• Korea Trade Review
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• v.45 no.4
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• pp.1-24
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• 2020

This study aims to analyze the export effects of Korea-Canada FTA's tariff reduction, which was launched on January 1, 2015. First, as a groundwork, this study reviewed trade creation and trade diversion by investigating all possible cases of both initial FTA and additional FTA. The review was done by using the simple model of three countries assuming FTA means elimination of tariff. The review suggested that additional FTA doesn't have any negative impact on import country's social welfare contrary to initial FTA. In additional FTA, Trade diversion could happen between FTA partner countries, but it always increases import country's social welfare. In this sense, it can be called favorable trade diversion. Second, this study analyzed the export effects of Korea-Canada FTA using Clausing's product level model based on Canadian government import data from Korea which is not open to the public. It turned out that Korea-Canada FTA's tariff reduction boosted Canadian import growth rate from Korea. On the other hand, Canadian import growth rate from rest of the world was not negatively affected by Korea-Canada FTA's tariff reduction. Rather, it increased as Canadian import growth rate from Korea was higher. These findings implied trade creation rather than trade diversion of Korea-Canada FTA when it comes to Korea's export to Canada.

• Journal of Korea Trade
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• v.24 no.3
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• pp.1-19
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• 2020

Purpose - This study empirically analyzes the effects of provisional anti-dumping duties levied on imports by Korea following anti-dumping investigations. An anti-dumping duty is a legal tool that countries use to impose duties on imports to offset injurious dumping. This study verifies how effective the imposition of a provisional anti-dumping duty is and whether such duties have trade chilling effects on aggregate imports. Specifically, this study examines import trade diversion from named to unnamed countries caused by the imposition of provisional anti-dumping duties. Design/methodology - This empirical analysis employs an econometric model of provisional anti-dumping measures for cases in which Korea imposed final affirmative anti-dumping measures. We construct a monthly panel dataset for each stage of anti-dumping investigation undertaken by Korea for all manufacturing industries during 1995-2013. We illustrate a stage-by-stage analysis of anti-dumping investigations from initiation, preliminary decision, imposition of provisional duty, final affirmative decision, and imposition of final affirmative duty on a monthly basis at the six-digit harmonized system code-level. Findings - For cases in which provisional duties are imposed, the reduction in imports from named countries outweighs the increase in imports from unnamed countries. The substantial reduction in imports from named countries is large enough to offset the import diversion to unnamed countries, suggesting that import diversion in investigations is limited during the investigation period. Therefore, the use of provisional anti-dumping duties in Korea is effective, providing evidence of a chilling effect on aggregate imports. Originality/value - Few studies examine the size of the effects on import trade diversion of the imposition of provisional anti-dumping duties. We contribute to the literature by disentangling separate trade effects for each phase of the anti-dumping investigation process and imposition of provisional duty.

• East Asian Economic Review
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• v.19 no.2
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• pp.117-142
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• 2015

This paper uses a 53-country 15-industry computable general equilibrium model of trade to analyze the effects of the Korea-China free trade agreement on the Korean economy, the manufacturing sector in particular. The model is based on Yaylaci and Shikher (2014) which uses the Eaton-Kortum methodology to explain intra-industry trade. The model predicts that the Korea-China FTA will increase Korea-China manufacturing trade by 56%, manufacturing employment in Korea by 5.7% and China by 0.55%. The model also predicts significant reallocation of employment across industries with the Food industry in Korea losing jobs and other industries there gaining jobs, with the Medical equipment industry gaining the most. There will be some trade diversion from the ASEAN countries, as well as Japan and the United States.

