper (November 1997)
7 0 Ministry of Trade, Industry and Energy. 1997. White Paper (November 1997). In the report of the
Korean delegation to the headquarters in Seoul about the meeting result on September 20, 1995, since
the U.S. delegations then told they wanted to resolve the automobile trade conflict at the bilateral
level if possible, they indicated they preferred solving the automobile conflict bilaterally, rather than
through the petition to the WTO.
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166
government really didn’t want to bring this issue before the WTO. If they brought
the issue to the WTO, discussions would focus mainly on the internal tax rate of
automobile. Thus, Korea was not sufficiently confident to bring the accumulative tax
issue to the WTO. Just a few months earlier, in June and July 1995, the European
Communities, Canada, and the U.S requested to the WTO to conduct the
consultations with Japan concerning the internal taxes levied by Japan on alcoholic
beverages, saying that Japan had violated the WTO rules by applying a higher tax
rate on the category of imported whisky and brandy than on domestic liquor
(WS/DS/8, 10, and 11).7 1 After the WTO, in September 1995, had established a
single panel with the mandate to examine the requests of the Community, Canada
and the U.S., the resolution of the Japanese alcoholic tax issue proceeded in a way
that resulted in Japan’s defeat.
The best option that the Korean government had was to prepare for the U.S.
choosing the second possibility. However, as explained in the previous section,
Korea also wanted to avoid being put on the priority list of unfair trade practices of
foreign countries by Super 301. If Korea were to be on the list, the Korean
government would have to accept the political risk of being criticized for having
failed in its foreign trade policy with its biggest trading partner, the U.S.
Furthermore, the country was not sure that it could negotiate better with the U.S. on
7 1 Details on the WTO dispute settlement cases #8, 10, and 11 can be seen in the web site o f WTO
(http://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm).
7 2 Interview with a government official from the Ministry of Trade, Industry and Energy in Korea in
September 1995.
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167
the negotiation schedule by Super 301 after Korea’s designation as an “unfair trade
practice country.”
4.3.2. The comparative advantage in the U.S.-Korea trade relations
4.3.2.1. The Korean automobile industry
The factor of a comparative advantage, which is measured by the market
share in world markets, is an important motive for trade policymakers in a weaker
country to determine whether they should open their home market to foreign
companies. Korea’s industrial policy has used both export incentives and import
restrictions as policy instruments.7 3 Therefore, faced with the U.S. demand to open
the automobile market, the Korean government couldn’t help considering whether its
74
domestic cars could compete with foreign cars in the world market. As can be
shown in Table 4.7, during 1990-1995, Korea had the highest growth in the
automotive products market with the annual percentage change amounting to 32%.
However, Korea's auto industry accounted at most the 0.1% share in the world
export market in 1980 and for 0.7% in 1990 and for 2.0% in 1995. Having
recognized that the tariff measure was protectionistic, the Korean government
7j U.S. Congress 1991, 308. The U.S. Congress stated that even when some opening of the Korean
market occurred in the 1980s, there was an effort to limit the number of entrants. The example was
that the Korean government refused to allow Samsung to start an export-oriented car plant in Korea.
7 4 U.S. Congress 1991, 307; Interview with a government official from the Ministry o f Trade, Industry
and Energy in Korea who participated on the preparations for the U.S.-Korea automobile negotiation
in September 1995.
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168
thought more protection would be needed for the auto industry because the Korean
industry was not competitive in the world market.7 5
Table 4.7: Leading exporters of automotive products in world trade, 1980-1995
Value
(Bil $)
Share in world exports
(%)
Annual percentage change
(%)
1995 1980 1990 1995 1990-95 1992 1993 1994 1995
Germany 85.05 21 21.6 18.6 4 15 0 17 20
Japan 80.68 19.8 20.8 17.7 4 11 2 3 -2
United States 52.51 12.7 10.2 11.5 10 15 10 12 6
Canada 43.94 6.9 8.9 9.6 9 11 18 14 7
France 33.42 9.9 8.2 7.3 5 10 0 17 18
Belgium 24.34 4.9 5.7 5.3 6 4 0 20 12
Spain 22.56 1.8 3.7 4.9 14 13 0 29 26
United Kingdom 19.97 5.8 4.4 4.4 7 4 0 16 26
Italy 18.19 4.5 4.1 4 7 4 0 23 34
Mexico 14.21 0.3 1.4 3.1 27 20 23 21 39
Korea 9.17 0.1 0.7 2 32 22 51 18 57
Sweden 8.75 2.8 2.4 0 0 2 -15 34 0
Netherlands 6.93 1.1 1.5 1.5 8 -1 -24 31 54
Austria 4.44 0.5 1.1 0 0 25 -14 13 0
Brazil 2.96 1.1 0.6 0.6 8 49 2 5 -9
Source: World Trade Organization, Annual Report 1996, Volume II
4.3.2.2. The American automobile industry
On the other hand, the U.S. industry was aware of the drastic increase of the
Korean auto productions. For example, the United States Congress viewed Korea
and Taiwan as new countries competing with the U.S. and the Korean automobile
and semiconductor industries as potential competitors.7 6 In relation to the Korean
auto industry, the U.S. Congress stated that “the Korean government’s ability to limit
entry of new producers at home, and thereby protect economies of scale, is a key
7 5 Interview with a government official from the Ministry of Trade, Industry and Energy in Korea in
September 1995.
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169
* 77
reason for the success of the Korean automobile industry in world export markets.”
Thus, the U.S. automobile industry pushed its government to deal with the Korean
78
government and to expand American auto exports into Korea.
During the negotiation period, American automobile industry had a
comparative advantage. Then, it pushed hard its government to open the Korean
market. On the contrary, the Korean industry had a comparative disadvantage and
continued to resist in order to preserve the protection of its home market. As a result,
the U.S. side gained more in the automobile negotiation in 1995, in which its
objective was to open the other market. (In the semiconductor negotiation in Chapter
V, although American industry had a comparative disadvantage, the U.S. side gained.
Thus, the direction of the effect of the comparative advantage on the outcome was
not significant between the two cases.) In conclusion, the factor of comparative
advantage played an important role in making a position of the Korean government,
but was not likely to affect the outcome. As the negotiation went on, its outcome was
determined by the negotiation process, rather than by the initial comparative
advantage.
4.3.3. Alternative interpretations
7 6 U.S. Congress 1991,297
7 7 U.S. Congress 1991,316
7 8 U.S. Congress 1991,316.
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• 70
Alternative interpretations might be used to explain this chapter’s puzzle.
The most prominent counterargument can be suggested by the realist paradigm. The
realist paradigm emphasizes the importance of the international power structure in
international economy relations.8 0 They suppose that the distribution of power
resources in the international system determines the outcomes of international
conflict. In the U.S.-Korea automobile market-opening negotiation in 1995, the U.S.
government gained and expanded the market access for the American auto industry,
as could be generally expected by realists. However, our result in this case study
shows that the argument of realists that the power structure is the primary
determinant of conflict outcomes in the international economy can and should be
questioned.8 1 If we follow the realist paradigm, the Korean government should have
yielded to all of the demands of the U.S. government. However, although the U.S.
strategy was important, Korea’s strategy also played a significant role in shaping the
outcome, to which we assigned the value of 6. That is, Korea selected a value-
claiming strategy under which they resisted the concession on the issues of the tax
and the tariff until the last moment to leave the U.S. little time for further demands.
For example, Korea had the rigid stance of not reducing the tax until even a few days
before the U.S. would finish the negotiation under the related regulations. At the last
minute, Korea suddenly agreed to reduce the tax, even though to a relatively small
degree, and the U.S. did not have time enough to induce more concession from
7 9 For the alternative interpretations in general, see section 2.3 (alternative interpretations) in Chapter
II.
8 0 Kindleberger 1973; Krasner 1976; McKeown 1983
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171
Korea. As a result, the Korean government made a rather small concession on the tax
and the tariff.
The domestic politics or two-level game approach can produce another
counterargument.8 2 In the U.S.-Korea automobile negotiation in 1995, domestic
politics was a significant factor that affected the outcome. However, domestic
politics is not the only thing needed to understand well the outcomes. To fully
understand the outcome of bilateral trade conflicts, we must understand the
negotiation process. Domestic politics theorists suppose that negotiators’ action and
strategy are dependent only on domestic politics and disregard the negotiators’
ability to influence domestic politics. For example, domestic politics approach pays
little attention to such external factors as the threat from a stronger country. In the
cases of the U.S.-Korea automobile market-opening negotiation, the retaliation
threats by Section 301 of the U.S. Trade Act of 1974 by the U.S. government had a
significant effect on the negotiation outcome.
On the other hand, the outcome of the U.S.-Korea automobile negotiation in
1995 confirms Odell’s (1985) findings partially to the extent of demonstration that
the power differential, while not being the most important factor, is a factor whose
significance cannot be overlooked. His study argues that such factors as a power
structure, market conditions, domestic politics, and bargaining process affect the
8 1 Schoppa 1997, 1
8 2 Putnam 1988; Cowhey 1993; Milner and Yoffie 1989; Milner 1997. Yang 1998 reviews the U.S.-
Korea automobile negotiation case in 1995 on the context o f domestic politics and of its impact on
Korea’s negotiation strategy.
8 3 Putnam 1988; Cowhey 1993; Milner and Yoffie 1989
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outcome. The relative strength of each of these factors varies from case to case. Our
findings also show the importance of market conditions and a bargaining process.
In-addition to what we already know about the U.S.-Korea negotiations in
particular from Baik and Chung (1998) and Odell (1985), this paper analyzes the
variation in negotiation outcomes in unequal trade relationship by focusing on the
objective of trade conflict and on the comparative advantage. For example, in the
semiconductor antidumping case in Chapter V, the U.S. industry which had a
comparative disadvantage initiated in order to preserve the protection of its home
market and gained more than Korea. On the contrary, in the automobile case in this
chapter, the U.S. industry which had a comparative advantage initiated in order to
open the Korean market and gained more than Korea. The difference between the
two cases, which is the degree to which the U.S. gained, is due to the negotiation
process of both countries. In the semiconductor case, the U.S. government did not
have a legitimacy to intervene actively in the negotiations for preserving the
protection of its home market, while the Korean government reacted efficiently to
enter into the other market. That is, Korea’s negotiation strategy affected the
outcome more significantly than the U.S. strategy did. Contrarily, in the auto case,
the U.S. government intervened more strongly in the bilateral negotiations and its
strategy affected the outcome more significantly than Korea’s strategy did.
8 4 Schoppa 1997; Odell 2000; Noland 1997; Bayard and Elliott 1994
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Chapter V: The Victory of the Korean Strategy in the U.S.-Korea Semiconductor
Antidumping Negotiations, 1992-1993
This chapter focuses on how Korea avoided a greater loss in its negotiations
with the U.S. For this objective, we select the case of the U.S.-Korea semiconductor
antidumping negotiation during the 1992-1993 time period.1 The semiconductor
negotiation was a typical antidumping investigation case in the U.S. market. In April
1992, the American industry made a move to preserve the protection of its home
market. After the 13-month’s investigation, the U.S. government imposed an
antidumping duty against the Korean products. However, the loss for Korea was
much less than was generally expected. While in the preliminary ruling the U.S.
Department of Commerce (DOC) suggested very high rates of the dumping margin
(5.9% - 87.4%), in the final ruling it imposed much lower margin rates (0.82% -
11.6%). Thus, we classify the outcome of the semiconductor case as a small gain for
the U.S. and a slight loss for Korea. This outcome is assigned the value of “5”, while
the outcome of the auto case is assigned the value of “6”, since it was much more
favorable for the U.S.2
Why did such an outcome in a conflict between the U.S. and Korea happen?
What factors allowed Korean negotiators avoid an even greater loss in their
negotiations with the U.S.? Why did the U.S. government lower the dumping margin
1 During 1992-1993, the author participated at the preparatory meetings with the Korean
semiconductor association and companies for the preparation for the antidumping investigation by the
U.S. Department of Commerce, and dealt with determining the position and negotiation strategy of
the Korean government. Again in October 2003, to confirm the positions o f the Korean semiconductor
and industry, the author interviewed Hye-Bum Choi, Director for International Affairs in the Korean
Semiconductor Industry Association (KSIA), who had been involved in the same antidumping case.
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174
rate in its final ruling? To answer these questions, this chapter first introduces the
basic contexts of the trade conflicts between the U.S. and Korean semiconductor
industries in the U.S. market. It explains the market situation of the world
semiconductor industry in the 1980s and the early 1990s. It examines the
administrative procedure by the Import Administration within the DOC, a
government agency responsible for the antidumping investigations in the U.S. Then,
it explains the general process of negotiations between governments after an
antidumping petition has been filed. Second, this chapter describes the specific
process of the negotiation between the U.S. and Korean governments chronologically,
ending with a description its negotiation outcome. It shows how the Korean
government conducted the negotiation with the stronger country, the U.S., in order to
defend itself against the antidumping actions of the U.S. government. Then, it
analyzes the interaction between the comparative advantage and the negotiation
process.
In conclusion, this chapter confirms that the negotiation process makes a
difference. During the period of the conflict, the Korean negotiators made
determined efforts to terminate the antidumping action or to lower the dumping
margin rate. They used a value-creating strategy which “involves actions designed to
expand the pie and promote the mutual attainment of negotiating goals.” The
strategy included the coalition with the American semiconductor consumers and the
2 For the operational definition of the value o f the outcome in the negotiation, see Appendix C.
3 Odell 2002, 42-43. For the concept o f strategy and tactics, this paper used Odell (2002)’s definition
of the strategy, which is classified into value claiming strategy, value-creating strategy, and mixed
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proposal of a “Suspension Agreement” (SA)4 - a quantitative restriction agreement -
to terminate the antidumping investigation by the DOC and to benefit to both the U.S.
and Korean industries. The U.S. negotiators used an offensive value-claiming
strategy which means “a set of actions that promote the attainment of one party’s
goals at the expense of those of the other parties” and an “attempt to take value from
the others.”5 The strategy includes the threatening of imposition of an antidumping
duty on the Korean companies.
5.1. The basic context of the U.S.-Korea semiconductor antidumping conflict
in 1992-1993
5.1.1. The market situation of the world semiconductor industry in the 1980s and
the early 1990s
Semiconductors - tiny silicon chips etched with microscopic electronic
circuits - are the basic building blocks of all electronic machines including
computers, videocassette recorders and robots, as well as missiles and radar systems.
Over the mid-1980s, the U.S. semiconductor industry allowed the Japanese
companies to hold the leading position. In 1985, the American semiconductor
strategy. For details, see Section 1.2 (definitions and assumptions) in Chapter I.
4 In accordance with Section 734 of the Tariff Act of 1930, the U.S. Department o f Commerce (DOC)
may terminate an investigation where withdrawal of a petition based on acceptance of a quantitative
restriction agreement, or a “suspension agreement”. A suspension agreement as a quantitative
restriction agreement is an understanding or other kind o f agreement to limit the volume of imports of
the subject merchandise into the U.S. In a suspension agreement, the foreign exporters and producers
or the foreign government agree to modify their behavior so as to eliminate dumping or the injury
caused thereby, or they agree to a quantity restriction on imports. If the DOC accepts a suspension
agreement, it will “suspend” the investigation and thereafter will monitor compliance. Detailed
regulations can be seen in the DOC web site (http://ia.ita.doc.gov/admanual/admanual_chl5.pdf).
5 Odell 2002, 40-41. For the concept of strategy and tactics, this paper used Odell (2002)’s definition
of the strategy, which is classified into value claiming strategy, value-creating strategy, and mixed
strategy. For details, see Section 1.2 (definitions and assumptions) in Chapter I.
