TRADE DISPUTE CASE STUDIES BETWEEN

JAPAN AND SOUTH KOREA

Subject : Regime and International Organization

Lecture : Aldofo and Yasmi Adriansyah

By :

Rachmi Suci 0801518081

Salma Ardelia 0801518098
Rayhan Zain 0801518085
Mahatma T. Adamas H 0801518055
Balya Adli 0801518024
Muhammad Rakha Seno 0801518069

INTERNATIONAL RELATION
FACULTY OF POLITICAL AND SOCIAL SCIENCE
AL AZHAR INDONESIA UNIVERSITY
2019
 I. INTRODUCTION

Korea’s economic relations with Japan in the post-war period were re-
established with the diplomatic normalization of the two countries in 1965. At that
time, Korea lagged far behind Japan in terms of economic development, and its GDP
per capita was $100, which was only one-tenth of Japan’s. Even though Korea’s
decision to normalize diplomatic relations with Japan still remains controversial, it
may be regarded as an inevitable move in order to rebuild the country that had
undergone an era of massive political turbulence and was completely destroyed by
war. This is mainly because normalization with Japan involved financial aid in the
name of compensation for Japanese colonial rule over Korea. However, the
reestablishment of economic relations between Korea and Japan in 1965 reinforced
Korea’s economic subordination to Japan to a certain degree. The dominance-
subordination nature of the economic relationship between the two countries was
more noticeable in Korea’s dependency on imports and technology from Japan. Even
in the late 1980s after Official Development Assistance (ODA) from Japan to Korea
had ended, as much as 30 percent of total imports still came from Japan. In addition,
current leading Korean firms in the automobile, electronics, and chemicals industries
adopted high-level technology by seeking technical cooperation or establishing a joint
venture with Japanese counterparts. The Asian Currency Crisis of 1997 hit Korea hard
and prompted the Korean government to accelerate domestic structural reforms,
which also led Korea to fully globalize its economy. With these efforts, global
enterprises have gradually appeared in Korea. In addition, since the 2000s the Chinese
economy has expanded rapidly, resulting in the economic relations between Korea
and Japan taking on an interdependent form. The presence of Japanese companies in
Korea has weakened, and the trend of Japanese firms preferring to cooperate with
Korean counterparts has been observed. Korea’s dependency on imports from Japan
was recorded as 30 percent in the late 1980s, but this figure fell to 20 percent in the
2000s and to 10 percent in 2014. In contrast, total investment by Japanese firms in
Korean companies was about $400 million in the 1990s, but this increased four-fold
and amounted to as much as $1.5 billion in the 2000s (Kim: 2017).

Japan and South Korea (South Korea) relations have been tense since July 4,
2019. At that time, the Japanese Ministry of Trade issued a policy of limiting the export
of high-tech materials to produce smart phone screens and chips to South Korea. The
Japanese government also requires exporters to register themselves if want to export
semiconductor raw materials to South Korea. This raw material is related to
manufacturing refrigeration products, pharmaceuticals, metal processing and
semiconductors (Lisbet:2019).

Japanese policy is a blow for large companies in South Korea such as Samsung
Electronics, SK Hynix, and LG Display. The impact of reducing exports of raw materials
Japan will feel directly in the smart phone and semiconductor industries that South
Korea is a mainstay of. As a result of this policy, permits for each export shipment via
ship from Japan to South Korea can take up to 90 days for management to slow the
process of sending raw materials.

This decision of the Japanese Government was taken for reasons of national
security, as a form of supervision of exports and fulfillment of international
obligations in order to maintain strict transfer of certain technologies that can be used
in the field of security / military (Republika, 3 July 2019). Responding to the Japanese
policy, the South Korean Government plans to report the Japanese Government to
the World Trade Organization (WTO). In addition, South Korean residents have also
withdrawn Japanese-made products sold in South Korea such as alcoholic drinks and
refuse tour packages from Japan. In fact, if this conflict continues, South Korea will
boycott sales of Japanese luxury cars and retail goods sold in South Korea.

The Japan-South Korea conflict is easily triggered again because the

completion of the history of the two countries has not yet been completed. If the two
conflicts are not resolved, it will not only affect the tense relations between the two
countries, but also cause new problems for the stability of regional security.

