U.S.-Korea Free Trade Agreement: Potential Economy-wide ... - USITC

2004–2006 calendar years, we report the percentage by which the Korean import unit value
exceeds the trade-weighted import unit value by all countries that report quantities of the
product in the same units as does Korea; the latter is a proxy for a world price. 4 Korean
import unit values significantly above this are consistent with the view that NTMs may be
affecting trade and leading to a price distortion. As a check on this, however we also try to
control for the mix of products Korea imports within that trade category, which we do by
noting the percentage by which Korea’s unit value of imports from the United States exceeds
the U.S. export unit value to the world (this comparison assumes that what U.S. exporters
sell to Korea is comparable to what they sell to the world). Some of this discrepancy may be
attributable to shipping costs but where the import unit value differences are relatively large,
one may infer that some is due to the capture of rents by various parties involved in the
international transaction.
We also perform quantity comparisons in which average Korean import quantities from the
world, at the HS-6 level, are compared with import quantities of other countries. Since one
would expect that larger economies import more, the comparisons are made in terms of
import quantity per million dollars of GDP. 5 In general, whenever quantity information is
included in the analysis, or either the import quantity relative to GDP is less than 25 percent
that of the median country, Korean import quantity relative to GDP ranks in the bottom
25 percent of countries with available data, or both.
In making quantity comparisons, one should recognize that cross-cultural differences in
consumer tastes and preferences may play a role in differences in the quantity imported. This
is, however, less likely as the deviation of import quantity relative to GDP from the global
average increases.
Price and quantity data were taken from Global Trade Analyzer, a product of GTIS, which
reports primary-country trade data for a sample of over 60 countries, which include most
important traders. Prices are calculated as unit values and averaged over 2004–06. Quantity
comparisons are averaged over 2003–05 due to the lag in availability of comparable GDP
data. Unit values are in standardized units of measure wherever possible; e.g., metric tons
have been converted to kilograms. For some manufactured goods, such as medical devices,
units of measure are not standardized internationally and comparisons have been made for
the subset of countries with units of measure comparable to those used in Korean trade data.
This may affect the quality of the comparisons, and has been noted when applicable.
4 While they used this for a different purpose, the average world import unit value was also taken to be a
world price proxy by Gibson, Wainio, Whitley, and Bohman, Profiles of Tariffs in Gobal Agricultural
Markets, Agricultural Economic Report No. AER796, USDA, January 2001. The comparison of the Korean
import unit value to this world price proxy would be a conservative estimate of the extent to which Korean
trade distortions raise their import price if Korea’s imports within the product category were of the same
composition and quality as are those of the rest of the world, as the world average import-unit-value is itself
likely raised by other countries’ trade distortions.
5 This is equivalent to maintaining the hypothesis that import demand of the representative international
consumer is unit-elastic with respect to income; i.e., that a 1 percent increase in income leads to a 1-percent
increase in import demand. Exploratory econometrics showed that this is a reasonable assumption for the
products under consideration in this study, and in most cases is a conservative assumption. That is, most of
the true income elasticities are likely to be somewhat higher than 1. If these were used in the analysis, we
would be more likely to find that Korean import quantities appeared unusually low.
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