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industry filed an antidumping petition that Japan "dumped" memory chips - sold
them below their fair market value - to drive the American dynamic random access
memory (DRAM) chipmakers out of the market. Furthermore, in 1986 the U.S.
government reached a path-breaking agreement with Japan, the Semiconductor Trade
Agreement (STA).6 In this agreement, both governments agreed that the U.S.
government would suspend the dumping investigation and the Section 301 case in
return for the stipulated actions by the Japanese government to improve market
access of the American companies into the Japanese market by 20% within five years
and to terminate dumping by the Japanese firms. However, a month had not passed
before the U.S. had accused the Japanese of failing to comply with the agreement.
Over the 1990s, the U.S. semiconductor industry exerted pressures on Japan
and Korea in order to restore its market share in the global market.7 In relation to the
Japanese industry, the U.S. tried to renew the STA between the U.S. and Japan. In
February 1991, the U.S. and Japanese governments agreed to make a review of their
1986 Semiconductor Trade Agreement (STA), which would expire on July 31,1991.
The American chip producers wanted a new agreement explicitly committing Japan
to a 20 percent share for foreign producers in its lucrative semiconductor market by
©
the end of 1992. They also wanted Japan to prevent dumping by the Japanese
makers in foreign markets. In June 1992, the U.S. and Japanese chip industries made
6 Yoffie (1993) states, “had governments withdrawn from involvement in semiconductor markets after
1985, Japanese firms would probably have moved from a position of rough parity to virtual
dominance”(49).
7 Byun 1994
8 Journal of Commerce, February 7, 1991; Jiji Press Ticker Service (in Japan), January 25, 1991
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a joint statement on ways to improve foreign access to the Japanese chip market
including the Japanese user’s plans to make additional purchases of foreign chips
In relation to the Korean industry, the U.S. industry tried to take the same
actions as on the Japanese case including an antidumping petition. In the maelstrom
of the competition between the U.S. and Japanese industries, the Korean
semiconductor industry had been expanding its power in the world market, through
its ability to acquire, develop and manage high technology.9 The Korean
semiconductor industry had progressed beyond the level of simple assembly to mass
production of VLSI (very large scale integrated) circuits such as 4M and 16M
DRAM.1 0 In spite of being a latecomer in the world DRAM market, the Korean
semiconductor industry had grown rapidly and made some remarkable achievements.
The three Korean chip manufacturers, Samsung, Hyundai, and Goldstar, invested in
VLSI mass production facilities and achieved a remarkable growth in both output
and new product development. Samsung also tried to expand the sales of its memory
chips in the Japanese market in 1992.1 1 Until then, the Korean chipmakers had sold
computer chips in Japan through Japanese trading companies. On the other hand, in
1992 the Korean government identified the strategic industries. Furthermore, the
Korean government has determined to support these industries’ development, which
I ' j
it believed would be the basis of Korea's future competitiveness. The big growth of
9 Financial Times, May 27, 1992
1 0 For the growth and development of the Korean semiconductor industry in the early-1990, see Byun
(1994).
1 1 Japan Economic Newswire, March 16, 1992
1 2 The strategy for technology development by the Korean government in 1992 included the
following: new generations of semi-conductors, including the development of a 64 Megabit Dram by
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Korean semiconductor makers since the 1990s was enough to threaten the U.S.
semiconductor producers. Thus, the U.S. semiconductor industry began to pressure
the Korean semiconductor industry as well as the Japanese semiconductor industry
not to enter into the U.S. semiconductor market.
5.1.2. The administrative procedure of the antidumping investigation in the U.S.
This section was abstracted from the antidumping manual by the International
Trade Administration at the U.S. Department of Commerce.1 3 According to the Title
VII of the Tariff Act of 1930, a “dumping” means that a foreign producer sells a
product in the U.S. at a price that is below that producer's sales price in the home
market, or at a price that is lower than the cost of production. The “dumping margin”
means the difference between the price (or cost) in the foreign market and the price
in the U.S. market. If a U.S. industry believes that it is being injured through
dumping of a foreign product, it may request the imposition of antidumping duties
by filing a petition with the DOC and the U.S International Trade Commission (ITC).
The DOC investigates foreign producers and governments to determine whether
dumping has occurred and calculates the amount of the antidumping duty. The ITC
1993 and a 256 Megabit Dram by 1996; development of a variety o f high definition television
equipment, including HDTV monitors by 1993, transmission technology by 1994 and flat panel
displays by 1997; the commercialization of a multi-media computer by 1994.
b This section regarding the antidumping regulations in Title VII o f the Tariff Act o f 1930 is based on
the materials located at the web site of the International Trade Administration in the Department of
Commerce (http://ia.ita.doc.gov/intro/index.html).
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determines whether the domestic industry is suffering a material injury as a result of
the imports of the dumped products.1 4
If both the DOC and the ITC make affirmative preliminary findings of
dumping and injury (within 190 days of initiation of the antidumping investigation),
the DOC instructs the U.S. Customs Service to assess duties against the imports of
that product into the United States. The duties are assessed as a percentage of the
value of the imports and are equivalent to the dumping margins. For example, if the
DOC finds a dumping margin of 35%, the U.S. Customs Service will collect an
additional 35% duty on the product at the time of its importation into the U.S. in
order to offset the amount of dumping.1 5
The final investigation by the DOC is completed within 12 to 18 months of its
initiation. After a preliminary affirmative determination by the DOC (or after a final
affirmative determination if the preliminary determination was negative) that an
imported products is being dumped, the ITC conducts the final phase of the injury
investigation. The ITC final investigation must be completed within 120 days after
an affirmative preliminary determination by the DOC or within 45 days after an
affirmative final determination by the DOC. In the final ruling, the ITC determines
(1) whether an industry in the United States is materially injured or threatened with a
material injury, and/or (2) whether the establishment of an industry in the U.S. is
materially retarded, due to the imports that the DOC has determined to be sold in the
U.S. at less than their fair value. If the ITC determination is affirmative, the DOC
1 4 For details, see the web site of ITC (http://www.usitc.gov).
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issues an antidumping order which is enforced by the U.S. Customs Service. If the
ITC determination is negative, no antidumping duty order is issued. If the ITC makes
a finding of negligibility, the investigation regarding those imports is terminated.
5.1.3. The general process of negotiation between governments in the case of
an antidumping petition
In general, the antidumping investigation process usually takes place between
a government and the related domestic and foreign industries, not between
governments. An antidumping petition is filed by a domestic interested party
including a manufacturer or a union within the industry producing the product that
competes with the imports to be investigated. The statute requires the petition to
contain certain information including the data about the conditions of the U.S.
market and the domestic industry, as well as only evidence of dumping or unfair
subsidization. The foreign industry accused of dumping must react and provide some
evidence that they have under the petitioner’s allegations. Thus, the investigation and
verification of the cost and the market are processed between the government and the
related domestic and foreign industries.
Once a govemment-to-govemment negotiation about antidumping cases
begins, they don’t negotiate about the specific rate of the dumping margin, but about
whether the investigation was unfair or discriminatory between domestic and foreign
products to be imposed on the foreign product. To calculate a margin rate is a
1 5 Information on the U.S. Customs Service can be found at (http://www.customs.ustreas.gov).
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technical issue, which requires accounting and legal specialists who have to be hired
by individual companies. One accused company interact with the investigating
government to explain that their price was not less than fair market value and they
can present alternative ways to calculate the margin rate and the cost. However,
governments negotiate, focusing on whether their investigation was done without
any discrimination against domestic products.
5.2. The negotiation process: Korea’s strategies for addressing the U.S.
antidumping investigations
This section describes the specific process of the U.S.-Korea semiconductor
antidumping negotiation for 1992-1993 chronologically. This semiconductor
antidumping conflict case is examined during the period of April 22, 1992 through
May 6, 1993. (For the detail chronology of the semiconductor trade conflicts
between the U.S. and Korea, see Appendix F). The Korean negotiators employed a
value-creating strategy which included the coalition with the American chip
consumers to press the U.S. government and the proposal of a quantitative restriction
agreement to terminate the antidumping investigation. From December 1992 through
February 1993, the Korean government delegation met the U.S. government officials
three times in Washington. The antidumping duty against the Korean companies
(Samsung, 0.82%; Hyundai, 11.16%; and Goldstar, 4.97%) in the final ruling was
much lower than that in the preliminary ruling (Samsung, 87.4%; Hyundai, 5.99%;
and Goldstar, 52.41%), which can be seen in the following Table 5.1.
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Table 5.1: Dumping margin rates against DRAMs one mega and above from Korea, determined
by the U.S. Department of Commerce (the period covered to investigation:
November 1,1991 -A pril 30, 1992)
The Korean companies
Preliminary
Determination
(October 21, 1992)
Final
Determination
(March 16, 1993)
Amended
Determination
(May 6, 1993)
Samsung Electronics 87.40 % 0.74 % 0.82 %
Hyundai Electronics 5.99 % 7.19% 11.16%
Goldstar Electron 52.41 % 4.97 % 4.97 %
Others 61.88% 3.19% 3.85 %
5.2.1. The U.S. semiconductor makers initiated an antidumping petition against
the Korean industry
On April 22, 1992, Micron Technology Inc., a U.S. semiconductor
manufacturer, filed an anti-dumping petition with the DOC and the ITC, alleging that
the Korean chipmakers were illegally selling DRAM (dynamic random access
memory) semiconductors in U.S. at prices below cost. In 1985, Micron Technology
had issued similar complaints against its Japanese competitors which led to trade
agreements with Japan aimed at stopping its dumping. A few years later, DRAM
prices soared and supplies dwindled which caused widespread complaints from the
U.S. computer makers who had depended on the Japanese-made chips. The U.S.
petitioner expected the same scenario to occur in relation to Korea. However, the
Korean semiconductor industry and government were very upset by the antidumping
petition since the Korean semiconductor industry had been growing rapidly in the
world market and expanding its contribution to the Korea’s export. On May 12, the
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DOC began investigating whether the chips were being sold at less than fair market
value (LTFV). On June 3, 1992, the ITC also made a preliminary determination that
the Korean semiconductors were causing an injury to the U.S. domestic industry.1 6
The six-member panel unanimously found a "reasonable indication" that the import
of the memory chips from Korea were causing or threatening an injury to U.S.
competitor manufacturers.
Around this time, the U.S. industry lobbied the U.S. government to eliminate
the semiconductor tariffs to expand its advance into the European and Korean
markets. The following is a letter from Joseph L. Parkinson, President of Micron
Technology and Chairman of Semiconductor Industry Association (SIA) to USTR
Carla Hills.1 7
Dear Ambassador Hills:
On behalf of the board of directors of the Semiconductor Industry Association
(SIA) I would like to voice support for your efforts to promote free trade and
open markets around the world. The conclusion of negotiations over the
North American Free Trade Agreement (NAFTA) is just the most recent
example of your commitment to free trade. The NAFTA accord has resulted
in Mexico joining the United States and Canada in creating a duty free zone
for semiconductors throughout North America, and highlights the need to
eliminate semiconductor tariffs in Europe and South Korea. The SIA's
primary concern remains the issue of market access in Japan. Your strong
support for opening the world's largest semiconductor market to foreign
competition is greatly appreciated by the SIA. Recent industry derived
statistics indicate that foreign market share may have increased modestly in
the second quarter of this year. While this news is encouraging, it should by
no means signal that the United States is satisfied with Japan's performance
under the terms of the 1991 semiconductor trade agreement. Substantial
added sales must be achieved by year end in order to achieve the 20 percent
objective contained in the agreement. Again, thank you for your important
1 6 Journal o f Commerce, June 8, 1992; International Trade Reporter, June 10, 1992, (Vol.9) p. 1009
1 7 Business Wire, September 10, 1992
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contribution to trade liberalization and your commitment to opening Japan's
semiconductor market to foreign competition.
Sincerely,
Joe Parkinson
On October 21, 1992, the DOC announced in its preliminary determination
that “preliminary investigation reveals Korean manufacturers are dumping
semiconductors on the U.S. market at less than fair value.”1 8 In other words, it was
argued that the Korean companies were selling DRAM memory chips in the U.S. at
substantial margins below the cost of production. Three Korean conglomerates were
alleged to be dumping - Samsung, Hyundai, and Goldstar. In the case of Samsung -
which was the largest supplier of DRAM memory chips to the U.S. computer
industry, the DOC estimated the company’s dumping margin at 87.4%.1 9 Hyundai’s
margin was put at 5.9% and Goldstar’s at 52.4%. As a result of the preliminary
finding on this dumping, the U.S. Customs Service began to require a cash deposit or
a bond equal to the estimated weighted- average dumping margin on the DRAMs
from Korea.
The antidumping duty against the Korean companies caused price increases
which threatened to seriously squeeze some U.S. computer makers. The similar
scenario had been played out with Japan seven years before. In 1985, Micron issued
similar complaints against its Japanese competitors which led to the Semiconductor
Trade Agreement (STA) with Japan aimed at stopping dumping. A few years later,
1 8 United Press International, October 21, 1992; Associated Press, October 21, 1992; San Francisco
Chronicle, October 22, 1992; and International Trade Reporter, October 28, 1992, Vol.9, p. 1852
1 9 International Trade Reporter, October 28, 1992, Vol.9, p.1852
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DRAM prices soared and supplies dwindled which caused widespread complaints by
the U.S. computer makers who depended on the Japanese-made chips. Having said
that, the Japanese semiconductor manufacturers expressed relief at the U.S. ruling
71
that “Korean chipmakers are dumping their chips in the United States,” The U.S.
DRAM market had been largely dominated by Japanese and Korean chipmakers, but
the Japanese had been losing their share to the Koreans due to the latter’s lower price.
If antidumping duties were to be imposed on the Korean chips, the price gap between
Japanese and Korean semiconductors would disappear. As expected, just after the
DOC had made a preliminary determination to charge the Korean chipmakers with
selling the chips in the U.S. at below home-market prices computer memory chip
prices jumped roughly 20%, “cheering U.S. manufacturers but worrying small
77
computer makers.”
5.2.2. Korea decided to react actively to the preliminary determination by the U.S.
government
The Korean government and semiconductor makers worried that a dumping
charge of more than 10 percent would drive them out of the U.S. market of which the
Japanese companies occupied more than 50 percent. They feared that if the
preliminary dumping ruling would also stand in the final ruling, it could cripple the
2 0 The San Francisco Chronicle, October 22, 1992
2 1 Japan Economic Newswire, October 22, 1992
2 2 Wall Street Journal, November 3, 1992
2 3 Korean Semiconductor Industry Association, Internal Report (October 1992)
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Korean exports to the US, its biggest market.2 4 Accordingly, the Korean government
and industry determined to persuade the U.S. petitioner and the U.S. government to
reduce the dumping charges on the Korean semiconductor companies by explaining
high dumping rate would hurt to the U.S. semiconductor consumers. At this time, the
organization that coordinated and delivered to the U.S. government the positions of
the Korean companies was the Korean Semiconductor Industry Association (KSLA),
chaired by Kim, Kwang-Ho, President and CEO of Samsung. For ten months of
April 30, 1992 - February 22, 1993, the KSIA had organized 24 times of meetings
25
with the related industry representatives to discuss Korea’s reaction. Through these
continual meetings with industry people and government officials, the Korean
