Korea has of late joined the ranks of major countries which actively have recourse to anti-dumping mechanisms. Dumping is loosely defined as the sale of merchandise to Korea at prices below the normal value of the merchandise. While Korea initiated only 10 cases for the period covering 1990 to 1995, in 1996 alone it filed 10 anti-dumping cases and 2 safeguard cases. A dramatic change, and the signs are that the trend will continue in 1997.
Against this background, it is important for foreign businesses to understand the basic framework of anti-dumping investigative procedures in Korea and the various factors which can have a significant impact on the final decision as to whether or not dumping has actually occurred. In particular, foreign trading or manufacturing companies doing business in Korea must be able to understand what critical factors come into play, and what countermeasures they may take. The aim of this article is to provide a general overview of current Korean anti-dumping procedures.
orea has been implementing a broad range of economic and fiscal deregulatory and liberalization measures, in recognition of the pressing need for basic economic reform. At the same time, Korea has also accelerated its efforts to liberalize its import policy. The nation's import liberalization ratio increased from 97.7% in 1992 to 99.3% in 1996. Those remaining items still under restriction will be fully liberalized by 2001, or will be brought into conformity with the results of Uruguay Round (UR) negotiations and GATT regulations.
Korea has also progressively reduced tariff rates. Presently, low tariff rates of 1-3% are levied on imported raw materials, while a rate of 8% is applied to most manufactured goods. Further, a number of recent changes to domestic legislation, designed to implement the results of the Uruguay Round, affected the Foreign Trade Act, the Customs Act, and the Enforcement Decrees promulgated under these statutes. This welcome change, however, carries a hidden price.
First and foremost among Korean legislation relevant to anti-dumping cases is the Customs Act. Beyond this, there are a number of additional measures such as the Enforcement Decree implementing in detailed terms the broad framework of the Act, the Regulations promulgated thereunder, and the "Regulations on Remedies for Injury to Domestic Industry Caused by Imports." So far as sources derived from international law are concerned, Korea has adopted GATT Article VI and the Agreement on Implementation of Article VI of GATT (the so-called "Anti-Dumping Code").
Under Article 4-4 of the Enforcement Decree, the entire procedure for reaching a decision in an anti-dumping case must be completed within one year (this one-year period can be extended up to 6 more months under some special circumstances). In practice, however, cases are frequently concluded within around 8 months. The various stages involved are as follows:
Application for imposing anti-dumping duty and Determination as to whether to Initiate Investigation - 1 month
Preliminary Decision from initiation of Investigation - 3 months
Main Decision after rendering of Preliminary Decision - 3 months; and
Final Remedies imposed by Ministry of Finance and Economy - 1 month
1. Filing of Anti-Dumping Case
Any domestic producer which considers itself to have been injured by dumping activities may file a claim based on the relevant anti-dumping provisions of the law. Likewise, any association or organization which represents the interests of domestic producers, and further a member of such group, may also file a claim. In addition, the Minister heading the government department with jurisdiction over the products in question is entitled to file a claim.
The Anti-Dumping Code provides that domestic producers who support the filing should among themselves represent over 50% of total production by domestic producers who officially either support or oppose the filing. Further, an anti-dumping case will not be pursued when the total quantity produced by domestic producers supporting the filing represents less than 25% of total domestic production.
2. Anti-Dumping Investigation
A. Who Investigates?
The Ministry of Finance and Economy, specifically its Korean Trade Commission ("KTC"), is the principal governmental body responsible for conducting the investigation. There are two major investigative divisions at the KTC. The investigators in these divisions screen all documents filed by both sides and conduct on-the-spot investigations in the countries concerned. The KTC comprises 7 members, including the Senior Advisor to the KTC and certain academics.
When an application for the imposition of anti-dumping sanctions is filed with the KTC, the KTC must first determine whether the case merits a formal investigation. The KTC will check the qualifications of claimants, the likelihood of finding sufficient evidence to prove dumping and material injury, the degree of dumping margin, if any, the quantity of allegedly dumped goods imported, etc. If the KTC finds that any of the foregoing elements are not met, it will reject the application.
If, however, the KTC decides to pursue an investigation, it will also determine the time span for investigation (usually four years will be considered for injury determination and one year for dumping determination), the exact merchandise which is the focus of the investigation, and the exporting country as well as the exporter or exporters involved.
