After lengthy negotiations, the US-Korea Free Trade Agreement (KORUS FTA) will finally come into effect on Jan. 1. South Korea is a major export-oriented economic power, relying on foreign trade for as much as 70 percent of its economy.
As such, it needs to sign free-trade pacts with its major trade partners to facilitate growth. Once the agreement with the US comes into force, Seoul’s exports of electronics and other manufactured goods, including steel, are expected to rise considerably. South Korea’s GDP is expected to increase by 5.56 percent as a result, with 350,000 jobs created. This development will also exert considerable pressure on Taiwan.
According to the agreement, South Korea must abolish tariffs on two-thirds of agricultural products imported from the US and agree to gradually remove tariffs on US beef over 15 years. The agreement is expected to increase US agricultural exports to South Korea by more than US$1.9 billion.
The negotiations were so drawn out because the pact would hit some of South Korea’s more vulnerable industries, including its agricultural and fishing industries. This was a major point of contention.
According to South Korea’s Ministry for Food, Agriculture, Forestry and Fisheries, the output of the nation’s agricultural and fishing industries will fall by an estimated 702.6 billion won (US$614.8 million) within five years of the agreement coming into effect and 1.03 trillion won by the 10th year.
Civic groups believe that the increase in agricultural imports from the US will cause the value of agricultural produce in South Korea to shrink by 12.67 trillion won within 15 years and will seriously impact farmers’ livelihoods.
As a result, many still oppose the agreement, though the government has promised to provide loans and subsidies to support the industry and mitigate the potential impact of the KORUS FTA.
The effects of the agreement will go beyond agricultural trade between the two countries and the growth of the latter’s domestic industry: It will also impact on China, a major importer of South Korean agricultural products, and the US’ biggest competitor in terms of agricultural exports to South Korea.
On the whole, South Korean agriculture has a technological advantage over China, although China has more land, crop variety and manpower. That is why agricultural trade between China and South Korea has continued to expand. The establishment of a Chinese-South Korean free-trade area is in both countries’ interest, and there has been much talk, though as yet no concrete progress, in that direction. Agriculture is one of the biggest obstacles.
South Korea is the third--biggest export market for Chinese agricultural products, and trade between the two countries is gradually increasing. Lower production costs give China an edge and explain why it has a trade surplus in this sector.
South Korea has protectionist measures in place for agricultural products, including high tariffs, generous financial assistance and subsidies for rice, barley, corn, soybeans, garlic, fruit, fresh flowers, kimchi, vegetables, poultry and ginseng.
According to the estimates of the South Korean government, if those tariffs were abolished, , the value of Chinese agricultural exports to South Korea would increase by US$10.3 billion, while the value of domestic agricultural production would fall by between 11.6 percent and 12.04 percent. Such an outcome would not only damage domestic industry, it would also be politically destabilizing.
However, for purely economic considerations, Seoul could still push for speedy structural changes in agriculture to facilitate trade liberalization.
Taiwan also has to deal with this wave of trade liberalization, although it is in a much more difficult position. The government is hoping to join the US’ Trans-Pacific Partnership (TPP) Agreement to avoid further marginalization. However, there are several obstacles — in addition to the “China factor” — not least opposition from Taiwan’s own agricultural sector and its governing bodies.
Opponents are vehemently against membership because once Taiwan joins the TPP, the government would be required to significantly, if not entirely, deregulate the domestic agricultural market. When this happens, agricultural imports from Australia, New Zealand and Vietnam would flood the market. Given the poor shape of domestic agriculture, it is difficult to see how the sector could cope with such a challenge.
Since the government has announced that it plans to join the TPP, it should also launch a comprehensive plan to upgrade domestic agriculture to fend off cheap imports by producing superior goods. This would take time: It would be a painful process and require more than just subsidies. The government needs to come up with an effective package to address the problem, and fast.
Du Yu is chief executive officer of the Chen-Li Task Force for Agricultural Reform.
Translated by Drew Cameron
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