The main purpose of this paper is to conduct a relations between Korea’s

economic with Japan in this current situation, and knowing WTO’s actions on the two
countries. The motivation why we choose this topic is because when the state using
a trade as a tool tp settle disputes is dangerous. At this point in the progression of
things, solving the original conflict doesn’t guarantee an end to the sactions. And
sanctions are becoming a bargaining chip in the resolution of the original conflict.
Therefore, not only are bilateral relationships damaged, but countless resources and
energy are used solely for the exacerbation of the problem instead of solving it. Japan
and South Korea locked in this cycle. And their case is a living demonstration pf how
ineffective trade tool is in solving disputes. Some self-claimed superpower of the
world might want to take.
 II. INTERNATIONAL ORGANIZATION

An organization that has been formed or made by a member of the world

community on a voluntary basis that has been based on the basis of common goals for
the realization of world peace in international relations. Thus we can draw a little
conclusion that basically an organization has been formed on the basis of one common
goal, this includes the formation of international organizations including the UN,
ASEAN and so forth.

According to an N.A. Maryan Green The definition of an international

organization is an organization that has been formed based on an agreement of three or
more member countries. According to Maryam Green concluded that social
organizations are more
inclined towards multilateral cooperation or many countries rather than bilateral
cooperation or two countries.

A. Historical Background About World Trade Organization

The establishment of the WTO began with the negotiations known as the
"Uruguay Round" (1986-1994) and previous negotiations under the "General
Agreement on Tariffs and Trade" (GATT). The WTO currently consists of 161 member
countries, with 23 observing countries. At present, the WTO is a platform for
negotiating a number of new agreements under the "Doha Development Agenda"
(DDA) which began in 2001 (Astim riyanto:2003).

Although the WTO was officially established on January 1, 1995, the trading
system itself existed half a century ago. Since 1948, GATT has made rules for this
system, since 1848-1994 the GATT system contains regulations regarding world trade
and produced the highest growth of international trade. But despite this success, GATT
as an organization and the resulting regulations are still temporary.
In the early years, the GATT Trade Round concentrated negotiations on tariff
reductions. Then the Kennedy Round (the mid-1960s) discussed the Anti-Dumping
Agreement. The Tokyo Round during the 1970s was the first major effort to overcome
trade barriers (non-tarrif barriers) and improve the trading system.
The last and biggest round was the Uruguay Round which ran from 1986 to 1994 and
led to the formation of the WTO. GATT is primarily intended for matters related to
trade in goods, while the WTO also includes trade in services and intellectual property
(Agreement on Trade Related Aspects of Intellectual Property Rights)

B. Function and Goals of World Trade Organization

The WTO has several important objectives. First, encourage trade flows
between countries, by reducing and removing various obstacles that can disrupt the
smooth flow of trade in goods and services. Second, facilitate negotiations by providing
more negotiation forums permanent, given that international trade negotiations in the
past were very complex and time-consuming processes.
Third, the settlement of trade disputes between countries, given that trade
relations often lead to conflicts of interest. Although there are agreements in the WTO
that have been agreed by its members, it is still possible for interpretations and
violations to occur, so that a neutral dispute resolution and mutually agreed legal
procedure is needed.
With the WTO rules that apply equally to all members, both individuals,
companies and governments will get greater certainty about a country's trade policy.
Binding a country with WTO rules will minimize the possibility of sudden changes in
a country's trade policy.
The successful implementation of agreements in the WTO depends on the
support of its member countries. Likewise the legitimacy of the WTO as an
organization, also very dependent on the will (political will) of member countries to
comply with agreements that they have agreed upon.
The main function of the WTO is to provide an institutional framework for trade
relations between member countries in the implementation of treaties and various legal
instruments including those contained in the WTO agreement annex.

a) Implementation of the WTO Agreement The WTO functions to facilitate the

implementation, administration and implementation of WTO agreements and
their additional multilateral and plurilateral agreements.
b) Forum for trade negotiations The second function is to provide a permanent
forum for negotiations between member countries. This negotiation does not
only concern issues / issues that have been covered by the WTO Agreement.
c) Settlement of Disputes The third function is as administration of the WTO
dispute resolution system.
d) Oversee trade policies The fourth function is as administration of the Trade
Policy Review Mechanism (TPRM).
e) Collaboration with other organizations The last function is to collaborate with
non-governmental organizations. (Directorate of trade, industry, investment,
and HKI:2011)

