Outcome and Improvement Direction of Complementary Measures for Domestic Industry in Response to FTAs

Abstract

○ With the conclusion of the Free Trade Agreements with the US and the EU, the South Korean government established complementary measures amounting to 28.8 trillion won (2008-2020) for its domestic market, in order to compensate for damages to farmers and improve conditions and competitiveness of agriculture. - From 2008 to 2013, a total of 13.3279 trillion won of the investment and loan budget was allocated to the complementary measures for the domestic agricultural sector in response to the FTAs, and among the budget, 12.9467 trillion won has been used so far. - Over the past six years, 46.8 percent (6.053 trillion won) and 27 percent (3.4943 trillion won) of the total financial support for the agricultural sector have been assigned to enhance the competitiveness of the livestock industry and to promote the customized agricultural policies, respectively.

○ Investment and loan projects related to the scale expansion and modernization of livestock and orchard facilities have contributed to reducing farming costs and enhancing the productivity and quality of products. - Compared to non-beneficiary farms, those (raising cattle on feed) supported by the facility modernization project produce 2.9 percent more first-class beef and 2.1 percent heavier cattle on average at the point of sales; their mortality rate of livestock is also 15.4 percent lower; and their average per capita daily working hours per unit area are also 0.8 percent shorter. - In 2012, compared to 2003, fruit production per unit area increased by 13.2 percent; working hours were reduced by 11.4 percent; and income per 10 ares of orchard (based on real price) increased by 42.1 percent.

○ Projects such as the restaurants’ country-of-origin labeling system, the livestock product traceability system and the HACCP certification secure the transparency of the distribution process and consolidate consumer trust in domestic agricultural products. - Farmlands purchased through various projects related to the purchase and reserve of farmland, the direct payment system for the transfer of management and the farmland pension, have been mostly rented out or transferred to professional farmers or those in their 20s and 30s, thereby contributing to stabilizing post-retirement lives of farmers, reallocating and expanding farmland resources and enhancing the self-sufficiency rate of food. - As the number of target items and the range of coverage of the agricultural disaster insurance have expanded, the number of policy-holding farmers has been on the rise. The insurance has been settled as a method for risk management and income stabilization of large-scale farms. - Farms which have bought the agricultural disaster insurance (more than once) in the past five years are estimated to have earned 9.1 percent more agricultural income (and 3.8 percent more farm income) on average compared to those without insurance.

○ In order to differentiate the current agricultural policies and the FTA complementary measures, it is necessary to review the feasibility of each project and evaluate the performance of the complementary measures, and reflect the result on the readjustment of the investment and loan plan. - It is essential to shift projects related to the renovation of production infrastructure that is less related to the FTAs to general agricultural projects, and implement investment and loan projects closely related to the expansion of demand and consumption base of domestic agricultural products as complementary measures in response to the FTAs.

○ In order to enhance the effectiveness of the FTA complementary measures and increase the satisfaction level of farmers towards related policies, it is necessary to lower the loan interest rate, ease the collateral requirements, expand the support for loan guarantee and rationalize the unit payment. - In terms of the short-term measure to compensate damages to farmers, it is important to legalize the import contribution ratio system, increase the damage compensation rate (90 → 100%) and restrict the use of livestock facilities of a farm that shut down its livestock business.