Is the garlic return a normal occurrence or an isolated incident? A review of China-South Korea trade frictions

Since the establishment of diplomatic relations between China and South Korea in 1992, the economic and trade cooperation between the two countries has developed rapidly. By the 20th anniversary of the establishment of diplomatic relations, bilateral trade between China and South Korea had grown from 5 billion USD to 256.3 billion USD in 2012, an increase of 50 times. At present, China has become South Korea's largest trading partner, largest export market and largest source of imports, while South Korea is China's third-largest trading partner and fifth-largest source of foreign investment. South Korean President Park Geun-hye said that China-South Korea trade volume could reach 300 billion USD in 2015. On November 10 last year, Chinese President Xi Jinping and South Korean President Park Geun-hye held a meeting in Beijing, and the two sides jointly confirmed the conclusion of substantive negotiations on the China-South Korea Free Trade Area, meaning that China-South Korea trade is about to open a new chapter.

At a time when the international community is generally optimistic about the prospects for China-South Korea trade development, an incident occurred in which 2,200 tons of garlic from Lanling County, Linyi, Shandong were returned by South Korea. Faced with economic losses of tens of millions for garlic farmers, people cannot help but ask: Are China-South Korea trade frictions a new normal or an isolated incident? Will China and South Korea break out into a trade war because of this? How should China-South Korea trade frictions be viewed? What problems exist in China's export trade? What experience and lessons can be drawn from this?

Review of China-South Korea trade frictions

Since the beginning of this century, several major trade frictions between China and South Korea are still fresh in people's memory. Among them, the most representative and influential are the “garlic incident” and the “kimchi controversy.”

In June 2000, again over garlic, the South Korean government, in order to prevent damage to domestic garlic farmers caused by an increase in Chinese garlic imports and a decline in domestic prices, raised the garlic tariff from 30% to 315% at the request of the National Agricultural Cooperative Federation. In response, the Chinese government decided to suspend imports of South Korean handheld (including vehicle-mounted) telephones and polyethylene. Finally, after multiple rounds of consultation, the two sides signed a memorandum of understanding on China-South Korea garlic trade in April 2001, declaring an end to the “garlic incident.”

In September 2005, South Korean media first reported extensively that Chinese kimchi contained seriously excessive lead levels, and afterward the Korea Food and Drug Administration detected three kinds of parasite eggs in Chinese-produced kimchi. A large amount of Chinese-produced kimchi was detained at South Korean ports by South Korean commodity inspection and customs authorities, thus triggering the “kimchi controversy.” On October 31, the General Administration of Quality Supervision, Inspection and Quarantine issued an announcement, publishing 10 kinds of unqualified South Korean kimchi, chili paste, barbecue sauce and related products, and decided to prohibit their import from that day onward. Later, after consultation between the two governments, the issue was resolved peacefully.

In addition, various small-scale trade frictions between China and South Korea have continued, and China has become one of South Korea's trading partners with more disputes. For example, in 2010, the South Korean National Plant Quarantine Service, on the pretext that China was an area affected by the banana burrowing nematode, imposed an embargo on ginger, potatoes and various other plants exported from China's Guangdong, Guangxi and Hainan provinces and regions. In 2014, Jiangsu Maoyuan Economic and Trade Group exported silicon metal to POSCO's wholly owned subsidiary POS-AST Co., Ltd., and POS-AST deducted 64,149.34 USD on the grounds of unqualified quality (excessive particle size). This garlic dispute once again focused public and media attention and struck a sensitive nerve in China-South Korea relations.

From the development process of China-South Korea trade frictions, the following new characteristics can be seen:

First, they are usually initiated proactively by the South Korean side. Looking at the several trade frictions since the establishment of China-South Korea diplomatic relations, all were first provoked by the South Korean side, while China was in a passive response posture. Only when China actively adopted countermeasures and forced the South Korean side to come to the negotiating table was the problem resolved.

Second, they have shifted from tariff measures to non-tariff measures, namely technical trade measures. In the 1990s, China's exports often faced the threat of high tariffs from importing countries. With China's accession to the WTO at the beginning of this century, trade frictions have mostly involved the South Korean side using technical trade measures to prevent Chinese products from entering South Korea.

Third, they have shifted from safety issues to quality issues. In the 2000 “garlic incident,” the 2005 “kimchi controversy” and the 2010 plant embargo, the South Korean side used product safety as the pretext, while in last year's POS-AST deduction and this garlic return, South Korean companies both cited product quality. In 2013, the agricultural products returned from South Korea received at Ningbo port alone amounted to as many as 131 batches, with a value of 9.34 million USD, and quality problems became one of the reasons leading to the return of exported agricultural products, accounting for one third of the total returns.

Fourth, they have shifted from state-level trade wars to disputes between importers and exporters. The 2000 “garlic incident” and the 2005 “kimchi controversy” were resolved through consultation between the two sides with the Chinese government stepping in. Last year's silicon metal issue, however, had Jiangsu Maoyuan Economic and Trade Group as the main party. Regarding this year's garlic being returned by South Korea, the Ministry of Commerce said it was a commercial dispute and sought to prevent the situation from escalating.