government, industry association and companies discussed how to manage the
antidumping investigation by March 1993, the date of the final determination by the
DOC. They planned to respond to the antidumping investigation by the DOC on the
three levels of individual firms, industry association, and government.
First of all, each of the Korean companies was supposed to respond sincerely
to the demands of the DOC concerning the verification and investigation of the cost
and sales data. Furthermore, the Korean semiconductor companies requested
American computer companies to support Korea’s position to terminate the
antidumping investigation pointing to their role in reducing those companies'
dependence on the Japanese chips. At the same time, the Korean Semiconductor
2 4 Korean Semiconductor Industry Association, Internal Report (October 1992)
2 5 At that time, the author participated in the meetings with industry people to hear the position of the
industry. Later on December 2003, the author interviewed Hye-Bum Choi, Director of Korean
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Industry Association (KSIA) began to contact the principal U.S. industry user groups
and associations in order to put some pressure on the U.S. government. The main
target of the KSIA’s efforts was such associations as the Semiconductor Industry
Association (SIA), the Computer Systems Policy Project (CSPP), the Semiconductor
Equipment and Materials International (SEMI), and the American Electronics
Association (AEA). These associations consisted of such U.S. members as the U.S.
customers of Korean companies, the U.S. equipment suppliers, and the U.S. firms
collecting royalties from the Korean industry.
On the other hand, the Korean government sought ways to have the dumping
charges on the Korean DRAMs. The Korean industry wanted its government to
commit itself to preventing the Korean industry from dumping its memory chips
through a voluntary coordination of the international price of DRAM in the U.S. and
European markets. One of the alternatives proposed by the Korean government was
the conclusion of a “Suspension Agreement” - a quantitative restriction agreement.
According to the Section 734 of the Tariff Act of 1930, the procedure for the
termination of an antidumping investigation by the DOC using the Suspension
Agreement is as follows.2 6
The DOC may terminate an investigation under section 734(a)(1)(A)
(withdrawal of petition by petitioner) or section 734(k) (self-initiated
investigation) of the Act and 19 CFR 351.207(b), provided that the DOC
concludes that termination is in the public interest.
Semiconductor Industry Association.
2 6 This antidumping manual was excerpted in the DOC “Antidumping Manual, Chapter 15”, which
can be seen at the web site o f the DOC (http://ia.ita.doc.gov/admanual/admanual_chl5.pdf.)
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188
The DOC may also terminate an investigation where withdrawal of a petition
is based on acceptance of a quantitative restriction agreement. A quantitative
restriction agreement is an understanding or other kind of agreement to limit
the volume of imports of the subject merchandise into the United States. If a
termination is based on acceptance of a quantitative restriction agreement
Commerce will apply the provisions of section 734(a)(2) of the Act regarding
public interest and consultations with consuming industries and producers
and workers.
For quantitative restriction agreements, the DOC, before terminating an
investigation, to the extent possible, shall consult with the potentially affected
consuming industries and the potentially affected producers and workers in
the domestic industry, including those not involved in the investigation.
In a suspension agreement, the foreign exporters and producers or the foreign
government agree to modify their behavior so as to eliminate dumping or the
injury caused thereby or they agree to a quantity restriction on imports. If the
DOC accepts a suspension agreement, it will “suspend” the investigation and
thereafter will monitor compliance with the agreement in accordance with 19
CFR 351.208(a).
In accordance with section 734(d) of the Act, the DOC may suspend an invest
igation if satisfied that such a suspension is in the public interest and effective
monitoring of the agreement is practicable. In cases where the DOC does not
accept an agreement, it shall, where practicable, provide to the exporters who
would have been subject to the agreement the reasons for not accepting the ag
reement and, to the extent possible, an opportunity to submit comments there
on. The DOC may suspend an investigation at any time before the final deter
mination by accepting an agreement with market economy foreign exporters
or producers that account for “substantially all” of the subject merchandise.
5.2.3. The first negotiation (December 12-17, 1992, Washington, D.C.)
In November 1992, the Korean Semiconductor Industry Association
recommended to the Korean government a two-track strategy to help ensure the
successful outcome of the negotiations of a S A agreement based from the
perspectives of trade expert in Washington.2 7
2 7 Korean Semiconductor Industry Association, Internal Report (December 1992).
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The first trace would involve the submission by the Korean government of a
SAto U.S. authorities that would be sufficiently attractive that Micron
Technology, the petitioner, would agree to its implementation. The alternative
second track assumes Micron Technology will never voluntarily agree to a
SA, and creates the political pressure necessary for the U.S. to accept the SA
notwithstanding Micron’s objections.
Under this recommendation from the KSIA, the Korean government prepared
for a submission to the U.S. government of a Govemment-to-Govemment Executive
Agreement, what was called a “Suspension Agreement (SA)”. Then, to figure out the
probability of the settlement of the SA, the Korean delegation flew to Washington
and had its first meetings with the U.S. high officials trying to convince them to
terminate the semiconductor antidumping case. From December 12 through 17, 1992,
the Korean government dispatched its delegation headed by Director General of
Trade Cooperation Bureau, Noh, Jang-Woo to Washington. The delegation met the
U.S. high government officials from the Departments of Commerce (Alan Dunn,
Assistant Secretary for Import Administration) and State (Sandra Kristoff, Deputy
Assistant Secretary for Asia and Pacific Regions), and the USTR (Robert Cassidy,
Assistant USTR for Asia and Pacific regions; Joseph Papovich, Deputy Assistant
USTR for Industry), and proposed the settlement of the Suspension Agreement. At
this time, the Korean government did not specify what elements would be contained
in this package agreement.2 8 It just indicated that the U.S.-Japan EPROM (Erasable
Programmable Read-Only Memory)2 9 Suspension Agreement signed in 1991 would
2 8 Ministry of Trade, Industry and Energy (in Korea), Internal Report for the Meeting Outcomes
(December 1992)
2 9 EPROM means a type of semiconductor memory, “a programmable and reusable chip that holds its
content until erased under ultraviolet light. EPROMS have a lifespan o f a few hundred write cycles.
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190
be a model including a Korean version of the latter’s price-monitoring mechanism.
To this proposal the U.S. side reacted by transmitting Korea’s intentions to the
American petitioner and other affected parties in the U.S. industry in order to receive
their feed back. The U.S. government pointed out that the critical point about the SA
was whether it would be helpful to the U.S. domestic industry.3 0 With regard to the
type of the SA, since neither a data-collection nor a price-monitoring under the U.S.-
Japan EPROM was implemented yet, the U.S. government stated that it was not sure
1 1
of the effectiveness of the type of the U.S.-Japan EPROM Suspension Agreement.
In particular, the U.S. side stated since the conclusion of SA with Korea would result
in a price increase or an import decrease of semiconductors, the U.S. industry should
acknowledge the effectiveness of that kind of SA in accordance with the U.S.
antidumping related regulations.
5.2.4. The second negotiation (January 12-17, 1993, Washington, D.C.)
On January 12, 1993, the Korean government sent a second delegation to
Washington with a mission to end the dumping charges imposed on the Korean
DRAMs. The Korean negotiators led by Chae Jae-Uk, Assistant Minister for Trade
and Industry, met with the same U.S. officials as in the first meeting one month
EPROMS are expected to eventually give way to flash memory.” (excerpted in “TechEncyclopedia”
web site, by the Business Technology Network, of which address is
(http://www.techweb.com/encyclopedia/.)).
3 0 Ministry of Trade, Industry and Energy (in Korea), Internal Report for the Meeting Outcomes
(December 1992)
3 1 Ministry of Trade, Industry and Energy (in Korea), Internal Report for the Meeting Outcomes
(December 1992)
3 2 Ministry of Trade, Industry and Energy (in Korea), Internal Report for the Meeting Outcomes
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191
before. They presented their semi-conductor trade conditions to the DOC and the
USTR to conclude a suspension agreement and to avoid a final ruling. They
delivered an amended draft of the suspension agreement between the Korean
semiconductor exporters and the DOC. The draft of the SA included the type of
price monitoring by the DCP (Data Collection Program) which was similar to the
33
EPROM suspension agreement between the U.S. and Japan signed in 1991.
Besides, as long as the SA was accepted, the Korean negotiators proposed to
consider a reduction of their tariffs on semiconductor imports on to Korea which
were then set at nine percent. They also committed to establish a new enforcement
mechanism for the Korean intellectual property laws (like the Act on Protection for
Semiconductor Chips) and a mechanism for cooperation between the U.S. and the
Korean industry associations through possible joint ventures or partnerships in order
to reach a successful conclusion of the suspension agreement.3 4 Table 5.2 shows the
comparison of the U.S. and Korean positions about the Suspension Agreement.
(December 1992)
3 3 Agence France Presse, January 12, 1993
3 4 Ministry of Trade, Industry and Energy (in Korea), Internal Report for the Meeting Outcomes
(January 1993)
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Table 5.2: Comparison of the U.S. and Korean positions about the conclusion of the Suspension
Agreement
Korea’s position U.S. position
1. Type of
Suspension
Agreement
SA/DCP (Data Collection Program)
type - by price monitoring
SA/FMV (Fair Market
Verification) type - by
compulsory price control
2. Expanding
market access
in Korea
- Reviewing the reduction of the tariff,
on the import of semiconductors and
semiconductor equipments into Korea -
now being consulted with the related
government agency.
- Providing information on Korean
semiconductor market to the U.S.
companies
- The complete elimination of
import the Korean tariffs on
semiconductors, its
components for maintenance,
and the semiconductor related
equipment as soon as possible.
- Making a plan o f purchasing
semiconductors from the U.S.
- A more specific plan for
purchasing the U.S.-made
semiconductors and
equipments.
3. Protection
of intellectual
property
rights
- Constructing a new enforcement
mechanism for the Korean intellectual
property laws such as the Act on
Protection for Semiconductor Chips
- Taking additional legislative
measures for the specification
o f an effective date for the Act
and the acknowledgement of
retroactivity
4. Industrial
cooperation
- Constructing a mechanism for
cooperation between the U.S. and the
Korean industry associations through
possible joint ventures or partnership.
- Allowing the U.S. companies’
participation in semiconductor
R&D projects in Korea
Source: Ministry of Trade, Industry and Energy, Internal Report for the Meeting Outcomes
(January 1993)
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193
However, the U.S. side doubted the effectiveness of a price monitoring of the
DCP (Data Collection Program) type. Instead, they wanted a compulsory price
control of the FMV (Fair Market Verification) type presupposing that, on that case,
Micron Technology would not oppose to the SA which could then be signed. Unlike
on the case of the U.S.-Japan EPROM suspension agreement that was of the DCP
type, the U.S. side argued that it would be harder to monitor effectively the Korean
semiconductor market since the Korean industry did not have the experience of a
price-monitoring. In addition, the U.S. government demanded the complete
elimination of the import tariff on the semiconductor related equipment and its
components for maintenance as well as semiconductors as soon as possible. With
regard to the state of intellectual property rights in the semiconductor industry in
Korea, the U.S. side wanted stronger additional legislative measures for the
specification of an effective date for the Act on Protection for Semiconductor Chips
and the acknowledgement of retroactivity for the protection of the semiconductor
chips used before the enactment of the Act. In addition to industrial cooperation
between the two countries, the U.S. demanded that the Korean industries and
institutes should allow the U.S. companies to participate in semiconductor R&D
projects in Korea.
5.2.5. The third negotiation (February 8-12, 1993, Washington, D.C.)
Finally, on January 28, 1993, the Korean industry submitted to the DOC the
first draft of the revised Suspension Agreement on the basis of the Data Collection
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Program (hereafter “SA/DCP”). At the same time, on February 8, 1993, the Korean
delegation led by Chae Jae-Uk, Assistant Minister of Trade and Industry, flew to
Washington for the third time. During their trip, they had meetings with the
following high government officials appointed by the new Clinton administration as
follows: the White House (Bowman Cutter, Assistant to the President for the
Economic Affairs); the National Security Council (Samuel Berger, Deputy assistant);
the USTR (Rufus Yerxa, Deputy USTR); the Department of State (Sandra Kristoff,
Deputy Assistant Secretary); the Department of Treasury (Bill Barreda, Deputy
Assistant Secretary for Trade and Investment Policy); and the Department of
Commerce (Joseph Spetrini, Assistant Secretary for Import Administration).
However, the DOC notified the Korean negotiators that the agency could not
accept Korea’s DCP proposal due to strong objections by Micron and indicated that
it could consider the possibility of the conclusion of the SA only if its type was FMV
(hereafter “SA/FMV”). Thus, on February 12, 1993, responding to the U.S. demand,
the Korean semiconductor industry submitted to the DOC the second draft of the
revised SA combining DCP and FMV (hereafter “SA/DCP+FMV”), which
committed the Korean industry to submitting to the U.S. government quarterly the
data and materials about the cost and price of the Korean semiconductors.
However, despite the three rounds of negotiations, both countries did not
narrow the gap about the type of the agreement, DCP or FMV, and, more basically,
about whether they would be able to conclude any SA because of the uncertain effect
of that kind of agreement and the strong opposition from Micron Technology.
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5.2.6. The U.S. government imposed lower rates of the dumping margin against
the Korean semiconductors in its final ruling
The Korean industry submitted the first draft of the SA/DCP agreement to the
DOC on January 28, 1993. Since then, the Korean industry association and
companies concentrated on keeping in touch with American computer makers and
the related associations, such as the SIA, the CSPP, the SEMI, and the AEA. These
groups were asked to approach the U.S. government agencies, the White House and
the Congress to argue that Korea’s proposal was beneficial for the U.S. industry. To
the contrary, Micron also began to move to impede the acceptance of Korea’s
proposal. In the early February, Micron complained strongly to the DOC. The
company lobbied the CSPP and the related organization through the SIA in order to
defeat Korea’s proposal. Furthermore, Micron opposed Korea’s proposal to suspend
the antidumping investigation. The petitioner also argued that the more secure
mechanism (SA/FMV format) for price-monitoring than Korea’s proposal SA/DCP
format was needed and that the total elimination of the tariff in Korea should be
included in the package.
On the deadline of February 16, 1993, the DOC rejected Korea’s proposal on
the SA and decided to proceed again with the dumping probe of the semiconductors
from Korea.3 5 Despite the all-out efforts of the Korean government, industry, and
association, the U.S. and Korea failed to reach a suspension pact to stop a US anti
dumping investigation of the Korean semiconductor exports.
3 5 Journal o f Commerce, February 19, 1993
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On March 16,1993, the DOC announced that DRAMs from Korea were
being dumped on the U.S. market at unfairly low prices and should be subject to
import duties.3 6 However, the estimated weighted-average dumping margins were
much lower than those in the preliminary ruling in October 1992. Samsung, 0.74
percent (down from 87.4 percent in the preliminary determination); Goldstar, 4.97
percent (down from 52.41 percent); Hyundai, 7.19 percent (up slightly from 5.99
percent); and “all others”, rate of 3.19 percent (down from 61.88 percent). The
outcome was a great victory for the Korean semiconductor companies and
government. Since the preliminary ruling the DOC assessed temporary duties
ranging up to 87.4 percent in the case of Samsung.
This outcome was evaluated by the American media as “a victory for
37
American computer makers and a setback for American semiconductor producers.”
The DOC retreated from plans to impose prohibitive import tariffs on the
semiconductors from Korea. The reason why the U.S. government lowered the
charges was reportedly because the Korean semiconductors were "strategically
- j o
needed" for the U.S. computer industry and semiconductor equipment industry. The
U.S. computer industry had lobbied for lower margin arguing that high charges
would raise the imported DRAM chip prices and, consequently, their own computer