(WTO) or Trade Organization The world is the only body international specifically
regulating inter-trade matters country. Trading system multilateral WTO is regulated
through an agreement that contains rules basic rules of trade international results
negotiations that have been signed by countries member. WTO is a organization that
based on rules which are negotiation results. The rule also called an agreement or
agreements (agreements). Agreement it must be produced from a series of negotiations
that are which carried out by all member countries,and reflect needs member. WTO
agreement is considered
the highest degree by the state so negate all other international agreements (Queenta:
2007).
 C. Topic in the institutional process WTO

The trade war between Japan and South Korea is a trade conflict between Japan
and South Korea caused by the Japanese Government's decision to limit some chemical
exports to South Korea on July 1, 2019. This was triggered by a Supreme Court ruling
ordering several Japanese companies to pay compensation losses to victims of Japanese
forced labor in World War II.
South Korea accused Japan of making trade a weapon. South Korean relations and
Japan deteriorated after the South Korean Supreme Court ruled Japanese companies
must pay compensation for forced labor carried out during the colonial period on the
Korean Peninsula.
South Korean trade official Yoo Myung-hee said it was the first step in resolving
disputes at the WTO. Seoul will ask Tokyo to hold bilateral talks.

In July, Japan tightened control of the export of three chemicals to South Korean
companies. The material is to produce semiconductors and screens for smartphones
and televisions.
Seoul said the move was Tokyo's reply to the South Korean Supreme Court's decision.
Japan said the move was carried out for security reasons.

South Korea claimed victory over Japan in a decision given by the World Trade
Organization (WTO). In the ruling, the WTO said, Seoul was not guilty of the
imposition of import duties on several Japanese products.

"The WTO has rejected that argument, regarding Japan which states that South Korea
is guilty of eight of the nine points of dispute," one of the South Korean Ministry of
Trade.
In addition, the WTO Appeals Agency rejected the argument that said trade problems
had damaged the South Korean industry. Regarding the damage analysis, the South
Korean Ministry of Commerce said, the WTO will first analyze using objective and
appropriate methods.

Furthermore, the South Korean Ministry of Commerce explained, in a report prepared

by the WTO, they only accepted the Japanese argument, that the Gingseng Country did
not explain in detail, whether import problems caused the price of domestic products
to be depressed or not.

Meanwhile, regarding the continued handling of trade conflicts between the two
countries, the South Korean Ministry of Trade said they continued to use WTO
procedures. In addition, resolving conflicts between South Korea and Japan. Seoul
wants their national interests to be protected.

"We will continue to follow WTO procedures. For the sake of resolving this conflict
and also our national interests," he said.

Tokyo's official statement said that some South Korean companies did not manage
chemicals well. While a Japanese report said, some contracts for South Korea might be
terminated. However, Seoul has denied that by saying it has imposed trade restrictions
on sensitive materials.

Japan insists that restrictions on exports to South Korea do not violate World Trade
Organization (WTO) rules. Export restrictions are placed on high-tech raw materials
commonly used to produce smartphones.

Japanese Industry Minister Hiroshige Seko explained the export restriction was a
consequence of solving the South Korean forced labor problem on Japanese companies
during the second world war. The purification of the South Korean court requires
Japanese companies to pay compensation.

"All actions related to Japanese trade are in line with WTO regulations," Seko was
quoted as saying by Reuters

It is known, South Korea has demanded that Japan pay compensation for its citizens
who were victims of forced labor during the war era from 1910 to 1945. However,
Japan has said that the compensation problem has been resolved under the 1965
agreement.

The agreement improves relations between the two countries. But South Korea ignored
that.

Japan, which did not accept this, then restricted exports of three materials used in chips
and displays from South Korea in early July. Tokyo said the decision was made on the
basis of national security issues and not because of a South Korean court ruling
ordering Japanese companies to pay compensation to forced workers.

Unfortunately, this has made South Koreans furious that they have banned the sale of
Made in Japan products in South Korea. Uniqlo is one of the Japanese companies
affected by South Korea. (Directorate of trade, industry, investment, and HKI:2011)
 V. SIMILIAR OF DIFFERENT CASE IN WORLD TRADE CENTER

A. Position Of World Trade Organization

Global rules of trade provide assurance and stability. Consumers and producers
know they can enjoy secure supplies and greater choice of the finished products,
components, raw materials and services they use. Producers and exporters know
foreign markets will remain open to them.

This leads to a more prosperous, peaceful and accountable economic world.

