Pacific Law Firm and Trade Remedy Society Conclude Seminar on Global Trade Environment

The Pacific Law Firm (BKL) and the Trade Remedy Society announced on September 14 that they held a policy seminar on September 10 at BKL's headquarters in Jongno-gu, Seoul, titled 'Challenges in the Changing Global Trade Environment: The Status and Improvement Directions of Bonded Factory Operations.'

The seminar brought together experts from the government, academia, and national research institutions, as well as industry professionals from sectors such as steel, chemicals, textiles, and tires. Participants discussed the need to review South Korea's bonded factory system in light of the rising tide of global protectionism and to address movements that undermine the original purpose of the bonded factory system while evading trade remedy measures.

Amid the increasing implementation of trade remedy measures like anti-dumping duties due to global protectionism, concerns are growing that bonded factories may be used to circumvent or neutralize these measures. The seminar aimed to explore institutional improvements that would maintain the positive functions of bonded factories—such as promoting exports and creating value through processing trade—while ensuring the effectiveness of trade remedy systems.

Choi Chang-hwan, president of the Trade Remedy Society and a professor at Dankook University, stated in his opening remarks, "It is time to expedite discussions on institutional reforms to ensure that the trade remedy system achieves its fundamental goals of providing substantial industry protection and establishing a fair trade order, rather than remaining a mere written norm."

In the first session, attorney Joo Sung-jun from BKL examined the potential for evading anti-dumping duties through domestic bonded factories and compared the management systems of bonded zones in major countries such as the United States, the EU, and Japan.

Joo pointed out that while major countries employ multi-layered mechanisms—such as raw material taxation, economic feasibility assessments, and bonded factory permit reviews—to prevent circumvention of trade remedy measures, South Korea lacks a review function to assess the potential for evasion of trade remedy measures during the permit review process for bonded factories using goods subject to anti-dumping duties.

In response, Professor Cho Young-jin from Ewha Womans University (former member of the Trade Commission) and Jeong Jae-ho, deputy director of the Korea Institute of Public Finance, emphasized that anti-dumping measures are designed to protect industries harmed by unfair foreign trade. They stressed the need for effective management to ensure that relief is properly provided to affected companies. They also called for discussions on rationally improving the bonded factory system in light of the changing trade environment.

In the second session, Lee Go-eun, a researcher at the Korea Institute for Industrial Economics and Trade, presented an analysis of the increase in imports of foreign steel and the surge in bonded factory entries following trade remedy measures. She noted that despite the government's recent trade remedy actions on key steel products such as hot-rolled and heavy plates, imports of regulated items (including those entering bonded factories) have significantly increased in the first half of this year.

Considering the recent expansion of bonded factory applications, she highlighted the need to examine the potential for evasion of anti-dumping measures through bonded factories and to improve the effectiveness of the system. She specifically pointed out that imports of Japanese hot-rolled steel have increased even after the implementation of anti-dumping duties, contrary to expectations.

During the discussion, Professor Cho Soo-jung from Korea University (former director at the Ministry of Trade, Industry and Energy) and BKL advisor Lee Chan-ki (former deputy commissioner of the Korea Customs Service) emphasized the importance of supply chain management in the current global trade environment. They argued that it is necessary to reform related systems to prevent South Korea from being labeled as a bypass for excess production from China.

They also noted that the concentration of anti-dumping measure evasion through bonded factories among large corporations could widen the competitive gap with small businesses. This raises concerns about fairness in the system, as some companies can avoid anti-dumping duties through bonded factories while others bear the burden.

In the subsequent policy recommendations and comprehensive discussion, BKL advisor Heo Kyung-wook served as the moderator, with participation from presenters and discussants, including Professor Kim Tae-hwang from Myongji University and Dr. Lee Cheon-ki from the Korea Institute for International Economic Policy. The participants agreed that while bonded factories are crucial for supporting processing trade and exports, their positive functions should not be compromised. However, they also concurred on the need to limit their use as a means to undermine anti-dumping measures.

The discussion highlighted that even in cases of re-export through bonded factories, this involves the importation of low-priced dumped goods that have caused industrial harm. Maintaining a tax deferral status without any sanctions during exports is deemed unreasonable.

Furthermore, if trade remedy measures for domestic industries continue to be effectively neutralized through bonded factories, the effectiveness of the trade remedy system in providing relief to domestic industries could diminish. This issue is not limited to the steel industry but poses a serious concern regarding the overall credibility of South Korea's trade remedy system, with significant implications for other industries as well.

In light of this, participants proposed establishing explicit grounds in customs law or subordinate regulations to restrict the operation of bonded factories for the purpose of evading trade remedy measures. They also agreed that a policy decision is needed to ensure the effectiveness of the system in response to the changing trade environment.