production costs. Also, the Korean semiconductor makers were major customers of
the U.S. semiconductor equipment industry. As a result, Korea's semiconductor
3 6 Associated Press, March 16, 1993; New York Times, March 17, 1993; Financial Times, March 17,
1993; and International Trade Reporter, March 17, 1993, Vol. 10, p.451
j7 New York Times, March 17, 1993
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industry expressed relief over the lower-than-expected dumping penalties imposed
by the U.S. government on their exports.3 9 Because the figure of the dumping
margin with the average of 3.19 percent in the final ruling was much lower than that
of 61.88 percent levied by the preliminary ruling in October. The industry felt that
the duties, averaging 3.19 per cent, would have a minimal impact on the sales of
their DRAM chips in the US, their biggest foreign market. However, the Korean
industry was determined to continue to work for a total acquittal from the penalties
by pressing the ITC to rule that the Korean companies did no damage.4 0
On April 29, 1993, in the final ruling, the ITC charged the Korean
manufacturers with dumping their DRAM chips product in the U.S. at less than fair
prices.4 1 The six-member panel split 3-3 on whether the imports were causing or
threatening an economic injury to U.S. producers, but under the U.S. law a split vote
was equivalent to an injury finding. It means that it was rather controversial whether
the U.S. producers were injured by the imports of the semiconductors from Korea
since their prices had been increasing continuously. The U.S. was the top buyer of
the Korean chips, taking more than 40 percent of Seoul's exports in 1992. The chip
industry was cited by the Clinton administration as vital to U.S. economic success. In
an unusual move, just before the ITC voted Thursday on the case, the DOC faxed a
letter to the commission increasing some of the dumping margins it had previously
calculated for the Korean chips.
3 8 Financial Times, March 18, 1993
3 9 Associated Press, March 17, 1993;
4 0 Korean Semiconductor Industry Association, Internal Report (March 1993)
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5.2.7. The negotiation outcome
Finally, on May 6, 1993, the DOC revised the dumping margin imposed on
the Korean DRAM chips arguing that a computational error had been made.
Compared to the final margin proposed in March, the DOC increased the margin for
Hyundai from 7.19 percent to 11.16 percent. The margin for Samsung was changed
from 0.74 percent to 0.82 percent. For all the other manufacturers except Goldstar it
was changed from 3.19 percent to 3.85 percent. Goldstar's margin remained
unchanged at 4.97%.
Although the U.S. government charged an antidumping duty against the
Korean companies, the Korean negotiators managed to avoid an even greater loss in
their bilateral trade negotiation with a stronger country, the U.S. The final dumping
margins was much lower than those in the preliminary determination were. The final
average dumping margin rate for the Korean DRAMs (3.19%) was less than 10
percent. As a result, as shown in Appendix C, we assigned the value of 5 as this
outcome.
Despite of the increase of the price of the memory chips due to the
antidumping duty, the economic situation (such as continuing strong demand and the
appreciation of the Japanese yen) also helped the sales of the Korean semiconductor
manufacturers in 1992 and 1993, 4 2 The 13 percent appreciation of the yen since
early-1993 raised Japanese costs at that time. In addition, the cost reduction and fully
4 1 Journal of Commerce, April 23, 1993; International Trade Reporter, April 28, 1993, Vol. 10, p.694
4 2 “In 1991, the U.S. imports of semiconductors amounted to $676 million, or about 40 percent of
Korea’s production. This jumped to $908 million in 1992. The 1992 imports from Japan was 1.56
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depreciated factories of the Korean companies resulted in extending the phenomenal
growth of the Korean semiconductor industry.4 3 Until the late 1980s, Japan
controlled about 90% of the U.S. market for memory chips used in everything from
automobiles to appliances to computers. However, since 1988, the price of a 1M chip
had fallen to $3 from about $30 and Korea adeptly provided U.S. customers with the
lower-priced, high-quality chips. The big Korean firms dominated most of the sales
of consumer appliances - from microwave ovens to washing machines - in the U.S.
market.
5.3. Analysis
The Korean semiconductor manufacturers eventually were able to continue
doing successful business in the U.S. market even after the payment of the dumping
duty. How, then, should the outcome be understood? This section analyzes the
strategies that the Korean government and the U.S. government used during the
negotiation. The main conclusion is that the outcome of the U.S.-Korea
semiconductor negotiation in 1993 was due to the victory of the Korean strategy. The
U.S. gained by using an offensive value claiming strategy including the threatening
of the imposition of the antidumping duty. However, the Korean negotiators lost only
slightly by using a value-creating strategy including its coalition with the U.S.
industries using the Korean chips.
billion” (Journal of Commerce, June 1, 1993).
4 3 Financial Post (Toronto, Canada), May 29, 1993
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5.3.1. The objective of the initiating country and strategies
The U.S. objective for initiating the semiconductor antidumping investigation
in 1992 was to preserve the protection of the U.S. home market. In accordance with
our hypothesis, the U.S. industry gained less in the semiconductor case, which the
U.S. initiated to increase the protection of its market, than in the automobile case, in
which the U.S. objective was to open the Korean market.
5.3.1.1. Korea’s value-creating strategy: the coalition and a new alternative
We argue that in the case of the semiconductor antidumping conflict with the
U.S., the impacts of Korea’s negotiation strategy was decisive, even though the
outcome was the U.S. gain on the form of the imposition of the antidumping duty.
The Korean negotiators used a value-creating strategy.4 4 To avoid a high rate of the
dumping duty, the Korean government and industry determined to respond
efficiently and strategically to the antidumping investigations, on three levels’
individual firms, industry association, and government reciprocally. The main point
of their strategy was to persuade the U.S. petitioner and the U.S. government to
reduce the dumping charges on the Korean semiconductor companies by explaining
that a higher dumping rate would hurt the U.S. semiconductor consuming industries.
4 4 For the definition of value-creating strategy in general, see Section 1.2 (definitions and
assumptions) in Chapter I and the introduction part in this chapter V
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(1) The strategy on the level of the Korean individual companies petitioned: a
sincere response to the U.S. government and a coalition strategy requesting
active assistance from the American semiconductor-consuming industries
The first strategy was for each Korean company involved to respond
sincerely to the demand of the U.S. government for the verification and investigation
of the cost and sales data, even if they were not sure whether their data would meet
the U.S. specifications or not. Just after the preliminary decision the dumping by the
DOC, Samsung responded to the DOC by denying selling chips at less than fair
value.4 5 It assured its American customers that it would supply fairly priced
computer DRAM chips. Compared to Samsung, Hyundai and Goldstar were less
anxious about the DOC determination since their dumping margin was lower than
that of Samsung.
The second strategy was for the Korean semiconductor companies to form a
coalition with American computer companies supporting Korea’s insistence on the
termination of the antidumping investigation. The basic structure of the strategy was
that the Korean companies had to call individually on their American customers to
asking for their support and pointing to Korea’s role in reducing those companies'
dependence on Japanese chips. At the end of 1980s, some American companies had
been so worried about this that they tried to form their own microchip producer, U.S.
Memories. The idea failed due to the lack of investors. But the Korean companies
emphasized that they had broken the Japanese monopoly. The increase of the DRAM
4 5 New York Times, October 28,1992; Business Wire, October 26, 1992
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price concerned both American computer makers and the Korean chipmakers.4 6
American computer makers had grown used to cheap the DRAMs from Korea and
the Korean chip makers treasured the memory chip business as one of the few fields
in which Korea could compete technologically with Japan and the U.S.
The Korean industry made use of global strategic alliances relationships with
the U.S. personal computer makers such as Hewlett-Packard and Apple Computer.
As part of their global expansion, many of the world's largest producers formed
strategic alliances 4 7 The US computer-maker Hewlett-Packard signed a licensing
agreement with Korea’s Samsung to make RISC microprocessors for its workstations.
Samsung was also planning to produce a digital signal processor jointly with a U.S.
firm, Array Microsystem Inc, by the end of 1992. In addition, Samsung signed a
semiconductor cross-licensing agreement with Fujitsu - the first broad cross
licensing agreement for semiconductors between Japan and Korea. The agreement
provided a legal framework for the companies to use each other's technologies and
for the payment of royalties. It ran for five years and covered technologies which had
been patented in Japan, the U.S., and Europe. These strategic alliance with the U.S.
and Japanese industries were used by the Korean companies to oppose the
imposition of the U.S. antidumping duty against the Korean products.
However, the support from the American computer companies was not very
strong.4 8 This was in part because with all the alliances between Japanese and
4 6 New York Times, December 17, 1992
4 7 Business Times (in Singapore), October 2, 1992
4 8 New York Times, December 17, 1992
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American companies the reliance on Japan for chips did not seem as frightening as it
once had. Another reason was that the computer companies were afraid that their
siding with the Korean companies against an American company would be seen
unpatriotic. Apple Computer, Compaq Computer, Digital Equipment and others had
filed petitions in the Korean dumping case but only to argue that the dumping
penalties should apply only to chips, not to circuit boards containing the chips which
many of these companies had been importing from Korea and other Southeast Asia
countries.
(2) The Korean government’s proposal of a suspension agreement as a new
alternative
The third strategy was for the Korean government to show its willingness to
cease dumping practices by the Korean companies in the U.S. market by presenting
to the U.S. government an alternative that would be helpful to both the U.S. and
Korean industries. The Korean industry wanted its government to commit itself to
preventing the Korean industry from dumping its memory chips through a voluntary
coordination of the international price of DRAM in the U.S. and European markets.
The Korean alternative was the conclusion of the “Suspension Agreement”, a
quantitative restriction agreement. Although both governments failed to agree to the
contexts of the agreement, the Korean government managed to express its
AQ
willingness to cease dumping.
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(3) Coalition strategy through the mobilization of American interest groups
supporting Korea’s position on the level of the Korean industry associations
The fourth strategy was to create the political pressure on the level of industry
interest groups and associations in order to convince the U.S. to accept the
Suspension Agreement regardless of the petitioner’s, Micron Technology,
objections.5 0 It was assumed by this strategy that Micron Technology would choose
not to agree to a SA to the end. The basic structure of the strategy was to show to the
U.S. government and its industries that it would be in the U.S. interest to sign the
agreement, notwithstanding Micron’s opposition. Thus, the main target on the level
of the Korean industry association was the principal U.S. industry user groups and
associations such as SIA, CSPP, SEMI, and AEA. These associations consist of such
members as the U.S. customers of the Korean companies, the U.S. equipment
suppliers, and the U.S. firms collecting royalties from the Korean industry. Unlike an
individual company like Micron, an industry association has many member
companies that have varied interests. Moreover, each association has different and
duplicated memberships. For example, the CSPP was the organization that was
supportive of the position of the Korean companies. The organization comprised
exclusively of the chief executive officers of the leading American computer systems
companies, such as Apple, Digital Equipment, Hewlett Packard, Compaq, Sun
Microsystems, and IBM. The SEMI and AEA were also the cooperative allies of the
Korean chip producers. The SEMI represented the semiconductor and flat panel
4 9 BBC Summary o f World Broadcasts, February 22, 1993
5 0 Korean Semiconductor Industry Association, Internal Report (December 1992).
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display equipment and materials companies, such as Varian, Applied Materials,
GENUS, Du Pont, and SYMTEK. The AEA represented the electronics, software,
and information technology companies. However, the SIA was not likely to be
supportive of Korea’s position. Since the SIA was a trade association representing
the U.S. computer chip companies such as Digital Equipment, AT&T, Texas
Instrument, and Motorola, as well as Micron Technology, it was not likely to be
easily persuaded to support Korea’s proposal.
In the meantime, these American groups were asked to approach the U.S.
government agencies, the White House and the Congress to argue that Korea’s
proposal was beneficial for the U.S. industry. They argued that high dumping duties
would raise the imported DRAM chip prices and the computer production costs and
would harm ailing the U.S. computer makers. Semiconductor prices in the U.S. rose
20 percent since the preliminary duties against the Korean chipmakers had been
announced. Also, they pointed out that the Korean semiconductor makers were major
customers of the U.S. semiconductor equipment industry. Eventually, the U.S.
computer industry groups began to lobby the U.S. government in favor of Korea’s
proposal SA/DCP. For example, the CSPP determined to support Korea’s DCP
proposal in the annual conference on January 13, 1993, and, on February 2, the
organization sent to the Secretary of Commerce, Michael Brown, a letter mentioning
its support for Korea’s SA.5 1 On February 5, 1993, the SEMI sent to Secretary
5 1 Korean Semiconductor Industry Association, Internal Report (December 1992)
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Brown a letter supporting Korea’s position.5 2 Furthermore, after the Korean industry
had submitted the revised SA/DCP+FMV, numerous American computer makers and
industry organizations lobbied the U.S. government. Apple Co. on February 10 and
the CSPP and the SEMI on February 12 sent a letter to Secretary Brown to ask them
to accept Korea’s new proposal.5 3
5.3.1.2. The U.S. offensive value-claiming strategy: threats
The U.S. strategy was also a variable in the negotiation process that affected
the outcome in the U.S.-Korea semiconductor antidumping conflict in 1992-1993.
The U.S. government used an “offensive value-claiming strategy”5 4 including
threatening to impose an antidumping duty after rejecting the suspension proposal of
the Korean government, even though the American computer makers consuming the
Korean semiconductor products opposed the imposition of the dumping duty.
Based on its interviews with the Commerce officials and the American
company advisors involved in the case, the Korean Semiconductor Industry
Association identified the following two reasons for why the U.S. government
rejected the Suspension Agreement.5 5 First, the U.S. Department of Commerce
couldn’t disregard the strong opposition from Micron Technology notwithstanding
the support for Korea from the American chip customers of the Korean products. To
5 2 Korean Semiconductor Industry Association, Internal Report (December 1992)
5 3 Korean Semiconductor Industry Association, Internal Report (December 1992)
5 4 For the definition of offensive value-claiming strategy in general, see Section 1.2 (definitions and
assumptions) in Chapter I and the introduction part in this chapter
5 5 Korean Semiconductor Industry Association, Internal Report (February 22, 1992)
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the end, Micron opposed the Korea’s proposal to suspend the antidumping
investigation and insisted on imposing a high rate of the antidumping duty. The
petitioner argued that a more secure mechanism (SA/FMV format) for price
monitoring than Korea’s proposal (SA/DCP format) and the elimination of the tariffs
in Korea should be included in the package. A letter from Andrew Procassini, the
president of the Semiconductor Industry Association, to the New York Times on
February 25, 1993 regarding Korea’s protectionism of its semiconductors industry
demonstrates this combative attitude.
To the Editor:
"Mickey Kantor's Historic Task" (editorial, Feb. 2) misstates the
semiconductor industry's position on tariffs and trade liberalization. The
United States semiconductor industry supports global tariff elimination. We
led the effort in 1985 to eliminate United States semiconductor duties. We
have withheld endorsement of the Uruguay Round partly \because it does not
go far enough toward eliminating semiconductor tariffs in Europe and South
Korea. The industry is on record in support of the North American Free Trade
Agreement because it will create a duty-free zone for semiconductor trade
throughout all of North America.
ANDREW A. PROCASSINI
President, Semiconductor Industry Association
Secondly, there was a bureaucratic bias against the Suspension Agreement in
the Commerce Department. They had negative opinions on the ability of the SA to
