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Agricultural Market Liberalization through Free Trade Agreement (FTA) in KoreaFull-length paper
2015-12-09
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Dr. Jeongbin Im

Professor

Department of Agricultural Economics and Rural Development

College of Agricultural and Life Science

Seoul National University

Seoul, Korea

E-mail: jeongbin@snu.ac.kr

Traditionally Korea had been pursuing the trade policy focusing on GATT/WTO multilateral system so the country was reluctant to stimulate FTA bilateral trade agreements until 1990s. In the early 2000, Korea has shifted its international economic policy towards bilateral trade agreement through FTAs with major trading partners. Korean government announced the mid- and long-term FTA road map on September 2003 for continuous economic development in the export-oriented economic structure. This meant a policy shift towards utilizing FTAs as a means to revitalize the national economy by exploiting new exports markets and expanding foreign capital inflows.  

Following the FTA road map, Korea has simultaneously pursued FTAs with many countries in the 2000s. Since its first FTA with Chile in 2004, Korea has actively expanded the number of FTA partners. As a result, the country has now implemented 11 FTAs with 50 nations. Especially Korea has become the country that has signed FTA with the world's largest top three economies such as USA, EU and China.

As the first FTA in Korea, Korea-Chile FTA initiated the negotiation in December 1999 and entered into force on April 2004. Since then, 11 FTA negotiations (with 50 countries) were finalized and entered in force including Singapore (March 2006), EFTA (September 2006), ASEAN (June 2007), India (January 2010), EU (July 2011), Peru (August 2011), USA (March 2012), et al. (see Table 1).

In addition, the FTA negotiations with Colombia, New Zealand, Vietnam and China were also concluded and officially signed. These FTAs are waiting for implementation, so will be the entry into force if internal procedures are completed in each country respectively. At present, Korea is in the middle of negotiating the Korea-China-Japan FTA, the RCEP (Regional Comprehensive Economic Partnership) which is plurilateral FTA with ASEAN(10 countries), China, Japan, Australia, New Zealand and India. Through the Korea-China-Japan FTA and the RCEP FTA, Korea plans to lay the foundation for economic integration in East Asia.  

Also Korea is underway to negotiate or is setting up the conditions to resume negotiation with Indonesia, Japan, Mexico, the Middle East, the Gulf Cooperation(GCC 6 countries) which has tentatively suspended after its initiation. Meanwhile Korea is making a proactive move to reach new foreign markets, as shown by its joint studies to prepare for FTA negotiations with the Southern American Common Market(MERCOSUR), Israel, Central American Countries, Malaysia and Ecuador. FTAs with Southern and Central American Countries are expected to provide strategic points to increase trade with Latin American Market.

 

Table 1.  Current FTA status of Korea

Source: Ministry of Trade, Industry and Energy, http://www.fta.go.kr

 

Agricultural trade with FTA partners has increased quickly. For example, the value of agricultural trade with the countries that FTA signed is about 318 billion US dollars in 2014, which accounts for 82.7% of national total agricultural trade. Korea’s agricultural export with FTA partners is about 39 billion US dollars, which accounts for 61.0% of the national total agricultural export. Korea’s agricultural import with FTA partners is about 279 million US dollars, which accounts for 87.1% of the national total agricultural import. In other words, Korea’s agricultural imports with FTA partners is seven times more than its exports from the FTA countries so that the trade deficit in agricultural sector amounts to approximately 240 billion US dollars (See Table 2).

 

Table 2.  Korea’s Agricultural Trade with FTA Partners (2014) 

Source: Korea International Trade Association, Korea Customs Service

 

We need to note that Korean agricultural trade showed a trade deficit with all FTA partners in 2014. It might be an answer why the Korean agricultural sector is the most sensitive and difficult area to forge an agreement with regarding FTA with its major trading partners. It is basically because of the remarkable differences in agricultural competitiveness between Korea and other countries. A comprehensive and high standard free trade agreement will create severe negative impacts on the Korean agricultural sector. Therefore, it is necessary to make an effective external negotiating strategy in consideration of agricultural sensitiveness in order to facilitate bilateral FTA and minimize the resistance from the agricultural sector in Korea.