• Journal of Distribution Science
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• v.10 no.12
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• pp.13-17
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• 2012

Purpose - The Asia-Pacific Economic Cooperation (APEC) forum has evolved and is actively facilitating free and open trade. It is debated whether APEC has effectively reduced trade barriers in a preferential manner to encourage liberalized trade and whether increased trade between member countries has reduced trade with nonmember countries. Research designs, data, methodology -This paper empirically tests whether APEC creates or diverts trade, using an extended gravity model with tariff rates, exchange rates, and dummy variables to analyze how APEC affects intra-trade between members.The model utilizes the annual panel data between 1990 and 2007 of 16 selected APEC members and nonmembers. Results - Results reveal the changing role of APEC only between 2002 and 2007 has it created trade, fostering increased trade among trading partners and between members and nonmembers. Conclusion - APEC can be expected to demonstrate a stronger trade creating effect once its advanced and developing members complete tariff reductions by 2010 and 2020, respectively.

• Journal of Korea Trade
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• v.23 no.3
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• pp.84-104
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• 2019

Purpose - This paper explains why free trade agreements (FTAs) are more popular than customs unions (CUs) in respect of tariff coordination. Design/methodology - This paper employs an equilibrium theory of trade agreements with tariff coordination. I set up three-country partial equilibrium model with competing exporters. Domestic and exporting firms decide their optimal production under given tariffs and each country levies its tariff under the trade agreements. I found stability of implicit tariff coordination and preference of each country between an FTA and a CU. Findings - I demonstrate that two FTA members can keep their external tariffs higher than separately decided external tariffs by keeping the status-quo. This implicit tariff coordination can benefit each member through trade diversion. In a CU, each member country must have a common optimal external tariff and it must incur costs because each country may seek different external tariffs for their own national welfare. The benefit of implicit coordination in an FTA and the cost of explicit coordination in a CU account for the popularity of the FTA. Originality/value - This paper uses the idea of implicit tariff coordination in trade agreements. In a CU, tariff coordination is explicit and mandatory. All member countries must have a single common external tariff for each good. On the other hand, in an FTA, each country establishes its external tariff with the goal of maximizing its own welfare. However, each country can also coordinate "implicitly" by keeping the status-quo after establishing an FTA.

• East Asian Economic Review
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• v.22 no.4
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• pp.403-425
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• 2018

This paper documents the presence of "sensitive sectors" in Free Trade Agreements, defined as sectors for which the within-FTA tariffs remain positive. The paper includes some brief theoretical discussion of the welfare implications of these, but the main emphasis is on reporting two measures of this phenomenon for countries in FTAs that entered into force between 1994 and 2003. One measure is the percentage of tariff lines that remain dutiable, and the second is the change, from before the FTA to after, in the average maximum (across 6-digit products) positive tariffs. Both measures are derived from data in the UNCTAD TRAINS database, and are then related to measures of country characteristics that might explain them. Low per capita GDP countries tend to have larger fractions of dutiable tariff lines, while higher income countries tend to post larger increases in average maximum positive tariffs. Both suggest that the favored treatment of sensitive sectors is undermining the potential gains from trade that FTAs could provide.

• Korea Trade Review
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• v.44 no.4
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• pp.19-34
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• 2019

This study investigates the WTO dispute over Japanese fishery products originated from Fukushima and another seven prefectures. Being subject to an import ban and additional radioactive test requirements, Japan complained that the Korean government's trade measures are inconsistent with the principles of the Agreement on Sanitary and Phytosanitary Measures. This paper considered the contrasting judicial decisions made by the Panel and Appellate Body and analyzed the debates with respect to their trade-discriminatory effects (Article 2.4), the relevance of appropriate level of protection (Article 5.6) and the precautionary approaches (Article 5.7). Consistent with the final rulings, this paper identifies the need for a broaden understanding of regional conditions and qualitative aspects of protection in risk analysis. Findings also suggest that Korea has diverted its fishery imports from Japan to other countries, while Japan has created export diversion from Korea to other destinations.