prevent dumping of foreign products by Japan and Korea. As can be seen in the
experience of the Japanese semiconductor case that was petitioned by Micron
Technology as an instance of dumping in 1986, the mechanism of price monitoring
could be seen as having failed to prevent price change in the U.S. market. Moreover,
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in the transition period by the new Clinton administration at the end of 1992 and the
early of 1993, with the departure of the Bush appointees at the Department of
Commerce and elsewhere and the uncertain arrival schedule of the Clinton
appointees, there were few in leadership position who could approve to this
Suspension Agreement. In addition, it was unclear whether some of the new Clinton
people such as Laura D’Andrea Tyson, the proposed head of the Council of
Economic Advisers (CEA), a supporter of managed trade and an advocate for the
cause of the high-tech industry including the U.S. semiconductor industry, would be
helpful or hurtful.5 6
The point of the U.S. strategy was to benefit the U.S. semiconductor industry
as well as the U.S. computer manufactures. The U.S. government made up its mind
about the dumping margin based on the interests of the U.S. industry as a whole:
both the U.S. semiconductor producers and the U.S. computer manufactures. Initially,
the U.S. focused more on the strong opposition from Micron Technology and not on
the American chip customers’ support for Korea’s proposal. As a result, the U.S.
government rejected Korea’s proposal to terminate the antidumping probe of the
Korean products. Later, instead of terminating the antidumping investigation through
the SA proposed by Korea, the U.S. government selected the option most suited for
the American computer makers, which implied a low dumping margin. The Korean
semiconductors were "strategically needed" for the U.S. computer and
5 6 For Laura Tyson’s position on high-tech industry, see Tyson (1992) “Who’s bashing Whom?: Trade
conflicts in high-technology industries”, Institute for International Economics.
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semiconductor equipment industry. Thus, the positions of semiconductor producers
and consumers were competing for influence on the U.S. government.
5.3.2. The comparative advantage in the U.S.-Korea trade relations
As in the automobile case in Chapter IV, comparative advantage position is an
important factor that influences the Korean government’s position. This factor is
constant while a country is having a conflict with other country. That is, American
industry with a comparative disadvantage insisted on delivering to the U.S.
government its strong opposition to a Korean industry’s expanding its market share
in the U.S. market.
5.3.2.1. The Korean DRAM semiconductor industry
Faced with the U.S. threat to impose the antidumping duty, the Korean
government couldn’t help considering whether the Korean semiconductors could
compete with foreign chips in the world market even after the imposition of the
antidumping duty.5 7 Since the late 1980s, the Korean DRAM industry had been
increasing its exports dramatically in the world market. The strength of the Korean
co
manufacturers was almost entirely focused on the DRAM sector. Samsung
developed a 16M DRAM chip ahead of its Japanese competition and completed the
installment of the production lines for the mass production of the chip. Two other
5 7 U.S. Congress 1991, 316-321; Interview with a government official from the Ministry of Trade,
Industry and Energy in Korea in October 1992.
5 8 Business Times (in Singapore), October 2, 1992
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manufacturers - Goldstar and Hyundai - also completed the installation of their 16M
DRAM facilities and began the mass production of the product. Table 5.3 shows the
market share of DRAM in the world market by country. During the late 1980s, the
spectacular rise in the world market share of the Korean semiconductor industry
began and continued through 2000. In 1985, Japan's share in the world DRAM
market was 75% while Korea's was 1.2%. In 1991, Japan's share fell to 57.4% while
Korea's went up to 18.9%. The Korean companies’ global share jumped ahead of the
U.S. companies’ share in 1992 and hit 40.0% in 1999. Eventually, Korea was the
world’s first leading producer of DRAM followed by Japan. The demand for 4M
DRAM took off in 1992 because of its wider applications in mainframes, mini
computers, notebook computers, and laser printers.5 9 Thus, the Korean government
and companies were determined to terminate the antidumping investigation or to
lower the antidumping margins. They would have had the same preference if their
market share had been less.
Table 5.3: Market share o f DRAM in world market by country, 1985-2000 (unit: %)
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Korea 1.2 2.8 5.8 9.8 12.2 14.6 18.9 24.6 23.6 26.7 30.9 33.5 34.5 36.9 40.0 38.3
U.S. 18.0 18.2 17.9 19.8 18.7 18.9 19.8 17.3 23.6 22.1 20.4 17.7 18.3 14.9 16.5 20.4
Japan 75.0 73.8 74.9 57.4 66.0 61.2 57.4 53.8 48.2 46.8 44.6 43.3 39.6 37.0 29.5 23.4
Europe 2.9 2.2 1.6 4.1 4.0 4.6 4.1 3.4 3.4 3.4 3.1 3.2 4.6 6.6 7.3 8.5
Source: Dataquest, edited from Ministry of Commerce, Industry and Energy, April 2004
5 9 Yoffie 1993
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5.3.2.2. The American semiconductor industry
The drastic development of the Korean semiconductor industry made the U.S.
semiconductor producers worried. The American industry was worried about its
comparative disadvantage in the world market and opposed strongly making any
concessions to the Korean industry by the U.S. government. Finally, a U.S.
semiconductor producer, Micron Technology, filed an antidumping petition against
the Korean chipmakers in April 1992 and lobbied the U.S. government to charge the
Korean companies as engaged on dumping. The Korean industry’s presentation of
the first draft of the SA/DCP to the DOC on January 28, 1993 continued and was met
with Micron’s opposition to it. The American company insisted that the more secured
mechanism (SA/FMV format) for price-monitoring than Korea’s proposal (SA/DCP
format) and the elimination of the tariffs in Korea should be included in the package.
Micron Technology was a representative company that had used a dumping action as
a tool for trade protection, for the purpose of defending itself in the global market.
Micron had also filed an antidumping petition against the Japanese chipmakers in
1985.
At that time of the negotiation, American semiconductor industry had a
comparative disadvantage. Then, it continued to make every effort to preserve the
protection of its home market. On the contrary, the Korean industry had a
comparative advantage directed its government to increase the entrance into the U.S.
market. As a result, the U.S. side gained more in the semiconductor negotiation in
1993, in which its objective was to preserve the protection of its home market. (In
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the automobile negotiation in Chapter IV, American industry had a comparative
advantage and the U.S. side gained. Thus, the direction of the effect of the
comparative advantage on the outcome was not significant between the two cases.)
In conclusion, the factor of comparative advantage played an important role in
making a position of the Korean government. However, as the negotiation went on,
its outcome was determined by the negotiation process, rather than by the initial
comparative advantage.
5.3.3. Alternative interpretations
Alternative interpretations can be produced to explain the semiconductor
case.6 0 Odell (2003) points out that rival interpretations are always conceivable and
no two cases are ever sufficient to prove any generalization or to establish causality
with certainty.6 1 The most prominent counterargument can be offered by the realist
paradigm. In the U.S.-Korea semiconductor negotiation in 1995, the U.S.
government gained by imposing an antidumping duty against the Korean chips.
Nevertheless, the Korean government was able to avoid an even greater loss. This
outcome is assigned the value of 5. The realist paradigm emphasizes the importance
of the international power structure in international economy relations.6 2 According
to it, the distribution of power resources in the international system determines the
outcomes of international conflict. Thus, it could be expected that the U.S. would
6 0 For the alternative interpretations in general, see section 2.3 (alternative interpretations) in Chapter
II.
6 1 Odell 2003, 29
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secure an unequivocal victory over Korea in that particular trade dispute. However,
the final ruling’s dumping margin failed to confirm that expectation due to the
Korean negotiators pursuing a value-creating strategy focussed on building a
coalition with the U.S. computer makers.
Another counterargument can be proposed by the domestic politics or two-
level game approach.6 3 In the U.S.-Korea semiconductor negotiation in 1993, the
U.S. government might have determined the dumping margin according to the U.S.
domestic politics and not to the nature of Korea’s coalition strategy. According to the
domestic politics theory, since the government considers the positions of the
domestic industry and the related interest group, domestic politics is a significant
factor that affects the negotiation outcome. However, if there were not negotiation
process, domestic politics could not affect directly the outcome. Domestic politics
theorists suppose that negotiators’ action and strategy are dependent only on
domestic politics and disregard the negotiators’ ability to influence domestic
politics.6 4 However, in the semiconductor case, Korea’s negotiation strategy played
an important role in organizing and delivering the opposition from the U.S. chip
users.
Furthermore, the lobby of the U.S. computer makers in support of lower
margins was a part of Korea’s negotiation strategy. The lobby did not lower the
margin by itself. If the Korean negotiators had done nothing, the outcome of the
6 2 Kindleberger 1973; Krasner 1976; McKeown 1983
6’ Putnam 1988; Cowhey 1993; Milner and Yaffle 1989; Milner 1997
6 4 Putnam 1988; Cowhey 1993; Milner and Yoffie 1989
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214
lobby would, most likely, not have been very significant.6 5 The Korean companies
called on the American computer makers to come to their aid pointing to their role in
reducing those companies’ dependence on the Japanese chips. It was the Korean
companies which broke the Japanese monopoly. However, as explained in the
previous section, the lobby of the U.S. individual companies supporting the Korean
positions was not very strong because with all the alliances between Japanese and
American companies, the reliance on Japan for chips did not seem as frightening as it
once had. Another reason was that the computer companies were afraid that their
siding with the Korean companies against an American company would be seen
unpatriotic. Thus, the contribution of the U.S. chip consumers to the small margin
rate was organized and mobilized by the Korean negotiators.6 6
On the other hand, the outcome of the U.S.-Korea semiconductor negotiation
in 1993 confirms Odell’s (1985) findings about the outcomes of commercial
conflicts which took place between the U.S. and Korea during the 1960-1981. His
study argues that such factors as a power structure, market conditions, domestic
politics, and bargaining process affect the outcome. The relative strength of each of
these factors varies from case to case. Our findings also show the importance of
market conditions and a bargaining process.
In addition to what we already know about the U.S.-Korea negotiations in
particular from Baik and Chung (1998) and Odell (1985), this paper analyzes the
variation in negotiation outcomes in unequal trade relationship by focusing on the
6 5 New York Times, December 17, 1992
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objective of trade conflict and on the comparative advantage. For example, in the
semiconductor antidumping case in this chapter, the U.S. industry which had a
comparative disadvantage initiated in order to preserve the protection of its home
market and gained more than Korea. On the contrary, in the automobile case in
Chapter IV, the U.S. industry which had a comparative advantage initiated in order
to open the Korean market and gained more than Korea. The difference between the
two cases, which is the degree to which the U.S. gained, is due to the negotiation
process of both countries. In the semiconductor case, the U.S. government did not
have a legitimacy to intervene actively in the negotiations for preserving the
protection of its home market, while the Korean government reacted efficiently to
enter into the other market. That is, Korea’s negotiation strategy affected the
outcome more significantly than the U.S. strategy did. Contrarily, in the auto case,
the U.S. government intervened more strongly in the bilateral negotiations and its
strategy affected the outcome more significantly than Korea’s strategy did.
6 6 Korean Semiconductor Industry Association, Internal Reports (December 1992).
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PART IV: CONCLUSION
Chapter VI: Some Recommendations for Creating More Constructive Trade
Relationships between Stronger and Weaker Countries in the 21s t
Century
This study has analyzed the outcomes of bilateral trade conflicts and
negotiations between stronger and weaker countries. It argues that the outcomes of
negotiations between unequal trade partners are shaped by the negotiation objective
of the initiating country and the negotiation process. The argument was explored
both via statistical analysis and comparative case studies. This research tries to
combine practical experience and theory. Furthermore, we make some
recommendations for creating more constructive trade relationships between stronger
and weaker countries in the twenty-first century. To get mutual gains, as we progress
simultaneously into a multilateral trade system and a bilateral free trade system, we
need to create and share new markets through sound and fair competition. This is the
only way to maintain constructive partnerships between stronger and weaker
countries.
6.1. Explaining the reasons for variance in the negotiation outcomes between
stronger and weaker countries
By looking back at the history of the U.S.-Japan trade negotiations, Schoppa
(1997) finds that the U.S pressure by itself was not necessarily decisive the outcomes
of the negotiations between the U.S. and Japan, but that it was successful only if it
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217
resonated within the Japanese decision-making community. In other words, he finds
that the outcomes depend on the willingness of the Japanese government to go along
with the U.S. demands rather than on the U.S. pressure. His best insight is that the
government negotiators from one country can and do take advantage of the status
quo of the other country. Our study also examined the outcomes of conflicts between
stronger and weaker countries by looking at how the Korean side reacted to the U.S.
demands in the process of the negotiation as well as at the behavior and strategy of
the U.S. side.
Hypothesis 1, which says that in a conflict to preserve the protection of the
home market (initiated by the country trying to protect its own market) its outcome is
more favorable to the country whose industry has a comparative disadvantage, was
accepted in the statistical analysis in Chapter III and in the semiconductor case study
in Chapter V. In the statistical analysis, the variables DISPROUS and DISPROKO
were both significant for the outcome. In the semiconductor negotiation, in which the
U.S. initiated the conflict to preserve the protection of its home market, the outcome
was more favorable to the U.S. in which its industry has a comparative disadvantage.
On the contrary, Hypothesis 2, which says that in a conflict to open a foreign
market (initiated by the country trying to open a foreign market) its outcome is more
favorable to the country whose industry has a comparative advantage, was rejected in
the statistical analysis in Chapter III while it was accepted in the auto case study in
Chapter IV. In the statistical analysis the variable COMOPEUS (where the U.S. has
a comparative advantage and initiates to open the Korean market) and COMOPEKO
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(where Korea has a comparative advantage and initiates to open the U.S. market)
were not significant. However, in the auto negotiation, the U.S. gained more while
having a comparative advantage and initiating to open the Korean market, which
confirmed Hypothesis 2.
In the auto case in Chapter 4, when the U.S. had a comparative advantage and
initiated to open the Korean market, the U.S. gained much more than Korea, which
confirmed Hypothesis 2. However, the same hypothesis was rejected by our
statistical evidence. In the semiconductor case in Chapter 5, the U.S. had a
comparative disadvantage and initiated to protect its home market. As a result, the
U.S. gained more than Korea, which confirmed Hypothesis 1. The same hypothesis
was confirmed by our statistical evidence. However, the degree to which the U.S.
gained (the value of 5) in the semiconductor case was less than that in the auto case
(the value of 6).
Thus, from our statistical and case studies evidence it can be concluded that
the outcomes in trade conflicts between stronger and weaker countries are affected
by the comparative advantage, the objective of the initiating country, and the
negotiation process. A comparative advantage is a factor taken into account by
policymakers when determining whether they should open a market to foreign
competing companies. The objective of a country initiating a conflict is either
preserving the protection of the home market, as in the cases involving antidumping
and countervailing duty actions, or opening a foreign market. In the statistical
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analysis and in the case studies, the significant effect of the objective of the initiating
country on the outcome is confirmed.
With regard to the negotiation process, in the statistical analysis we consider
which country initiate a conflict or a negotiation and whether there is a threat from
the U.S. as part of the negotiation process. Then, two case studies do not prove the