Decisions in the WTO are typically taken by consensus among all members and they
are ratified by members’ parliaments. Trade frictions are channelled into the WTO’s
dispute settlement process, where the focus is on interpreting agreements and
commitments and how to ensure that members’ trade policies conform with them. That
way, the risk of disputes spilling over into political or military conflict is reduced.

By lowering trade barriers through negotiations among member governments, the

WTO’s system also breaks down other barriers between peoples and trading
economies.

At the heart of the system – known as the multilateral trading system – are the WTO’s
agreements, negotiated and signed by a large majority of the world’s trading
economies, and ratified in their parliaments.

These agreements are the legal foundations for global trade. Essentially, they
are contracts, guaranteeing WTO members important trade rights. They also bind
governments to keep their trade policies transparent and predictable which is to
everybody’s benefit.
The agreements provide a stable and transparent framework to help producers of goods
and services, exporters and importers conduct their business.

The goal is to improve the welfare of the peoples of the WTO’s members.

The World Trade Organization came into being in 1995. One of the youngest of the
international organizations, the WTO is the successor to the General Agreement on
Tariffs and Trade (GATT) established in the wake of the Second World War.

So while the WTO is relatively young, the multilateral trading system that was
originally set up under the GATT is over 70 years old.

The past 70 years have seen an exceptional growth in world trade. Merchandise
exports have grown on average by 6% annually. This growth in trade has been a
powerful engine for overall economic expansion and on average trade has grown by
1.5 times more than the global economy each year. Total exports in 2016 were 250
times the level of 1948. The GATT and the WTO have helped to create a strong and
prosperous trading system contributing to unprecedented growth.

The system was developed through a series of trade negotiations, or rounds,

held under the GATT. The first rounds dealt mainly with tariff reductions but later
negotiations included other areas such as anti-dumping and non-tariff measures. The
1986-94 round – the Uruguay Round – led to the WTO’s creation.

The negotiations did not end there. In 1997, an agreement was reached on
telecommunications services, with 69 governments agreeing to wide-ranging
liberalization measures that went beyond those agreed in the Uruguay Round.

In the same year, 40 governments successfully concluded negotiations for tariff-free

trade in information technology products, and 70 members concluded a financial
services deal covering more than 95% of trade in banking, insurance, securities and
financial information.

In 2000, new talks started on agriculture and services. These were incorporated into a
broader work programme, the Doha Development Agenda, launched at the fourth WTO
Ministerial Conference in Doha, Qatar, in November 2001.

The new work programme included negotiations and other work on non- agricultural
tariffs, trade and the environment, WTO rules on anti-dumping and subsidies, trade
facilitation, transparency in government procurement, intellectual property and a range
of issues raised by developing economies as difficulties they face in implementing
WTO agreements.

Negotiations on these and other topics have resulted in major updates to the WTO
rulebook in recent years. A revised Government Procurement Agreement – adopted at
the WTO’s 8th Ministerial Conference in 2011 – expanded the coverage of the original
agreement by an estimated US$ 100 billion a year.

At the 9th Ministerial Conference in Bali in 2013, WTO members struck the Agreement
on Trade Facilitation, which aims to reduce border delays by slashing red tape.

When fully implemented, this Agreement – the first multilateral accord reached at the
WTO – will cut trade costs by more than 14% and will lift global exports by as much
as US$ 1 trillion per year.

The expansion of the Information Technology Agreement – concluded at the 10th

Ministerial Conference in Nairobi in 2015 – eliminated tariffs on an additional 200 IT
products valued at over US$ 1.3 trillion per year. Another outcome of the Conference
was a decision to abolish agricultural export subsidies, fulfilling one of the key targets
of the UN Sustainable Development Goal on “Zero hunger”.
Most recently, an amendment to the WTO’s Intellectual Property Agreement entered
into force in 2017, easing poor economies’ access to affordable medicines. The same
year saw the Trade Facilitation Agreement enter into force.

The WTO’s rules – the agreements – are the result of negotiations between the
members. The current set is largely the outcome of the 1986- 94 Uruguay Round
negotiations, which included a major revision of the original General Agreement on
Tariffs and Trade (GATT).

The Uruguay Round created new rules for dealing with trade in services and
intellectual property and new procedures for dispute settlement. The complete set runs
to some 30,000 pages consisting of about 30 agreements and separate commitments
(called schedules) made by individual members in specific areas, such as lower tariffs
and services market-opening.