• East Asian Economic Review
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• v.18 no.4
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• pp.425-461
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• 2014

This paper analyzes the impact of the Canada-Korea Free Trade Agreement on the basis of the published text and agreed schedule of commitments. We find that the Agreement reinforces existing patterns of comparative advantage between Canada (agriculture and resource-based sectors) and Korea (autos and other industries). The sensitive sectors that held up the deal for years - autos into Canada and beef into Korea - witness major trade gains, but are not unduly disrupted. In both economies, the major output gains otherwise come in non-traded services sectors, driven by income effects. We find that trade diversion effects are quite significant; this lends support for the domino theory of major free trade agreements - since the Korea-EU agreement broke the ice, the pressure has intensified on third parties to re-level playing fields by striking their own deals. The study breaks new ground in modelling services trade by developing policy impacts based on the extent to which the text of the Agreement modifies Korea's and Canada's scores on the OECD's Services Trade Restrictiveness Index and by providing estimates of Mode 3 Services trade impacts. The analysis of the Agreement as negotiated, the present study, in our view, is a step forward in understanding the impact of modern free trade agreements.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.72
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• pp.139-160
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• 2016

Using the gravity model, this paper analyzes empirically how the world trade in goods is affected by regional trade agreements(RTAs) which have been spreading rapidly since the mid-1990s. This paper attempt to do the panel data analysis about 174 countries during the period of 1994-2008. These panel data include 157 RTAs. It is meaningful that this paper uses comprehensive data to analyze the net effect of regional trade agreements on the global trade volume. This provides a clue as to the answer to the stumbling block debate raised early in the regional trade agreement. Also, confirming how the participation of the WTO affected the trade volume among the member countries, the WTO-related dummy variables are additionally introduced to this gravity model. And as far as we know, the state system-related variables is first considered in this model. This variable reflects the social and cultural environments of countries as the proxy variable representing the sociocultural homogeneity. In all regressions, joining to the WTO and consistency of the state system have a positive effect on increasing the trade volumes between countries. According to the analysis of RTA trade effects, RTAs, on average, increase the volume of trade within the RTA region by 27%~37%, and decrease the volume of trade between the regional and the non-regional nation by 1.2%~3.4%.Therefore, the net effect of regional trade agreements on the promotion of global welfare is positive. For robustness check, we also introduce the interaction term of the dummy variable which reflects the RTA tightening and the continuous variable which reflects the distance effect. As a result, the RTAs alleviate the trade-decreasing effect which is caused by the distance between the countries.

• East Asian Economic Review
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• v.20 no.3
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• pp.279-309
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• 2016

The proposed Trans-Pacific Partnership (TPP) is a free trade agreement among 12 Pacific Rim countries whose joint gross domestic products (GDPs) account for 36 percent of world GDP and whose mutual trade accounts for approximately 24 percent of world trade. As for most proposed free trade agreements (FTAs), trade economists have provided ex ante computable general equilibrium (CGE) estimates to predict the trade, employment, and real per capita income effects of this agreement, such as ITC (2016). This paper-intended to complement these studies-examines the potential impacts of TPP beyond such traditional CGE estimates, taking a broader economic, governance, and historical perspective. First, we contrast these traditional CGE trade and welfare estimates that treat all firms within an industry as homogeneous with more recent CGE analyses that allow firms' productivities to be heterogeneous. We show that the latter models' trade predictions are much more consistent with ex post empirical evidence of average trade effects of FTAs. Second, empirical evidence now strongly confirms the existence of FTA "contagion." We review this evidence and show that predictive models of the evolution of FTAs indicate that the TPP should be formed. With China now having formed 12 FTAs and negotiating five new ones (including a sixteen member Asia-Pacific FTA), the United States would likely face considerable trade diversion without the TPP. Third, we examine empirical evidence on the likely further economic growth implications of FTAs by reducing firms' uncertainty over trade relations and trade policies. Fourth, we examine empirical evidence on the additional impact of FTAs on consolidating democratic institutions in countries. The TPP would likely help consolidate some of the less mature democracies. Fifth, we examine empirical evidence on the reductions of conflicts (and enhanced peace) between countries owing to the formations of FTAs. We conclude the paper noting that the potential net benefits to member countries of the proposed TPP extend well beyond the real income gains to households based upon traditional CGE models.