findings of the statistical analysis. However, if the negotiation process was different,
then its outcome would be also different. The results in the two case studies allow us
to conclude that the negotiation process including negotiation strategy and tactics
makes a difference in concrete outcomes, which confirms Odell (1985)’s conclusions
in relation to the material which has never been studied before the U.S.-Korean trade
conflicts and negotiations during the 1980-2000 period.1 That is, to open the Korean
automobile market, the U.S. used the strong threat by Super 301 all the way, which
supports Hypothesis 3. In the semiconductor case, the U.S. did not use the strong
threat like section 301 and its equivalent, and the Korean government used a value
creating strategy including the coalition with the U.S. domestic industry. As the
result, the U.S. gains were less than those in the auto case. That is, the U.S. gained
less in the semiconductor case than in the auto case. Thus, we suggest that the
negotiation process also affects the outcome. That is, we suggest that the pattern of
variation in outcomes is determined by three major sets of variables: (1) the
comparative advantage, which refers to the degree to which an industry can sell its
products and services in world markets, (2) the objective of the country that initiates
1 Odell 1985, 283
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a negotiation, whether it is to open the other market or to increase the protection of
its home market, and (3) the negotiation process, including negotiation strategies or
tactics of both countries.
However, we couldn’t find any correlation between specific strategies of a
country and the negotiation outcome. As shown in Table 6.1, although the U.S. used
an offensive value-claiming strategy in both negotiations, the outcome was different
depending on the reaction of the Korean government. In the automobile case,
Korea’s strategy does not seem to have worked efficiently, while in the
semiconductor case Korea’s value-creating strategy seems to have functioned more
efficiently.
Table 6.1: The relationships between strategy and outcome in the U.S.-Korea automobile
and semiconductor cases
Case
Comparative
advantage
The objective of the
initiating country
Negotiation
strategy
Negotiation
outcome
Automobile
case (1995)
The U.S.
industry has a
comparative
advantage.
- U.S.: To open the
Korean market
- Korea: To preserve
the protection of its
home market
- U.S.: Offensive
value-claiming
strategy
- Korea: Defensive
value-claiming
strategy
6 (the U.S.
gained and
Korea lost
much.)
Semi
conductor
case (1993)
The U.S.
industry has a
comparative
disadvantage.
- U.S.: To preserve
the protection of its
home market
- Korea: To open the
U.S. market
- U.S.: Offensive
value-claiming
strategy
- Korea: Value-
creating strategy
5 (the U.S.
gained but
Korea lost
slightly.)
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6.2. The contributions of this study
The results of this study should be of interest from several different
perspectives. First, our findings build upon and support the work of international
trade negotiation theorists such as Ka Zeng, Kishore Gawande and Wendy Hansen,
Leonard Schoppa, Marcus Noland, Michael Ryan, Thomas Bayard and Kimberly
Elliott, William Zartman, and John Odell, who have challenged the premises and
assumptions of power-based realism’s outcome on trade negotiations. Negotiation
outcomes are not determined solely by the bilateral power structure. The different
outcomes among the same asymmetrical trading partners are primarily dependent on
the comparative advantage, the objective of the initiating country, and the
negotiation process which refers to negotiation strategies and tactics.
Secondly, this paper contributes to the discussion of bilateral negotiations
between weaker and stronger countries by focusing particularly on the role of the
former. This paper contributes to the finding that the negotiation process is
significant in intergovernmental negotiations between stronger and weaker countries.
Once negotiations got underway, the negotiation process, which refers to which
strategies and tactics government negotiators and the related interest groups or
individuals choose in relation to the negotiation, affected decisively the negotiation
outcome. In the U.S.-Korea automobile negotiation case in 1995, the outcome was
assigned the value of “6” which refers to its being more favorable to the U.S than
Korea. The U.S. strategies decisively affected the extent of the U.S. gains. Through a
threat and a coalition with the European automobile exporting countries, the U.S.
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222
government maximized the credibility of its threat to the Korean government. As a
result, the outcome gave the U.S. an advantage of an expanded market access into
the Korean market. In the U.S.-Korea semiconductor antidumping case in 1993,
Korea’s negotiation strategies allowed the Korean negotiators to avoid an even
greater loss. As one of its strategies to avoid the high rates of the dumping duty, the
Korean government and industries used a value-creating strategy. The main point of
their strategy was to persuade the U.S. petitioner and the U.S. government to reduce
dumping rates on the Korean semiconductor companies by explaining that a high
dumping rate would hurt the American semiconductor consumers.
Thirdly, this paper adds a contribution to what we already know about the
U.S.-Korea negotiations in particular from Baik and Chung (1998) and Odell (1985).
In this research, there is an analysis of the variation in negotiation outcomes in an
unequal trade relationship on the basis of whether the initiating country is to trying to
preserve the protection of its home market or to open a foreign market and whether it
has a comparative advantage or a comparative disadvantage. For example, in the
semiconductor antidumping case in Chapter V, the U.S. industry which had a
comparative disadvantage initiated in order to preserve the protection of its home
market and gained more than Korea. On the contrary, in the automobile case in
Chapter IV, the U.S. industry which had a comparative advantage initiated in order
to open the Korean market and gained more than Korea. Especially, we developed
more Baldwin (1985)’s finding that the industries in which employment had been
declining and import penetration ratios had been increasing succeeded in resisting
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tariff cuts during the Tokyo Round of multilateral trade-liberalizing negotiations
(1974-1979). In addition, our study examines the effect of which country initiates a
conflict and, moreover, argues that the Korean industry as well as the U.S. industry,
both of which had a comparative disadvantage, initiated in order to preserve the
protection of their respective home markets and gained more.
Fourthly, it is obvious that this research contributes to the accumulation of
the empirical cases of the trade negotiations between the U.S. and Korea from 1980
to 2000. The data set used in this study had not existed prior to its having been
created by its author. Moreover, in methodology, this paper makes an effort to
integrate qualitative and quantitative methods in research about the outcomes of
negotiations. Much of the negotiation literature tends to use either one of the two
methods. While those scholars interested in the specific process of the negotiation
tend to prefer more detailed case studies, scholars interested in quantifiable trends
and general determinants affecting the outcome focus on empirical analysis. This
separation stems from the difficulty of data-collection about the nature of
negotiations, as it is difficult for scholars to treat directly and uniformly all
negotiations and interactions as theoretically comparable.3 In this respect, this paper
examines both the process and the strategy of negotiators and the periodical trends of
negotiation outcomes by integrating qualitative and quantitative methods.
Finally, this study has policy implications derived from linking theory and
practice of international trade negotiation process. The author personally participated
2 Baldwin 1985, 1989
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224
in negotiations between the U.S. and Korea. By identifying the differences between
the initial and final stages of a strategy employed during a negotiation, both
governments can improve their performance. Moreover, by selecting new flexible
strategies which are aimed at linking with a domestic industry of a partner country,
both governments can efficiently deter potential trade disputes through intimate
communications between the related industries of the two countries.
6.3. Future research
Although this study analyzed all available cases of the trade conflicts
between the U.S. and Korea, a few points for its extensions remain to be addressed.
First, multilateral conflict cases since 1997 could be another subject in which the
outcomes of negotiations between the U.S. and Korea could be analyzed. The
outcomes of the conflicts in a multilateral trade system could be an intriguing
research subject. Secondly, many trade disputes are resolved informally before they
reach the status of a conflict. For example, since filing a complaint is extremely,
costly domestic industries often give it up beforehand. At the same time, the accused
foreign industries try to extinguish the fire before the USTR is activated.
Thirdly, it would be interesting why both countries sometimes negotiate their
bilateral conflicts through their governments, and why sometimes not. In practice,
the process of an antidumping or a patent infringement investigation conducted by a
government usually involves that government and the foreign industries involved,
3 Odell 2000, 20
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225
not the foreign government. This must be just a private negotiation, not an official
intergovernmental negotiation. The investigation and verification of cost and market
are processed between a government and the related domestic and foreign industries
unless the investigating government has committed any unfair and discretionary
actions. The governments tend to negotiate about whether an investigation should be
done without any discrimination of foreign products and how the issue of the
dumping practices should be resolved.
Fourthly, this study assumed that political factors were unchanged during the
period of the study. Political factors such as the characteristics of an administration,
the degree of the consolidation of democracy, and the change in the relationships
between the executive agencies and the congress can be expected to play a
significant role in determining the negotiation outcomes. The effect of these political
factors on the outcome of bilateral conflicts needs to be researched in detail.
6.4. The direction for constructive trade relationships between stronger and weaker
countries in the 21st century
By combining practical experience and theoretical frameworks, we
recommend that countries should try to secure joint gains in order to create more
constructive future trade relationships between stronger and weaker countries in the
21st century. We have assumed zero-sum situations in bilateral trade relationships.
Faced currently with a negotiation with a stronger country for a market-opening, a
weaker country is concerned more about the loss of the market share of its domestic
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226
industry in the world market rather than with the income distributional aspects of
trade openness. This is practically the current unequal trade situation, in which one
gains at the expense of the other.
However, countries should try to secure joint-gains in their future trade
relationships with the U.S. or other country. As we progress simultaneously into a
multilateral trade system and a bilateral free trade system, we need to create and
share new market through sound and fair competition based on comparative
advantage. It is the way for maintaining constructive partnerships in the twenty-first
century. Negotiation outcomes should be win-win rather than win-lose and zero-sum.
In unequal trade negotiations as well as in multilateral government negotiations,
participating countries are able to gain mutually through win-win agreements by a
package deal or an issue linkage used to “tie distinct issues together for joint
approval or rejection” and to focus on total gains from an agreement and losses from
non-agreement. To get mutual gains, both stronger and weaker countries should
make an effort to secure them.
In this study, we limited the gains for Korea to the gains for the Korean
producers and exporters ignoring possible gains for Korea as a whole. This limitation
came along with the perspective of the trade-related government agency of the
weaker country. This view is a reflection of practical practice in a weaker country,
since a government agency acts as a negotiation chair ministry in negotiating issue in
the manufacturing sector (the Ministry of Trade, Industry and Energy in Korea).
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Thus, practical lesson for Korean negotiators is, first, that they need to
change their perspective about the gains from trade in order to build up constructive
trade relationships between stronger and weaker countries under a multilateral and a
regional free trade regime. The protectionist practices in the weaker country would
not help to resolve bilateral trade conflicts. Above all, the negotiation objective of
the weaker country should be focusing on its society as a whole as well as on its
producers and exporters. Trade policy making focusing on domestic producers and
exporters increases the probability of conflicts in world markets. As a world system
moves to a multilateral trade system and a regional free trade system, the gains from
trade should be distributed to the society as a whole including domestic consumers.
In this respect, this study should provide some lessons to the developing countries in
Latin America and the other East Asian countries which have been focusing on their
export promotion and their domestic comparative advantage as one of the main
objective of trade in relation to a stronger county.
Secondly, Korean negotiators need to develop new negotiation strategies that
react efficiently (for example, the use of coalition with American industries) to the
demand of a stronger country, the U.S.
The U.S. side also should make an effort to create constructive relationships
with other countries. As shown in my statistical analysis in Chapter III, for the last
twenty years, most of the trade conflicts between the U.S. and Korea centered on the
antidumping and countervailing duty cases. Those cases try to preserve its home
market from the access of foreign products, by resorting to various provisions of U.S.
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228
trade laws such as antidumping and countervailing duties (Title VII of Trade Act of
1974), safeguard measures (Section 201 of Trade Act of 1974), and patent
infringement (Section 337 of Tariff Act of 1930). Our analysis found some results in
the antidumping conflicts which were different from those of the bilateral
negotiations for market opening in terms of the comparative advantage. The
outcomes in the antidumping cases were favorable to the U.S industries that had a
comparative disadvantage, while those of the market opening cases were favorable to
the U.S. industry that had a comparative advantage. That is, it is possible that the
American industry as a whole become less efficient.
World markets will continue to be inefficient, if the U.S. industry continue to
put more weight on the U.S. trade remedy regulations such as antidumping and
countervailing duty, rather than on competing together on the comparative advantage.
Many scholars have studied the cost of protectionism.4 In the modem society, trade
and foreign direct investment are major engines of growth in developed and
developing countries alike. According to a study of OECD countries,5 each $1.00 of
outward foreign direct investment was associated with $2.00 of additional exports,
and a trade surplus of $1.70. On the contrary, the cost to consumers of protectionism
in OECD countries has been estimated to be as much as US $300 billion. The
average cost to consumers of a job protected exceeds the wages of employees whose
jobs are saved. Adverse effects in labor markets are primarily driven by changes in
4 Bhagwati 1990; Feenstra 1997, 1992; Coughlin, Chrystal and Wood 2000; Krugman 1987; Vousden
1990
5 OECD 1998, 10-11
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technology and business organization. Whereas trade liberalization is almost always
in each country’s aggregate economic interest, it is rare to find instances in which
countries have sought sharp, sudden reductions in the rates of their import protection.
The reason is that the political cost of free trade outweighs its economic benefits.6
6 Lusztig 1996, 1
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US Department of Labor (http://data.bls.gov)
US DOC Census Bureau, Foreign Trade Statistics, (http://www.census.gov)
US International Trade Commission, (http://www.usitc.gov)
US Trade Representative, (http ://www.ustr. gov)
OECD, (http://www.oecd.org)
World Trade Organization, (http://www.wto.org)
III. Reports
Korean Automobile Import Dealers Association. 2000, Statistics Report
Korean Semiconductor Industry Association. 1992. Internal Reports
Ministry of Trade, Industry and Energy. White Paper 1995, 1997, Internal Reports
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United Nations, International Trade Statistics Yearbook, each year
USTR, Annual Reports, National Trade Estimate report,
International Trade Reporter
IV. Newspapers and magazines
Korea Times, Chosun Ilbo, Kyunghyang Shinmun, Mail Economy Daily, Hankook
Economy Daily (all in Korea);
Journal of Commerce, Financial Times, Wall Street Journal, Washington Times, New
York Times, Los Angeles Times;
United Press International, Associated Press, San Francisco Chronicle, PR Newswire,
BBC Summary of World Broadcasts (United Kingdom), Agence France Presse
(France), Jiji Press Ticker Service (Japan), Japan Economic Newswire, Nikkei
Weekly (Japan), Business Wire, Business Times (Singapore), Computer Dealer
News, Financial Post (Canada)
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Appendix A:
