Two Years since the Effectuation of the Korea-US FTA: Impact and Challenges in the Agricultural Sector

Abstract

◦ In the second year of the implementation of the Korea-US Free Trade Agreement (FTA) (from March 2013 to February 2014), the amount of imports of agricultural and livestock products was reduced by 20.2 percent (USD 7.51 billion → USD 5.99 billion) compared to the figure before the effectuation of the agreement, while the amount of exports of the products grew by 21.4 percent (USD 0.44 billion → USD 0.53 billion). - The decrease in the imports of agricultural and livestock products from the US is attributed to the decline of production and export of corn in the US due to widespread drought in North America, which led Korea to import the products from the EU countries and Brazil instead. - In the second year of the implementation of the FTA, the imports of agricultural and livestock products, with the exception of grain, increased by 5.9 percent (USD 4.28 billion → USD 4.53 billion) compared to the figure before the effectuation. - The exports of agricultural and livestock products to the US grew, mostly focusing on fruit, vegetables and processed food including cigarettes, beverages, ramen, biscuits, bread and red pepper paste.

◦ In the second year of the implementation of the FTA, the number of new items of the trade of agricultural and livestock products with the US increased slightly. In 2013, the import utilization rate and export utilization rate increased by 24 percent point (to 74%) and 11 percent point (to 46%), respectively.

◦ In the second year of the implementation, the amount of imports of fresh fruit including oranges, cherries, pomegranates and grapes from the US, to which highly reduced tariffs were applied in the early stage of the implementation of the FTA, increased by 38.5 percent, along with the rise of the domestic market share of these products. - In spring and summer season, in which fresh fruit is intensively imported from the US, the domestic market share of American fresh fruit rose from 6 percent to 7.1 percent during the two years of the implementation of the FTA. - The increase of imports of American fresh fruit affected the pattern of the domestic consumption and production structure.

◦ The amount of imports of American livestock products decreased by 12 percent, and the domestic market share of American meat also dropped from 10.4 percent to 7.2 percent due to the increase of the supply of domestic beef and pork and the import diversion effect (chicken). - The import volume of American beef was reduced along with the decrease of its import proportion (37.3% → 33.7%), due to the rise of the import unit price of American beef. - The import volume of American pork declined due to the increase of the production of domestic pork, while its import proportion increased (31.4% → 34.7%). - The import proportion of American chicken decreased (66.1% → 35.8%) due to the increase of Brazilian chicken with stronger price competitiveness. - The amount of imports of American dairy products grew along with their import proportion (23.7% → 33.3%) due to the increase of the Tariff Rate Quotas (TRQ) amount of American products.

◦ As the tariffs on American products were not highly reduced in the early stage of the FTA, the implementation of the agreement seemed to have limited effect on the increase of imports. The FTA rather affected the conditions of the Korean and American markets in the short term, leading to the decrease of imports of American agricultural and livestock products. - However, as domestic and foreign conditions will be stabilized and tariffs will be gradually reduced year by year, the effect of the FTA on the domestic agricultural and livestock markets will emerge. - In order to minimize the damage to the agricultural and livestock sector, the authorities should continue to revise and complement the current countermeasures, promote differentiation strategies for domestic markets, strengthen food safety management, establish the support framework for exports, and enhance the export utilization rate, based on communication with all stakeholders including farmers.