In particular, there was significant domestic opposition to FTA with Chile, the United States, Australia, New Zealand, Canada and China from farmers and farmer’s groups. It is because these countries have strong competitiveness in the agricultural sector. At the initial stage of FTA negotiations, these countries expressed strongly their basic position for agricultural tariff elimination without exception and demanded the substantial agricultural market opening in order to enhance the opportunity of market access of their agricultural products in the Korean market. On the other hand, Korea argued gradual and flexible market opening to reduce the damage in agricultural sector while claiming the permission of diverse tariff reduction method. Korea’s basic position in FTA negotiation is to consider the sensitivity of the Korean agricultural sector.

However the FTA negotiation is fundamentally difficult to fully maintain the basic stance of each country because there is always the counterpart issue. The concession types for agricultural market opening by commodity were different by FTA countries even on the same product. Actually the result of FTA negotiations until now is a product of compromise to reduce negative impacts by market opening of sensitive agricultural products in Korea and to enhance the market access opportunity and create trade interest by FTA partners (see Table 3).[u1]  

As a result of compromise between Korea and FTA partners in the process of negotiation, Korean rice and products related to rice as a key staple food were excluded from tariff elimination in all FTAs signed so far are completely excluded from concession without any kind of additional rice market opening such as extra quota provision. In addition, Korea has tried as much as possible to exclude tariff abolition, remain current tariff with providing tariff rate quota, adopt seasonal tariff and categorize into long-term tariff abolition in case of sensitive products in domestic agriculture such as barley and soybeans, beef, pork, chicken, milk and dairy products coming from livestock, citrus, apple, pears, grapes (fruit products), pepper, garlic, and onion of vegetables, and ginseng which belong to specialty crops (see Table 3).

 

Table 3. Concessions of Korea’s major agricultural products in the key FTAs

 

Commodity

(Tariff level before FTA)

Korea-China FTA

Korea-US FTA

Korea-EU

FTA

Korea-Australia FTA

Korea-Canada FTA

Rice

Rice and rice related products (16 different HS code, 513%)

Exclusion from concession

Exclusion from concession

Exclusion from concession

Exclusion from concession

Exclusion from concession

Barley

Barley(324%),

rye(299.7%)

Exclusion from concession

15 years+ASG+TRQ

Exclusion from concession

Exclusion from concession

15 years+ASG+TRQ

Barley

Malt(269%), malting barley(513%)

TRQ/Exclusion from concession

15 years+ASG+TRQ

15 years+ASG+TRQ

15 years+ASG+TRQ

12 years+TRQ, 15years

Soy

Bean

Edible soybean(487%)

Remain current tariff +TRQ

Remain current tariff+TRQ

Exclusion from concession

Remain current tariff+TRQ

Remain current Tariff+TRQ

(immediate elimination for the use of soy sauce and soy bean meal)

Soy

Bean

Others (487%)

Exclusion from concession

(Oil seed, nonfat soy bean meal, forage)

immediate elimination(Oil seed, Nonfat soy bean meal, forage)

5years (Oil seed, Nonfat soy bean meal)

Exclusion from concession(Forage)

50% reduction for 10years (Nonfat soy bean meal, Forage)

10 years(Oil seed, Nonfat soy bean meal), exclusion from concession (forage)

Beef

Fresh, chilled and frozen (40%)

Exclusion from concession

15 years+ASG

15 years+ASG

15 years+ASG

15 years+ASG, Exclusion from Concession

Beef

Meat of bovine animals, frozen (18%)

Exclusion from concession

15 years

15 years

15 years

11 years

Pork

Frozen belly (25%)

Exclusion from concession

2014.1.1(Frozen neck : 2016.1.1)