Operational definitions of the negotiation cases and the non-negotiation cases for
Chapter I
We differentiate between the “negotiation cases” and the “non-negotiation
cases” depending on whether a specific intergovernmental negotiation occurred
during the period of the conflict. If the intergovernmental negotiation did not take
place, as in the antidumping cases, the case is classified as a “non-negotiation case”
while with an intergovernmental negotiation, the case is classified as a “negotiation
case”.
1. The negotiation cases
In my paper, the negotiation cases include a set of the negotiation cases
between the U.S. and Korean governments conducted during bilateral trade conflicts.
Thus, the negotiation process includes only an official intergovernmental negotiation
but does not include a private meeting between a government and the involved
companies or between companies. Negotiations do not include asking an informal
question to find out the government’s opinion on a bilateral trade conflict case. The
negotiation process should be taking place officially at the negotiation table, between
the appointed government delegations of both governments. Specifically, those are
the cases in which the two governments start their official negotiations based on such
bilateral agreements as steel VERs (Voluntary Export Restraints), the textile MFA
(Multi Fiber Arrangement), and GSP (General System of Preference), as well as the
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245
agreements for market-opening (by U.S. section 301, 1337, special 301, and super
301), and other intergovernmental agreements such as an antidumping suspension
agreement. During the 1980-2000 time period, there were 54 negotiation cases
between the U.S. and Korean governments.
In the negotiation cases, the start date for a negotiation is when an issue is
brought officially to the table through official diplomatic channels. The end date for
a negotiation refers to the time when an agreement or a deadlock is reached. Once
both countries reach an agreement or announce officially a deadlock, the negotiation
ends, even though the same issue may return to the negotiation table. If a new
negotiation begins in the same sector after an agreement has been reached, it is
independently counted. For example, in Chapter IV, the U.S. and Korea reached an
agreement about market access to the Korean automobile market on September 28,
1995. However, when the U.S. government had the same issue again in 1997, both
countries had already negotiated several times and proceeded to establishing a new
agreement about market access to the Korean automobile market in 1998. Thus, the
later negotiation is counted as a separate negotiation. All of this information was
amassed from the web sites and the published documents of the trade related
government agencies of both governments.1
1 The sources are as follows: the web sites and published documentations o f the US Department of
Commerce (http://www.doc.gov), US Trade Representatives (http://www.ustr.gov), the US
International Trade Commission (http://www.usitc.gov), the Korea Trade Commission
(http://www.ktc.go.kr), and the Korean Ministry of Foreign Affairs and Trade
(http://www.mofat.go.kr), the Korean Ministry of Commerce, the Industry and Energy
(http://www.mocie.go.kr).
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246
2. The non-negotiation cases
The non-negotiation cases without an intergovernmental negotiation process
include a broad set of interactions between a government and companies in
antidumping, countervailing duty, safeguard, and patent infringement cases. These
cases include only a private meeting between a government and the involved
companies or between private companies. These conflicts were initiated by several
petitions before the U.S. and Korean governments concerning
antidumping/countervailing duty, patent infringement, and safeguards. Specifically,
these conflicts were based on the investigations of the antidumping and
countervailing petitions (U.S. section 731), patent infringement (U.S. section 337),
and safeguards (U.S. section 201) by either the U.S. or Korea. During the 1980-2000
time period, there were 124 episodes of non-negotiation conflict case between the
U.S. and Korea.
In the non-negotiation cases, we identify the start date and the end date as the
dates when the case was initiated officially by the government and when it was
terminated by the final determination of the government, respectively. In these cases,
when the U.S. government was the initiator, the start date was the date when the U.S.
government issued a public notice. If a case was rejected by a government or
withdrawn by the petitioner during a conflict or an investigation, the date of the
rejection or of the withdrawal is the end date. This paper counts repeated meetings
concerning antidumping and countervailing duty in the same sector as rounds in a
single conflict. It also counts consecutively repeated meetings concerning a market
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247
opening as rounds in a single negotiation. This paper does not count the regular
annual reviews for antidumping and countervailing duty actions by both
governments as independent conflicts or negotiations.
2 Only one annual review case against the Korean photo album was considered in this study. In 1985,
an annual review of the on-going antidumping investigation against the photo albums which was
initiated by Korean companies. However, the final dumping margin rate in 1989 was much higher
than the original dumping margin. This was only one exceptional case, unlike the usual case in which
the dumping margin rate gets less or remains unchanged.
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248
Appendix B:
The chronology of the trade relations between the U.S. and Korea, 1980-2000 for
Chapter I3
1981.2 President Chun and President Reagan agreed to establish Sub
cabinet Level Economic Consultations
1983.3.31 -4.2 2n d U.S.-Korea Sub-cabinet Level Economic Consultations held in
Washington, D.C.
1985.7.1-7.2 4th U.S.-Korea Sub-cabinet Level Economic Consultations held in
Washington, D.C.
1985.11.4 The USTR initiates a “Section 301” investigation on Korea’s
protection of intellectual property rights
1986.7.21-8.28 Agreements reached on intellectual property rights and insurance:
Section 301 investigation terminated
* 1986.8.28 Exchange of letters on insurance, exchange of letters on process
patents, record of understanding on intellectual property rights
1987.6.29-6.30 The 6th U.S.-Korea Sub-cabinet Level Economic consultations held
in Washington, D.C.
1987.9.10 Exchange of letters on life insurance
1988.2.16 The USTR initiated a “Section 301” investigation on Korean
cigarette market
1988.3.18 The USTR initiated a “Section 301 ” investigation on beef import
system of Korea
1988.5.27 Record of understanding on market access for cigarettes
1988.12.30 Exchange of letters on motion pictures
1989.1.18 Exchange of letters on imported wine and wine products
3 1 owe this appendix for the chronology of the U.S.-Korea trade relations to Moon, Shinhak,
Commercial attachd in the Korean Embassy in Washington, D.C.
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249
1989.2
1989.5.19-5.25
*1989.5.19
*1989.5.25
1989.6.16
1989.12.7-12.8
1990.2.15
1990.4.26
1992.2.24
1992.3.6
1992.8.7
1993.7.10
1993.7.15
The USTR designates Korea as Priority Foreign Country under
“Telecommunications 301”
Agreements reached to terminate preempt designation of Korea as
Priority Foreign Country under “Super 301”
Exchange of letters on investment, exchange of letters on
localization
Exchange of letters on agriculture
Exchange of letters on the protection of pipeline products
The 8th U.S.-Korea Sub-cabinet Level Economic Consultations
held in Washington, D.C.
Record of understanding on market access for telecommunications
service and equipment
Understanding on liberalization of telecommunications service
- Understanding on government procurement
- Understanding on telecommunications standards
Understanding on telecommunications equipment tariff
reductions
Exchange of letters on beef
Bilateral agreement pursuant to GATT dispute settlement panel
report adapted on November 8, 1989
President Noh and President Bush agreed to establish President’s
Economic Initiative (PEI)
Exchange of letters on liberalization of the Korean
telecommunications market
- Designation of Korea as a Priority Country under
“Telecommunications 301” revoked
Joint report of the PEI
President Kim and President Clinton to establish Dialogue for
Economic Cooperation (DEC)
Exchange of letters on market access for beef
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250
1994.6.22
1995.7.20
1995.9.28
1995.12.15
1996.8.1
1997.7.23
1997.10.8
1998.6.9
1998.7.21-7.22
1998.10.20
1998.11.17-18
2000.4.30
Final report of the DEC submitted
12th U.S.-Korea Sub-cabinet Level Economic Consultations
held in Washington, D.C.
Agreement reached on shelf-life
- Joint letters to the WTO concerning agreement on shelf-life
The MOU on market access for foreign passenger vehicles in
Korea concluded
Designation of Korean automobile market as Priority foreign
Country Practice under “Super 301” preempted
The U.S.-Korea committee on Business Cooperation (CBC)
established
- Jae Yoon Park, Minister of Trade, Industry and Energy and
Ronald H. Brown, Secretary of Commerce
The USTR designates Korea as a Priority Foreign Country under
“Telecommunication 301”
The USTR revokes Priority Foreign country under
“Telecommunication 301”
The USTR designates Korea’s automobile market as Priority
Foreign Country Practice under “Super 301”
President Kim and President Clinton agree to work out an
investment agreement
The 1st round of negotiations on Bilateral Investment Treaty (BIT)
held in Washington, D.C.
MOU regarding foreign motor vehicles in Korea concluded
- “Super 301” investigation on Korea’s automobile market
terminated
The 3rd round of negotiations on BIT held in Washington, D.C.
The USTR designates Korea as Priority Watch List (PWL) country
under “Special 301”
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251
Appendix C:
Operational definitions of the dependent and independent variables for Chapter III
1. Dependent variable: the negotiated outcome (OUTCOME)
The dependent variable (OUTCOME) is the outcome of the trade conflicts
and negotiations between the U.S. and Korea during the 1980-2000 time period. The
points of the OUTCOME are scored by how much each country gains or loses from
bilateral trade negotiations in relation to the observed values of the status quo, such
as a trade volume and the existence of tariff and nontariff measures that the target
country was taking in some base period prior to bargaining. That is, those cases
which are favorable to the U.S. are classified as categories 5, 6, and 7, while those
which are favorable to Korea are classified as categories 1, 2, and 3. Those which are
neutral are classified as category 4.
There are several ways to measure and classify negotiation outcomes as
dependent variables in the literature.4 Bayard & Elliott (1994), for example, rate the
degree of the success or failure of the U.S. attempts to extract trade concessions in
implementing the Section 301 of 1974 Trade Act. All cases include those in which
the U.S. exerted pressure on an industry, had mutual gains, and used mixed strategies.
Basically, the scoring method in this chapter employs Odell’s (1985) data analysis of
the negotiation outcomes between the U.S. and Korea, which are classified as closer
to the initial requests or objectives of the U.S. government (categories 1, 2 and 3),
closer to the initial position of the Korean government (categories 9, 8 and 7), or
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252
intermediate between the two. As a close replication of Odell’s, Baik and Chung
(1998) classify the negotiated outcomes into seven categories: those which are
favorable to the U.S. (categories 5, 6, and 7), those which are favorable to Korea
(categories 1, 2, and 3), and those which are neutral (category 4). To clarify the small
differences in the categorization of the negotiation outcomes, a more detailed
classification is desirable. However, in practice it is difficult to identify the critical
differences in the outcomes of negotiations. Moreover, when we compare outcomes
with opening positions in bilateral negotiations, initial opening positions are not
exactly comparable with outcomes because the former contain a large dose of
bluffing. Thus, in this paper, an outcome is measured with relation to the observable
changes in economic values of status quo such as a change of trade volume and a
change in the protectionist trade measures in a target country. For the scoring of the
OUTCOME, we used directly Baik and Chung’s (1998) data during the 1980-1995
time period, and added the cases after 1995 through 2000 based on their seven-
category method.
2. Independent variables
Comparative advantage (COMPAD):
A comparative advantage denotes the degree to which an industry can sell its
products and services in the world market. Thus, the degree of a comparative
4 For several ways to measure the outcome, see Odell (2002)
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253
advantage is measured by comparing the market shares of the U.S. and Korean
products at the world market for the year in which the negotiation was initiated.
The COMPAD variable is set as a dummy variable. If the market share of the
Korean products was higher than that of the U.S. products for the year in which the
negotiation was initiated, it is coded “0”. Otherwise, it is coded “1”. Table 3.2 shows
the examples of the coding for COMPAD for several products during the period of
1991-1995. For example, Korea’s primary steel exports reached 5.0% - 7.1% of the
total world exports for the period 1991-1995. The U.S. steel industry exported 1.6% -
5.1% of the total world exports on the same period. Thus, COMPAD takes the value
of “0” in a negotiation case involving primary steel forms between the two countries
in the given period. In the case of telecom equipment, the U.S. share of the total
world exports amounted to 14.8% - 15.9%. The Korean telecom equipment industry
exported 3.3% - 3.8% of the total world exports for the same period. Thus, in a
negotiation case about the telecom equipment between the two countries COMPAD
takes the value of “1”.
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254
Table C. 1: Examples of the world market shares of U.S. and Korean products and its coding
for the comparative advantage variable (COMPAD) (unit: in millions of U.S. dollars
and %)
Products Amount Year 1991 1992 1993 1994 1995
COM
PAD
Steel
primary
forms
World
export
total 18,539 16,854 17,587 19,231 25,831
Coded
“0”
% 100.0 100.0 100.0 100.0 100.0
Korean
export
total 1,097 1,178 1,246 1,119 1,289
% 5.9 7.0 7.1 5.8 5.0
US
export
total 949 431 323 305 1,229
% 5.1 2.6 1.8 1.6 4.8
Steel
tubes &
pipes
World
export
total 20,774 19,055 16,889 19,001 22,441
Coded
% 100.0 100.0 100.0 100.0 100.0
US
export
total 1,324 1,334 1,182 1,420 1,766
% 6.4 7.0 7.0 7.5 7.9
Korean
export
total 538 472 555 525 611
% 2.6 2.5 3.3 2.8 2.7
TV
receivers
World
export
total 16,555 16,392 16,737 20,430 22,633
Coded
“0”
% 100.0 100.0 100.0 100.0 100.0
Korean
export
total 1,633 1,537 1,463 1,698 1,901
% 9.9 9.4 8.7 8.3 8.4
US
export
total 682 776 750 882 869
% 4.1 4.7 4.5 4.3 3.8
Telecom
equip
ment
World
export
total 61,955 68,747 76,939 96,583 115,970
Coded
a 15 ?
% 100.0 100.0 100.0 100.0 100.0
US
export
total 9,155 10,402 12,262 14,810 17,842
% 14.8 15.1 15.9 15.3 15.4
Korean
export
total 2,072 2,337 2,922 3,687 4,244
% 3.3 3.4 3.8 3.8 3.7
Foot
wear
World
export
total 28,412 31,470 33,388 37,060 40,410
Coded
“0”
% 100.0 100.0 100.0 100.0 100.0
Korean
export
total 3,679 3,034 2,128 1,557 1,246
% 12.9 9.6 6.4 4.2 3.1
US
export
total 517 543 537 585 584
% 1.8 1.7 1.6 1.6 1.4
Source: United Nations (1996), 1995 International Trade Statistics Yearbook, Volume II,
Trade by Commodity
Note: ‘World export’ means total exports to the world market from all exporting countries
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255
Retaliation threat (THREATUS):
The THREATUS variable can take two values: non-threat cases are coded “0”
and threat cases are coded “1”.
Protectionist actions in the home market (PROTECT):
The PROTECT variable is coded “0” for the negotiations aimed at preserving
the protection in the home market and is coded “1” in the cases aimed at opening the
other country’s market.
Market (MARKET):
The variable MARKET indicates in which market a conflict occurred. We
code the Korean market “0” and the U.S. market “1”.
Initiating country (INITIATE):
INITIATE denotes which country initiated a conflict. Korea is coded “0”, and
the U.S. is “1”.
Employment by industry in the U.S. (EMPLOYUS):
The variable EMPLOYUS measures the number (in thousands) of yearly full
time and part-time employees by industry in the U.S. It denotes the size of an
industry’s employment for the year in which a conflict was initiated.
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256
U.S. total unemployment rate (UNEMPLUS):
UNEMPLUS is the unemployment rate in the U.S. for the year in which a
conflict was initiated.
US trade balance with Korea (TBALUS):
TBALUS denotes the U.S. trade balance with Korea for the year in which a
conflict was initiated.
< The independent variables added in the modified model >
Protectionist actions in its home market initiated by the U.S. which has a
comparative disadvantage (DISPROUS):
The DISPROUS variable is coded “1” for the cases in which the U.S. has a
comparative disadvantage and initiates with the purpose of protecting its home
market and the other cases are coded “0”.
Market opening actions in relation to the Korean market initiated by the U.S.
which has a comparative advantage (COMOPEUS):
The COMOPEUS variable can take two values. When the U.S. has a
comparative advantage and initiates a conflict in order to open the Korean market,
the cases are coded “1.” The other cases are coded “0”.
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257
Protectionist actions in the home market initiated by the U.S. which has a
comparative advantage (COMPROUS):
The COMPROUS variable is coded “1” for the cases in which the U.S. has a
comparative advantage and initiates in order to protect its home market and the other
cases are coded “0”.
Market opening actions in relation to the Korean market initiated by the U.S.
which has a comparative disadvantage (DISOPEUS):
The DISOPEUS variable is coded “1” for the cases in which the U.S. has a
