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Working Paper

The History, Institutional Framework and Economic Consequences of VERs in Korea

페이스북
커버이미지
  • 저자 박태호(朴泰鎬)
  • 발행일 1989/06/01
  • 시리즈 번호 8917
원문보기
요약 This paper has attempted to systematically examine all VER
cases in Korea over the last two decades paying particular
attention to the institutional aspects and economic impacts on
restricted exporting countries of VERs. The trends of industrial
countries` NTBs and VERs imposed on Korean exports was first
analyzed. By examining all VER cases in Korea, the paper
discussed the characteristics, negotiation process, and contents of
VER arrangements. The export quota allocation system in Korea
was then reviewed and the effects of VERs on export
performance examined focusing on changes in export volume,
unit value exports and export earnings.

The main findings of this paper can be summarized as
follows. First, the extent of industrial countries` NTBs covering
Korean exports is still quite large even though it is decreasing.
In 1987, 28.5% of Korean exports to 19 industrial countries were
subject to some form of NTB. Since 1986, the coverage of
NTBs employed by the EC and Canada to restrict Korean
exports has been much higher than industrial countries` average.
NTBs are particularly widespread in footwear, textiles and
clothing, cutlery, iron and steel and consumer electronics, which
are Korea`s most competitive sectors.

Second, during the period 1981-1987, VERs accounted for
more than 90% of exports subject to quantitative restrictions. It
should be noted, however, that MFA cases accounted for more
than 30% and about 80% of the total number of cases and of
export value under VERs. VERs are particularly widespread in
textiles and clothing, cutlery, iron and steel and footwear.

Third, a review of 20 Korean VER cases supports the
argument that VERs based on bilateral agreements unfairly
discriminate against only a small number of exporting countries,
which is clearly a violation of the non-discrimination principle of
the GATT. Korean VER cases also provide some evidence that
restricted exporters try to diversify their exports into
nonrestricted markets while nonrestricted exporters shift their
exports to restricted markets. Another interesting characteristic
found in VER cases is that Korea`s bilateral export growth rates
just before VER negotiations were unusually high. It is also
found in Korean VER cases that warning signals such as
anti-dumping and countervailing duties typically preceded VER
negotiations.

Fourth, based on the contents of VER agreements., we can
see that there is a conflict of interest between importing and
exporting countries at the VER negotiating table. Debates over
the extent of product division and inclusion of an equity clause
provision are good examples of such conflicts of interest.

Fifth, for most VER cases, Korea adopts a two-tier quota
allocation mechanism: a "basic" allocation based on export
volumes to the restricted market and an "open" allocation based
on the unit export value, export volumes to nonrestricted
countries and by products aim at minimizing the possible export
earning lost due to VERs.

Sixth, given the constrains on the available data, the
evaluation of the economic impacts of VERs and Korean
exports`adjustments to VER restriction depended mainly on trend
and simple regression analyses. Except for those VER cases in
which exports were not effectively bound by VERs, the results
provide evidence that VERs induce exporting firms to both
upgrade their export mix and diversify their export markets into
nonrestricting countries. These two adjustment efforts made by
Korean exports, however, appeared not enough volumes as well
as earnings.

Korea`s experience with VER`s provides important evidence
that since VERs are often discriminatory and are negotiated
bilaterally outside the purview of the GATT, newly emerging
exporting countries feel especially vulnerable to pressure from
importing countries to enter into VERs. The Korean cases also
demonstrate that VERs, for reasons of political economy, exhibit
a strong tendency to spread quickly to other unrestricted
exporting countries as well as unrestricting importing countries.

Pressure from importers on particular exporting countries to
enter into VERs would seem unjustified absent evidence of
unfair trading practices on the part of the exporting country.
Nonetheless, in many cases, even when successful developing
country exporters behave fairy, they are still singled out and
urged to agree to VERs, both in safeguards cases in which
importing countries are obliged to be nondiscriminatory in their
attempts to restrict imports, and even in cases Where no
safeguards justification exists at all. Such cases are clearly
unfair, but as long as major importers threaten to impose
countervailing and antidumping duties, developing country
exporters will continue to agree to VER negotiations rather risk
trade retaliation, even if they feel wronged by the merits of the
case.
Exporting countries feel strongly that such unfair
discrimination should come to an end. Current discussions on
VERs and reform of the GATT system at the Uruguay Round
negotiations should give full consideration to this problem by
reviewing the provisions concerning both safeguards and unfair
trading practices.
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