10 years

Exclusion from concession

13 years+ASG

Pork

Chilled pork belly, Others (22.5%)

Exclusion from concession

10 years+ASG

10 years+ASG

10years

13 years+ASG

Pork

Pig’s feet (18%), sealed products (30%)

Exclusion from concession

2014.1.1

6 years

7 years/5 years

5 years/6years

Pork

Frozen other (25%)

Exclusion from concession

2016.1.1

5 years

5 years

5 years+ASG

Chicken

Frozen breast, Frozen wing (20%)

Exclusion from concession

12 years

13 years

18 years

Exclusion from Concession

Chicken

Non cut meat (18-20%)

Exclusion from concession

12 years

12 years

18 years

11 years

Chicken

Chilled (18%), processed30%)

Exclusion from concession

10 years

10 years

18 years/10 years

10 years/exclusion from concession

Duck meat

Chilled (18%), frozen (18%)

Exclusion from concession

10 years/12 years

11 years/14 years

15 years/18 years

10 years/exclusion from concession

Milk

powder

Whole (176%)

Exclusion from concession

Remain Current Tariff+ TRQ

Remain Current Tariff+ TRQ

Exclusion from concession

Exclusion from concession

Milk

powder

Nonfat (176%)

Exclusion from concession

Remain current Tariff + TRQ

Remain Current tariff + TRQ

Exclusion from concession

Exclusion from concession

Milk

powder

Prepared (36%)

Exclusion from concession

10 years + TRQ

10 years + TRQ

15 years + TRQ

Exclusion from concession

Milk

powder

Mixed (36%)

Exclusion from concession

10 years

10 years

15 years

Exclusion from concession

Citrus

Satsuma mandarin (144%)

Exclusion from concession

15 years

Exclusion from concession

Exclusion from concession

Exclusion from concession

Citrus

Mandarine, tangerine (144%)

Exclusion from concession

15 years

15 years

Seasonal tariff

11 years

Citrus

Orange (50%)

Exclusion from concession

Seasonal tariff

+TRQ

Seasonal tariff

+TRQ

Seasonal tariff

+TRQ

Exclusion from concession

Apple, Pear,

Grape

Apple (45%)

Exclusion from concession

Fuji: 20 years (Others: 10 years)+ASG

Fuji: 20 years (Others: 10 years)+ASG

Exclusion from concession

Fuji : Exclusion from concession

(Others:  10 years)+ASG

Apple, Pear,

Grape

Pear (45%)

Exclusion from concession

Chinese pear: 20 years(Others: 10 years)

Chinese pear: 20 years(Others: 10 years)

Exclusion from concession

Chinese pear: Exclusion from concession

(Others:  10years)+ASG

Apple, Pear,

Grape

Grape (45%)

Exclusion from concession

Seasonal tariff

Seasonal tariff

Seasonal tariff

Exclusion from concession

Red

Pepper

Fresh, chilled, dried (270%)

Exclusion from concession

15 years+ASG

Exclusion from concession

Exclusion from concession

Exclusion from concession

Pepper

Frozen(27%)

Exclusion from concession

15 years

15 years

Exclusion from concession

11 years

Garlic

Fresh, chilled, temporally storage, dried (360%)

Exclusion from concession

15 years+ASG

Exclusion from concession

Exclusion from concession

Exclusion from concession

Garlic

Frozen (27%)

Exclusion from concession

15 years

15 years

18 years

11 years

Onion

Fresh, chilled, dried (135%)

Exclusion from concession

15 years+ASG

Exclusion from concession

Exclusion from concession

Exclusion from concession

Onion

Frozen(27%)

Exclusion from concession

12 years

12 years

15 years

11 years

Ginseng

Major roots, fine roots etc. 7 different HS code

(222.8~754.3%)

Exclusion from concession

18 years+ASG

Exclusion from concession

Exclusion from concession

Exclusion from concession

Ginseng

Others

Exclusion from concession

10 years-15 years+ASG

10 years-15 years+ASG

10-15 years(Tea), Exclusion from concession

10 years-Exclusion from concession

Note: Number in year by FTA represents the implementation period for tariff elimination. ASG means that agricultural safeguard mechanism could be applied to the product if the trigger level is satisfied. TRQ is tariff rate quota which applies duty-free.