B. Dumping Margin
The KTC conducts investigations along two fronts. The first is the investigation of the alleged dumping margin. The dumping margin is defined as the difference between the normal value and the export value, and the dumping margin rate is calculated under a given formula (normal value minus export price divided by taxable price in terms of CIF). There are one or two methods for calculating dumping margin depending upon whether they use the total or individual computation method. The time span for calculating the dumping margin is at least one year starting from the previous month of the filing date.
One of the most difficult tasks is indeed determining whether there is a price difference and, if so, the extent of such price differential. Generally speaking, the normal price will be determined based on one of three prices: the home market price, the third country export price and the constructed price. Generally, the home market price will apply. However, if there is no market price for the product in question in the home market, then the third country export price will be used. If, however, the KTC is unable to find either of these, it will have recourse to the constructed price. The constructed value is composed of the cost of materials, labor costs, factory overheads, inner packing costs, selling and general administrative expenses and profit.
To compute the dumping margin, they must also decide the export price. "Export price" means the price of the subject merchandise at the point of clearance in the customs line, and may be one of two prices-actual export price or constructed export price depending upon the export routes.
In determining the normal price, there will be some consideration of viability, COP (cost of production), and arm's length transaction. If there is any special relationship between the importer and exporter, the KTC will treat this transaction as a form of arm's length transaction, since these companies may be regarded as a single economic entity.
C. Injury Determination
Final determination by the KTC is based on injury to the domestic industry. Under the Customs Act, injury may be found if one of three things occurred. The first, and simplest, is material injury to the relevant industry. The second is the threat of material injury. The last, a somewhat complex principle, is material retardation of the establishment of the domestic industry. Proof that any one of these has occurred will satisfy the injury test.
As for injury determination, there are many types of indices to be used. First, the index for injury to domestic industry will be considered. Such indices as quantity, sales and financial circumstances fall under this category. The most important and crucial one, however, in proving dumping is the question of causation. To prove dumping, a causal relationship between the material injury and dumping must be shown. For this, all information about the quantity of dumped product, its impact on the level of production and the loss of sales, etc. will be taken into consideration.
D. Questionnaire
The KTC will send a questionnaire to those who are eligible to answer. All questions must be answered to the best of the relevant party's knowledge. If the KTC believes that the exporter has failed to provide accurately the information requested within the appropriate time limit, the KTC will decide the case based on its own finding, and on such facts as are available to it.
Answers to this questionnaire must be submitted to the KTC within 37 days including 7 days for mailing (this period may be extended by 14 days at the request of interested party). One point to note here is that the KTC will decide based on all obtainable information if the interested parties refuse or otherwise fail to provide information or materially obstruct the investigation.
The KTC will also dispatch an investigation team to those countries subject to the investigation. Those teams generally consist of two members, each of which is responsible for investigating the question of the dumping margin rate and the injury to the domestic industry, respectively.
E. Preliminary Decision
Based on all the accumulated information and investigative data, the KTC will render its preliminary decision on a case within 3 months from the date of the formal decision to commence the investigation. The Minister of Finance and Economy will ultimately decide whether to impose anti-dumping duty, and if so, the size of such duty.
F. Non-Market Economy Countries
Special considerations apply if a concerned country has a non-market economy. The subject producer must provide the KTC with all information regarding whether the products are produced in the market and regarding the normal value of those products. If a country falls within a non-market economy country category, the KTC will base its evaluation of the normal value for the product in question on information derived from a third country which is similar in terms of economic development, annual production quantity and quality of the relevant product.
Of course, a country may at one stage fall within the category of non-market economy country but change into a market-oriented country. In such case, certain information must be provided in order to prove whether the production or sales of the subject merchandise are determined in a market.
IV. Duration of Anti-Dumping Duties
Under the sunset clause, a final decision will be effective for five years, unless the final decision of the KTC specifies otherwise.
Korea has recently turned its attention to anti-dumping procedures as a useful tool in international trade relations. It is to be noted that out of ten such cases filed in 1996, nine were found in favor of the claimants, and one was withdrawn.
Foreign-invested companies should therefore be aware that the gradual liberalization of trade measures in Korea carries the latent hazard of punitive action where the Korean authorities determine that such market openings are being improperly used as avenues for dumping. The risk is real, and an effective company trading policy should take into account this potential risk. In order to stay within the boundaries of the law, such company policy can, in some cases, extend to co-ordination with both industry consultants and legal counsel to conduct an anticipatory "health-check" in order to gauge the possibility of a particular trading strategy falling foul of Korean law.
by Insoo PYO, Esq.
Bae, Kim & Lee
Member of New York and New Jersey Bars (J.D. Syracuse University, 1995)
Tel : 82-2-317-4114
Fax : 82-2-755-7676
