Firm's Responsive Behaviors in WTO Trade Disputes: Countervailing Cases on Korean DRAMs

Abstract

How do decisions of the World Trade Organization (WTO) Dispute Settlement Body (DSB) relate to economic/trade gains? This is an important question to consider when evaluating the efficacy of the WTO DSB. Although it may seem obvious that a successful dispute resolution through the DSB would remove trade barriers and increase trade, the ruling effects are not so straightforward, with recent empirical studies suggesting an unclear causality between the dispute resolutions and subsequent changes in trade. Using product and firm-level data, this paper examines three WTO disputes over countervailing duties on Korean Dynamic Random Access Memory chips, which have raised similar legal issues but yielded different outcomes. By investigating the dynamics of firm behavior over the course of disputes, our analysis sheds light on the difficulties of detecting changes in trade flows following rulings by the DSB. We conclude that cross-border trade flows are substantially affected by firm-and-market specific adjustments interacting with the current world trade environment, such as flexible reallocation of resources and promotion of a production network.

Keywords: WTO dispute, Countervailing Duties, DRAMs, Hynix, FDI

JEL Classification: F13, F14, K33