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The Spread of New Protectionism

The Spread of New Protectionism

KWON Hyuk-Jae

Oct. 23, 2013

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The prolonged recovery from the global economic crisis has spurred a steady accumulation of protectionist measures in the world’s major economies. In advanced countries, the new protectionism is coming in the form of strengthened environmental and competition regulations and intellectual property rights (IPR) actions, rather than tariff hikes. In emerging countries, “Buy National” policies are emerging. At the same time, “globalization of regulations” is occurring such that emerging countries are following the example set by advanced countries. Such developments present significant challenges for a trade dependent country like Korea. Accordingly, this report will examine five distinctive features of the new protectionism and its effect on businesses, and then deduce some implications for the Korean government and companies.

Anti-dumping and countervailing duties: Anti-dumping and countervailing duties are leading examples of the protectionist measures now in favor. As of 2012, Korea is the world’s second most frequent defendant in anti-dumping lawsuits, with the majority of actions brought by emerging countries. At the same time, a steady stream of new anti-dumping filings by producers in developed countries is emerging against Korean exporters. For companies sued over alleged dumping, it is critically important to develop response strategies in close collaboration with related industry associations and relevant government agencies.

Competition laws: New risks for global companies are emerging as large markets like the United States, the EU and China have strengthened their domestic competition laws on cartels, monopolies and M&A on both the national and international levels. China in particular has recently stepped up its enforcement actions against local and foreign companies.

Environmental regulations: Environment-related non-tariff barriers (NTBs) are becoming increasingly stringent worldwide in the name of protecting the environment and nurturing environmentally-friendly industries. Although environmental regulations raise entry costs, they can also provide companies with opportunities to take the lead in global green markets.

IPR: Developed countries have recently tightened protection of IPR under government and corporate leadership. IPR is of particular concern for Korean companies grappling with patent litigation involving foreign parties and import regulations in trading partner countries.

“Buy National” Campaigns: In the wake of the global economic crisis, “Buy National” policies to protect domestic firms and boost the economy became widespread. As a result, some exporters have suffered sales declines and seen their foreign subsidiaries undergo difficulties in labor relations and in procurement of materials. At the same time, some firms have succeeded under these conditions by seeking out niche markets.

The Korean government and companies must work together to respond to the spread and routinization of the new protectionism. To this end, the government should reinforce multilateral pacts like the Information Technology Agreement (ITA) and the Trade in Services Agreement (TISA), and develop bilateral networks through initiatives like a Korea-China FTA. To minimize risks, both the government and companies must tailor concrete strategies and countermeasures that fit the specific situations of core countries. As IPR and environmental regulations pose both business risks and opportunities, Korean companies should strengthen their efforts to lead the global knowledge economy and pioneer green markets through aggressive pursuit of innovation.

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