J. Korea

1. Introduction

5.289 Korea recalls that on March 2, 1999, pursuant to the request made by the European Communities, the Dispute Settlement Body established a panel to consider whether Sections 301-310 of the United States' Trade Act of 1974 comply with the United States' GATT/WTO obligations. In accordance with Article 10 of the Understanding on Rules and Procedures Governing the Settlement of Disputes, the Republic of Korea reserved its rights as a third party to the dispute by notification to the DSB.⁵⁷⁸

5.290 Korea goes on to state that as a frequent target of United States threats and actions under Sections 301-310, Korea has a substantial interest in the challenge brought by the European Communities to this aspect of US trade law. Although Korea was only the United States' ninth largest trading partner in mid-1998,⁵⁷⁹ Korea has been the third most frequent target of Section 301 actions, behind the European Union and Japan.⁵⁸⁰ In total, as of June 4, 1998, at least ten Section 301 cases had been initiated against Korea.⁵⁸¹

5.291  In response to the Panel's request, Korea provided the following table showing the cases where the United States took actions against Korea under Section 301.

CASES OF US UNILATERAL SECTION 301 MEASURES ON KOREA

A.  US Unilateral Section 301 Measures under the GATT system (1980-  )

B.          US Unilateral special 301 measures

C.          US Unilateral 301 measures under the WTO Regime

2. Overview

(a) The Importance of the DSU

5.292  Korea argues that under the 1947 General Agreement on Trade and Tariffs ("GATT 1947"), binding dispute settlement was almost impossible to achieve. In the first place, dispute settlement proceedings were quite lengthy and easily delayed. Even more problematic, however, was the fact that the dispute settlement procedures of GATT 1947 Article XXIII required consensus, such that a "defendant" Contracting Party could effectively block retaliatory suspension of GATT obligations or concessions by the "complainant" Contracting Party.

5.293  Korea also notes that the shortcomings of the dispute settlement system under GATT 1947 occasionally led to unilateral retaliation and counter-retaliation as states exercised their self-determined rights under customary international law to suspend GATT concessions as a response to perceived GATT violations by other states. These costly rounds of unregulated suspensions of trade concessions were destabilizing to the international economic system, particularly as they often devolved into downward-spiralling trade wars. For example, the so-called "chicken war" that took place in the early 1960s between the United States and the European Economic Community ("EEC") grew from a dispute over application of the EEC's Common Agricultural Policy to broiler chickens to a trade war involving threats by the United States to retaliate against products ranging from wine and Roquefort cheese to scissors and electric shavers.⁵⁸² The GATT 1947 system proved largely incapable of checking or preventing such trade wars, and indeed the failure of the system was used by some states as a justification for initiating unilateral action. The United States, in particular, frequently resorted to unilateral trade measures inconsistent with GATT 1947 when dispute settlement under the existing procedures was ineffective, explaining that: "If such action was considered unilateral, it should be nevertheless recognised as perfectly justifiable, responsive action necessitated by the failure of bilateral or multilateral efforts to address a problem. The way to minimise or avoid unilateralism was to create a credible multilateral system � by strengthening the existing system".⁵⁸³

5.294  In the view of Korea, the DSU was designed to be just such "a credible multilateral system".  The DSU remedied the chief weaknesses of the GATT 1947 dispute settlement system by establishing a predictable timetable for resolving trade disputes and, where appropriate, imposing trade sanctions, and also by eliminating the paralysing requirement that the country targeted by those sanctions agree to them.

5.295  Korea further contends that the DSU's unambiguous prohibition against acts of unilateralism was a critical component of the multilateral bargain represented by the agreements negotiated in the Uruguay Round.  These agreements dramatically expanded the mutual obligations of WTO Members to reduce or remove trade barriers.  The Uruguay Round led not only to further reductions in barriers to trade in goods but also to new disciplines in areas such as trade in services and protection of intellectual property rights.  This expanded substantive scope of the GATT/WTO system�one of the United States' chief objectives in the Uruguay Round negotiations�was achieved partly in exchange for a new commitment in the DSU to effective multilateral, rather than unilateral, resolution of disputes arising under the GATT and associated agreements.  The parties to the Uruguay Round instruments would never have agreed to this expansion of their trade-related commitments had they believed that they would remain subject to unilateral suspensions of commitments by other parties.

5.296 According to Korea, reducing unilateralism was a particular concern of smaller countries such as Korea. Smaller countries are far more susceptible to unilateral denials of trade benefits than are larger countries because the impact of the unilateral action on the small country and the impact of any possible retaliation against the large country are disproportionate.⁵⁸⁴ For example, in 1997, Korea's Gross Domestic Product ("GDP") was approximately $631.2 billion;⁵⁸⁵ the United States' GDP, at $8,110.9 billion,⁵⁸⁶ was nearly 13 times larger. As a result, equivalent trade sanctions have an impact on Korea's economy that is 13 times greater than their impact on the United States' economy.⁵⁸⁷

5.297 Korea notes that the DSU of course does not do away with nations' rights to suspend GATT concessions or to take other retaliatory trade measures. But by regulating when and in what manner such measures may be used, the DSU benefits smaller countries like Korea by ensuring that trade sanctions are not imposed suddenly or arbitrarily, but only when they are found to be warranted pursuant to an orderly multilateral process and after the nation affected has had a reasonable opportunity to bring its practices into conformity with its GATT undertakings.

5.298  Korea states that it is nevertheless unfortunate that the United States still maintains the statute that allows the USTR to exercise its self-determined right to take retaliatory measures in response to perceived violations by other states. The history and effect of Sections 301-310 are clearly and comprehensively spelled out in the submission of the European Communities. Therefore, Korea will not repeat them here today. Korea would only like to mention one important aspect of Sections 301-310 that is overlooked by the European Communities: the USTR's publication of a retaliation list.

5.299  Korea argues that the USTR is required by Section 304(c) to publish in the Federal Register "any determination made under subsection (a)(1)", which includes the mandatory determination of what action the USTR proposes to take in retaliation against a denial of United States rights under a trade agreement. Publication of this "determination" provides the United States with great negotiating power because of the real-world impact that publication of a retaliation list has on trade flows. In the vast majority of Section 301 cases, the threat of sanctions alone led to a bilateral negotiated solution. The threat posed by Section 301 sanctions is thus aptly described as an effective tool to "extract unilateral concessions from weaker trading partners".

5.300  In Korea's view, this impact is magnified where the US government moves to "suspend liquidation" of customs entries for merchandise on the retaliation list. "Liquidation" is the final computation of the duties accruing on a customs entry. When liquidation is "suspended", the importer's legal liability with respect to the payment of the duties and other fees associated with the entry remains open. In other words, the importer may be required to pay additional customs duties if the retaliation list takes effect at a later date. This open-ended liability adds a level of uncertainty that can dramatically affect trade flows.

TO CONTINUE WITH UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT OF 1974