The Political Economy of Orderly Marketing Agreements (1977-81)

Abstract

Between 1977 to 1981, the footwear industries of Korea and Taiwan faced trade restrictions from the United States in the form of OMAs (Orderly Marketing Agreements). Under the same trade restriction, however, the two countries responded quite differently: Taiwanese producers fully utilized their share of regulated exports in all regulated categories; Koreans, on the other hand, were only able to exhaust their share within one category while leaving another category extremely under-filled. How can we explain the different response pattern of two similar countries that were faced with the same trade restriction? This paper shows that despite similar positions within the international division of labor (i.e., international subcontracting), the two countries responded differently because of the different production methods employed in the manufacture of footwear. By employing the concept of asset specificity and the logic of collective action, this paper argues that OMAs created a different incentive structure for Korean and Taiwanese firms, which led to different response patterns.