Through these agreements, WTO members operate a non- discriminatory

trading system that spells out their rights and their obligations. Each member receives
guarantees that its exports will be treated fairly and consistently in other members’
markets. Each promises to do the same for imports into its own market. The system
also gives developing economies some flexibility in implementing their commitments.

The WTO Secretariat, based in Geneva, has around 630 staff and is headed by
a Director- General. It does not have branch offices outside Geneva. Since decisions
are taken by the WTO’s members, the Secretariat does not itself have a decision-
making role.

The Secretariat’s main duties are to supply technical support for the various
councils/ committees and the ministerial conferences, to provide technical assistance
for developing economies, to analyse world trade and to explain WTO activities to the
public and media.

The Secretariat also provides some forms of legal assistance in the dispute
settlement process and advises governments wishing to become members of the WTO.
The annual budget contributed by members is roughly 197 million Swiss francs.

B. Opinion in World Trade Organization on Trade war between Japan and

Korea

The World Trade Organization has ruled for Japan against South Korea in an anti-
dumping case as the economic relationship between the two East Asian neighbours
deteriorates.

Sitting in Geneva, the WTO’s appellate body found that duties imposed on Japanese
pneumatic valves by Korea in 2015 were not consistent with the international Anti-
Dumping Agreement.

The case in Geneva is part of a tangle of disputes between the two countries, which
escalated recently when South Korean courts ordered Japanese companies to pay
damages over forced labour during the second world war, and Tokyo imposed export
controls on crucial supplies to the South Korean semiconductor industry.

Japan was particularly sensitive to the valves dispute after the same group of WTO
judges found for South Korea in April in a separate dispute over its ban on Japanese
seafood following the Fukushima nuclear disaster.

Hiroshige Seko, Japan’s trade minister, was quick to trumpet his victory in this round,
demanding that South Korea immediately remove the duties “so that its unjust
measures against Japanese companies will not continue”.
The valves decision was complicated, with the appellate judges reversing some parts
of an earlier ruling to favour South Korea, while changing other parts to favour Japan.
But its conclusion remained the same: that the Korean duties of 11.66 per cent to
22.77 per cent on Japan’s exports were not properly justified.

Countries are allowed to impose anti-dumping duties if they can show a rival is
“dumping” goods for sale at less than fair market value, to the detriment of local
producers.

Japan and South Korea’s use of the WTO shows its value in settling trade disputes,
but the appeals process is in danger of collapse, with the US refusing to appoint new
judges in protest at what it sees as legal over-reach. (Robin Harding in Tokyo:2019)

C. A Judgement in World Trade Organization on trade war between Japan

and Korea

The World Trade Organization (WTO) Appellate Body on Tuesday broadly

upheld an April 2018 panel ruling against South Korea's anti-dumping duties on
imports of pneumatic valves from Japan.

The Asian countries are embroiled in a widening political and economic dispute that
erupted over forced labor in World War Two and banned trade with North Korea.

The original WTO panel found that Japan showed that Korean authorities had acted
inconsistently with some provisions of the WTO Anti-Dumping Agreement in
determining injury to domestic producers.

WTO judges, in a mixed decision issued on Tuesday, called on South Korea to bring
its measures into conformity with WTO rules, but rejected two technical aspects.
Seoul had also failed to provide a non-confidential summary of confidential business
information, they said.

Japan said that Japanese valves are mainly used in equipment for semiconductor
manufacturing and automotive engine production where high-level precision is
crucial, and do not directly compete with Korean valves, which are low-end products
commonly used in things like equipment for painting cars.

Japan's trade minister Hiroshige Seko, in a statement issued in Tokyo, welcomed the
WTO's decision as having "accepted core claims of Japan".

He called on South Korea to halt its "unjust measures against Japanese companies"
and noted that Japan had a right to invoke counter-measures under WTO if Seoul fails
to comply.

The value of pneumatic exports to South Korea last year was 6.4 billion yen ($60
million), Japanese industry said. There was no immediate comment from South
Korea.
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Directorate General of Multilateral Ministry of Foreign Affairs of
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Riyanto, Astim. 2003.World Trade Organization. Bandung: YAPEMDO.

Matoko, Abe. 2015. “Ilbonui Daehan kyungjehyupryop [Japan’s Economic

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Cheol, Park. 2009. “The Pattern of Cooperation and Conflict between Korea and
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https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr_e.htm

https://www.ft.com/content/7275846e-d3e3-11e9-a0bd-ab8ec6435630

Robin, Harding. 2019.World Trade Organization.Tokyo.