Source: Document relevant to FTAs reported by the Ministry of Agriculture, Food and Rural Affairs, Ministry of Foreign Affairs, Ministry of Trade, Industry and Energy

 

In fact, it was not always easy to uphold the initial position which is willing to consider the vulnerability of Korean agriculture during the FTA negotiations. Particularly, FTA partners who exhibit high competitiveness in the agricultural sector and showing trade deficit with Korea has strongly demanded more reformative Korean agricultural market opening to secure its agricultural trade interest through FTA. The level of range and speed in Korean agricultural market opening is different by FTA partner as a result of the negotiation for  seeking a balance of mutual interest between Korea and its FTA partners.

In this regard, comparison of the level of concession in agricultural market opening agreed on FTAs with various countries is as follows: Above all, with evaluating the level of concession based on a share of general tariff elimination in agricultural products, the order of high level of agricultural market opening in Korea might be US, EU, Australia, Canada, New Zealand, Chile, and China. For example, Korea-US FTA is evaluated as the highest level of concession in agricultural market liberalization. The items excluded from general tariff elimination in case of Korea-US FTA were only 2.1% of the total agricultural products. In contrast, Korea-China FTA is assessed as the lowest level of FTA in terms of the level of concession in agricultural market liberalization until now compared to Korea-US FTA, Korea-EU FTA and other FTAs. In Korea-China FTA, 581 items(36.1% of total agricultural goods) were excluded from general tariff elimination. So, most of the sensitive agricultural and livestock products will maintain current tariff even though Korea-China FTA takes into effect in the near future. The reason why Korea and China compromised at low level of FTA compared to other FTAs is that the effect of China to Korean agricultural sector is great as much even though the level of concession in agricultural market liberalization is very small.

 

Table 4. Type of Concession in agricultural market liberalization by Korea’s FTA                                                     

(Unit : Number of product )

 

Korea-Chile

Korea-EU

Korea-U.S.

Korea-Australia

Korea-Canada

Korea-New Zealand

Korea-China

General tariff elimination(with 10 years)

1,007

(70.3%)

1,251

(85.3%)

1,342

(87.7%)

926

(61.5%)

1,218

(81.2%)

898

(59.9%)

589

(36.6%)

Long-term abolition(more than 10 years)

12

(0.8%)

159

(10.8%)

157

(10.3%)

385

(25.6%)

60

(4.0%)

371

(24.7%)

441

(27.4%)

Exclusion of General tariff elimination

413

(28.8%)

56

(3.8%)

32

(2.1%)

194

(12.9%)

222

(14.8%)

231

(15.4%)

581

(36.1%)

Total

1,432

(100%)

1,466

(100%)

1,531

(100%)

1,505

(100%)

1,500

(100%)

1,500

(100%)

1,611

(100%)

Note: the number is based on HS code 10 digit. Exclusion of general tariff elimination includes exclusion of concession, partial tariff reduction, re-negotiation after DDA negotiation, remain current tariff and seasonal tariff with providing tariff rate quota.

Source: Document relevant to FTAs reported by Ministry of Agriculture, Food and Rural Affair, Ministry of Foreign Affair, Ministry of Trade, Industry and Energy

 

However, it is inevitable that the range and speed of agricultural market opening in FTA is wider and faster than the market opening in the WTO system even with low concession level of agricultural trade liberalization in the FTA. Therefore most tariffs in agricultural products in Korea have been continuously lowered for FTA partners. The liberalization of Korea’s agriculture market is expected to be further accelerated according to the implementation of FTAs that have been forged with its major trade partners.

 

Date submitted: Dec. 7, 2015

Reviewed, edited and uploaded: Dec. 9, 2015

 

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