comparative disadvantage and initiates in order to open the Korean market and the
other cases are coded “0”.
Protectionist actions in its home market initiated by Korea which has a
comparative disadvantage (DISPROKO):
The DISPROKO variable is coded “1” for the cases in which Korea has a
comparative disadvantage and initiates in order to protect its home market and the
other cases are coded “0”.
Market opening actions in relation to the U.S. market initiated by Korea which
has a comparative advantage (COMOPEKO):
The COMOPEKO variable can take two values. When Korea has a
comparative advantage and initiates a conflict in order to open the U.S. market, the
cases are coded “1.” The other cases are coded “0”.
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258
Protectionist actions in relation to the home market initiated by Korea which
has a comparative advantage (COMPROKO):
The COMPROKO variable is coded “1” for the cases in which Korea has a
comparative advantage and initiates in order to protect the home market and the
other cases are coded “0”.
Market opening actions in relation to the U.S. market initiated by Korea which
has a comparative disadvantage (DISOPEKO):
The DISOPEKO variable is coded “1” for the cases in which Korea has a
comparative disadvantage and initiates in order to open the U.S. market and the other
cases are coded “0”.
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259
Appendix D:
The chronology of the automobile market-opening negotiations between the U.S. and
Korea, 1993-1995 for Chapter IV
1993. 1.16 The heads of Big Three - Chrysler Corp., Ford Motor Co. and
General Motors Corp. met with president elect Bill Clinton and
urged President elect Clinton to craft a more stringent trade
agreement that would reduce the trade deficit with Japan.
1993. 6.22 The Big Three delivered their opinions to President Clinton to
pursue its effort to open Korean automobile market
1993. 7 The U.S. and Korea agreed to establish a framework for dialogue
on economic issues - “Dialogue for Economic Cooperation”.
1993.10.14-16 The U.S. government put officially for the first time on the
negotiation table in the 15th re
Group meeting held in Seoul.
negotiation table in the 15th regular Korea-U.S. Trade Working
1994. 2 The Korean government issued a public statement that the Korean
National Tax Administration would not use the ownership of a
foreign car as a selection criterion for the tax audits. The Korean
government also agreed to phase out tax forms that require
taxpayers to disclose the make of their vehicle.
1994. 3.31 The USTR issued the 1994 report of National Trade Estimate on
foreign trade barriers, mentioning first time about Korea’s informal
and formal restrictions on motor vehicle imports.
1994. 4.4-4.5 The 16th Korea-U.S. Trade Working Group meeting was held in
Washington, D.C.
1994. 4.13 In GATT Ministerial Meeting in Marakesh, Spain, Mickey Kantor
USTR and Chulsu Kim, Korean Minister of Trade and Industry had
a bilateral meeting, Minister Kim committed to present a
comprehensive plan for opening the Korean automobile market.
1994. 5.27 Kantor USTR sent a letter to Minister Kim that indicates strong
position of U.S. government.
1994. 6.14 The head of the American automakers’ trade group traveled to
Seoul to make clear that Detroit wants access to the growing
Korean market.
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260
1994. 6.22
1994. 7.27.
1994. 9.13-16
1994.10.2
1994.10
1995. 4.26-28
1995.6
1995.7
1995. 8.4
1995.9.11-12
1995. 9.19-28
1995. 9.28
The U.S. negotiators met with the Korean officials to discuss steps
to eliminate Korea's informal and formal restrictions on motor
vehicle imports. The Korean government presented the proposal for
“the Comprehensive Action Plan” at the 12th Korea-U.S. Economic
Consultation Meeting, which held in Washington, D.C.
The U.S. government delivered their opinion to the Korean
proposal that they are welcome but further discussions are needed
on the tariff and tax issues.
In the 17th Korea-U.S. Trade Working Group meeting in Seoul, the
U.S. government claimed again the same position.
In the review of Super 301 in October 1994, the USTR designate
Korean auto market as “area of concern” rather than “priority
foreign practice”.
The U.S. large groups of trade mission visited to Korea to ask to
open Korea’s market.
In the 18th Korea-U.S. Trade Working Group meeting in
Washington, D.C., both countries negotiated about same
automobile issues.
Korea’s proposal for more developed action plan at the Korea-U.S.
Automobile Working Group meeting (Seoul)
The Trade Ministers’ meeting was held in Washington, D.C.
For the suggestions to the USTR on perceived unfair trade
practices to list official Super 301 targets by September 30, the Big
Three and AAMA suggested to use 301 threat to Korea.
The U.S. and Korean governments had a pre-meeting on the tax
issue in Washington, D.C.
The first negotiation was held in Washington, D.C.
Both countries made an agreement of MOU for opening up Korean
auto market
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261
Appendix E:
“Korea-U.S. Automotive Memorandum of Understanding to Increase Market Access
for Foreign Passenger Vehicles in the Republic of Korea” for Chapter IV.5
I. GOALS AND GENERAL POLICIES
A. The goals of this Memorandum of Understanding (MOU) are to:
1. substantially increase market access for foreign passenger vehicles in the Republic
of Korea;
2. improve consumer perceptions in Korea of foreign passenger vehicles;
3. establish an automotive taxation regime in the Republic of Korea that is not
discriminatory against foreign passenger vehicles;
4. provide equal access for foreign passenger vehicle manufacturers to television
advertising time in the Republic of Korea; and
5. promote international harmonization of standards and certification in the
automobile industry.
B. The ROK Government agrees to take all necessary steps to fully and effectively
implement this MOU. The ROK Government also agrees that it will not take any
new measures that directly or indirectly adversely affect market access for foreign
passenger vehicles.
C. The U.S. Government and the Government of the Republic of Korea (the Parties)
will implement all the measures of this MOU on a most favored nation basis.
II. MEASURES REGARDING STANDARDS AND CERTIFICATION
A. Safety Compliance Test
1. Effective on January 1, 1996, the ROK Government will raise the threshold for the
Safety Compliance Test from 100 units annually per model to 500 units annually per
model. No later than January 1,1998, the Government of the Republic of Korea will
increase the Safety Compliance Test threshold to 1000 units per model.
2. Effective on January 1,1996, the ROK Government will accept a manufacturer's
certificate of conformity and a summary of data as sufficient to meet the
documentation requirements for the 28 automotive safety standards set out in
Attachment 1 Part A.
3. The ROK will not require additional documentation or data for these 28 standards
after January 1, 1996. The ROK shall ensure that the documentation requirements in
subparagraph A. 2. will not be applied in such a manner as to restrict trade or have
the effect of creating unnecessary obstacles to international trade in foreign vehicles.
5 This memorandum was excerpted from the Korea Times, September 30, 1995
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262
4. Effective on January 1,1996, the ROK will eliminate the five automotive safety
standards for passenger vehicles set out in Attachment 1 Part B.
5. Effective on January 1, 1997, the ROK will accept the manufacturer's test report
for the five automotive safety standards set out in Attachment 1 Part C, provided that
the foreign passenger vehicle manufacturer conducts the tests according to the
procedures specified in the Korean Motor Vehicle Safety Regulation.
6. Effective on January 1, 1996, the Government of the ROK will eliminate the
20,000 km durability test.
B. Simplification of Basic Vehicle Type Approval: The Government of the Republic
of Korea agrees that effective on January 1, 1996:
1. foreign passenger vehicle manufacturers are not required to submit any documents
to the Ministry of Construction and Transportation relating to type approval if such
documents have already been submitted to the Korea Automobile Testing &
Research Institute:
2. passenger vehicle manufacturers are not required to resubmit documents that were
previously presented for Basic Vehicle Type Approval to either the Korean
Automobile Testing & Research Institute or the Ministry of Construction and
Transportation if a previously approved model is modified, but its body and frame
are kept the same.
3. type approval for modified vehicle type will be given at the same time it grants
Basic Vehicle Type Approval.
C. Headlamps
1. The ROK will promptly adopt the harmonized U.S./ EU standard for Headlamps
when such standard is completed.
2. Prior to such adoption, the ROK will accept vehicles with Headlamp light
intensity ranging from 20,000 candela to 112,500 candela.
D. Pass-by Noise Standards
1. The ROK will adopt the pass-by noise conformity assessment procedure that is
being developed by the International Organization for Standardization (ISO) no later
than one year after its adoption.
2. Prior to the adoption of the ISO pass- by noise conformity assessment procedures,
the ROK continue to accept all passenger vehicle models that pass the current
Government of the Republic of Korea pass-by noise standard (77 decibels) prior to
January 1, 1996. Effective on January 1, 1996, the Republic of Korea will change the
pass by noise standard from 77 decibels to 75 decibels.
3. For passenger vehicles that do not fall under subparagraph D.2., prior to the
adoption of the ISO pass-by noise conformity assessment procedures, the
Government of the Republic of Korea will accept foreign passenger vehicles that
have passed stringent conformity assessment procedures either identical to those of
ROK or other stringent conformity assessment procedures applied by: a. the United
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263
States Environmental Protection Agency (EPA); b. an independent testing facility
certified by the EPA; or c. a manufacturer, provided that the EPA certifies that the
conformity assessment procedure is properly followed for each model by the
manufacturer.
E. Completion Test
1. The ROK confirms that the Ministry of Construction and Transportation allows
foreign passenger vehicle manufacturers and auto importers it has designated as
having adequate technical personnel and facilities to conduct the Completion Test.
2. Effective on January 1, 1997, the Ministry of Construction and Transportation will
designate importers and manufacturers to conduct the Completion Test if the
importer or manufacturer has adequate technical personnel and has contracted with a
"First-Rate Motor Vehicle Repair Company" having adequate facilities.
III. MEASURES REGARDING TAXES ON FOREIGN PASSENGER VEHICLES
A. The ROK confirms its intention to lower the Special Excise Tax for passenger
vehicles with engine displacements over 2000 cc from 25% to 20% effective on
January 1, 1996.
B. Effective on January 1, 1996, the ROK also intends to lower the Annual Vehicle
Tax for passenger vehicles with engine displacements between 2500 cc and 3000 cc
from 410 won/cc to a maximum of 310 won/cc and for passenger vehicles with
engine displacements over 3000 cc from 630 won/cc to a maximum of 370 won/cc.
C. The ROK will propose a revision of the laws related to the Special Excise and
Annual Vehicle Tax to the Assembly. It will also take all necessary steps to ensure
that the revisions are enacted by January 1, 1996.
IV. MEASURES REGARDING ADVERTISING REGULATIONS
Effective on October 1,1995, the ROK will eliminate the "locked-time" program
allocation system for television broadcast advertising. Television broadcast
advertising shall be allocated in a manner that does not discriminate against foreign
passenger vehicle manufacturers.
V. MEASURES REGARDING RETAIL FINANCING FOR FOREIGN
PASSENGER VEHICLES
A. Foreign entities may establish or acquire passenger vehicle retail financing
operations in ROK. The share of equity that foreign entitles may own, either singly
or in aggregate, in such operations may not exceed 49% until December 31, 1996,
after which there will be no ceiling on individual or aggregate foreign equity
participation in passenger vehicle retail financing operations.
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264
B. The United States Department of the Treasury and the Korean Ministry of Finance
and Economy will continue to discuss matters associated with financing of passenger
vehicles.
VI. MEASURES TO IMPROVE CONSUMER PERCEPTONS OF FOREIGN
PASSENGER VEHICLES
The ROK confirms that it is not its policy to discourage the purchase of foreign
passenger vehicles in any way. Upon receipt of an inquiry from the Korean
Automobile Importers and Distributors Association (KAIDA), the Government of
the Republic of Korea will give a firm confirmation as agreed between the parties of
above mentioned policy without any delay.
VII. CONSULTATIVE PROVISIONS
A. The parties agree to meet periodically beginning from the date of this MOU until
June 1, 1996 to discuss institutions, policies and measures in Korea relating to the
implementation of the MOU. Such matters may include, but are not limited to,
standards and certification, taxes, advertising and consumer perception.
B. The ROK agrees to provide information, in a timely manner, on the introduction
of any formal or in formal government measures that affect, directly, or indirectly,
market access for foreign passenger vehicles in the Republic of Korea.
C. The parties will also evaluate the progress being made under this MOU and
monitor market access for foreign passenger vehicles in the Republic of Korea.
D. In monitoring and assessing market access for foreign passenger vehicles in the
Republic of Korea, both parties will consider, among others:
1. the change in the number and value of new foreign passenger vehicles sold in
Korea in total and by country of export as measured by the Korean, United States
and other foreign country official statistics and other publicly available data;
2. specific official actions to improve the consumer perception of imports; and
3. implementation of all other measures set out above, including standards and
certification, taxes and tariffs, and advertising measures.
E. Each party shall communicate the results of these consultations to their respective
governments.
F. These consultative provisions may be extended with the agreement of both
countries.
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265
Appendix F:
The chronology of the semiconductor antidumping negotiations between the U.S.
and Korea, 1992-1993 for Chapter V
1990. 1. Micron Technology Inc. announced its intention to file an
antidumping petition against the Korean semiconductors
1990.11 Micron Technology presented again its intention to file an
antidumping petition against the Korean semiconductors
1990.11 Senator Craig (Idaho) sent a letter to Korean Ambassador to the
U.S. complaining about the dumping actions in the U.S. market by
the Korean semiconductor makers.
1992. 4.22 Micron Technology filed an antidumping petition with the U.S.
Department of Commerce (DOC)
1992. 5.12 The DOC announced to initiate the antidumping case against the
Korean semiconductors
1992. 5.14 The International Trade Commission (ITC) held a public hearing
1992. 6. 9 The ITC made a preliminary determination of injury to the U.S.
industry
1992.10.21 The DOC made a preliminary determination (begin to deposit cash
bond at the U.S. Customs Service)
1992.12.12-17 The Korean delegation had a first meeting with the U.S.
government officials to conclude a Suspension Agreement (SA) to
terminate the antidumping investigation against the Korean
chipmakers
1993. 1.12-17 The Korean delegation had a second meeting with the U.S.
government officials in Washington, D.C.
1993. 1.15 The Korean semiconductor industry submitted to the DOC the draft
of SA/DCP (Suspension Agreement/Data Collection Program)
1993. 1.28 The Korean industry submitted the first revised SA/DCP
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
266
1993.2. 8-15
1993.2.12
1993.2.16
1993. 3.15
1993.4.29
1993.5.5
1993. 5. 6
1994.5
1994. 6.15
1995.5
1995. 8.17
1995. 8.24
1995.10.27
1996. 2. 8
The Korean delegation had a third meeting with the U.S.
government officials in Washington, D.C.
The Korean industry submitted the second revised SA/DCP
The DOC rejected the acceptance of SA/DCP
The DOC made a final determination of dumping against the
Korean chipmakers
The ITC made a final determination of injury to the U.S. industry
The DOC ordered the U.S. Customs Service to collect an
antidumping duty from the Korean companies.
The DOC amended the dumping margin in the final determination
against the Korean chip makers
Micron Technology and the Korean chipmakers applied the first
annual review for the Korean semiconductor antidumping case
The DOC announced in the federal register to initiate the
investigation about the first annual review.
Micron Technology and the Korean chipmakers applied the second
annual review for the Korean semiconductor antidumping case
The DOC made a preliminary determination for the first annual
review
The DOC remanded the dumping margin in the initial final
determination against the Korean case
The Court for International Trade (CIT) approved for remand
determination by DOC
The DOC announced a remand notice of final determination
- The dumping duty order against Samsung ended, due to
de-minimus (meaning three continuous dumping margin below
0.5%)
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

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Asset Metadata

Creator Kim, Hak-Do (author)

Core Title The outcomes of trade conflicts and negotiations between the United States and South Korea, 1980--2000

Degree Doctor of Philosophy

Degree Program Political Economy and Public Policy

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, General,OAI-PMH Harvest,political science, international law and relations

Language English

Contributor Digitized by ProQuest (provenance)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c16-573589

Unique identifier UC11335483

Identifier 3155432.pdf (filename),usctheses-c16-573589 (legacy record id)

Legacy Identifier 3155432.pdf

Dmrecord 573589

Document Type Dissertation

Rights Kim, Hak-Do

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA