|
Table
6: South Korean Agricultural production, by sector 1999
|
Sector |
Value (million dollars) |
|
Rice |
8,450 |
|
Farming Livestock |
6,607 |
|
Vegetables |
5,735 |
|
Fruit |
2,506 |
|
Dairy, livestock products |
1,850 |
|
Other |
1,396 |
|
Total |
26,613 |
Source:
South Korean Agricultural information and Statistics Bureau
Farming
in South Korea
is dominated by small landholders and independent
cooperatives. Only 20% of
South Korea is farmable,
and shortly after World War II, the government implemented strict
limits on the amount of land that any one farm household might own.
Small landholdings and significant trade protection are important
features of South Korean agriculture.
Fruit
is the most dynamic product in
South Korea ’s agricultural
sector. Fruit production has increased rapidly, from 833,000MT in
1980 to 1,766,000MT in 1990 and 2,452,000MT in 1997 (Table 7). The
main fruit growers in South
Korea are small individual
farmers, 70 percent of whom own less than 2 hectares of land. The
area planted with fruit has been increasing. The area, 99,000 ha in
1980, increased to 176,000 ha in 1997. Horticultural crops have replaced
grain crops in recent years because of the higher profitability of
fruits and the downturn in other agricultural sectors. The government
has encouraged grain farmers to switch to horticulture as an alternative
crop to rice production. Fruit production still depends heavily on
weather conditions and farming technologies.
Although
the rate of fruit consumption per person has increased by 1.9% annually,
production has increased by only 0.5%, resulting in increased demand
for imported fruit. Self-sufficiency levels for fruit will drop to
88.2% by 2004 from 93.1% in 1995. Demand for imported fruit such as
oranges and grapes will grow. The fruit industry in
South Korea is
dominated largely by apples, grapes and pears and to lesser extent,
mandarin oranges (see Table 7).
South Korea ’s main fruit
imports are bananas, pineapples, kiwi, grapes, grapefruit, lemons
and oranges. Bananas used to account for over half of total fruit
imports in the early 1990s, but oranges and grapes now make up a significant
sector of the market.
Table 7: Fruit Production and Cultivated Area Production (1000MT),
Area (1000ha)
|
|
1980 |
1990 |
1996 |
1997 |
|
|
Prod. |
Area |
Prod. |
Area |
Prod. |
Area |
Prod. |
Area |
|
Total |
833 |
99 |
1,766 |
133 |
2,207 |
173 |
2,452 |
176 |
|
Apple |
410 |
46 |
629 |
49 |
651 |
44 |
652 |
40 |
|
Pear |
60 |
9 |
159 |
9 |
219 |
18 |
260 |
22 |
|
Grape |
56 |
8 |
131 |
15 |
357 |
27 |
393 |
28 |
|
Peach |
89 |
19 |
115 |
12 |
128 |
10 |
147 |
11 |
|
Mandarin |
161 |
12 |
493 |
19 |
514 |
25 |
649 |
26 |
|
Persimmon |
NA
|
NA
|
NA
|
NA |
211 |
27 |
240 |
20 |
|
Other fruits |
57 |
14 |
239 |
29 |
127 |
21 |
111 |
29 |
Source: Ministry of Agriculture and Fishery (MAF), 1998,
South Korea
Under
the terms of the Uruguay Round Agreement on Agriculture (URAA) signed
in 1995, South Korea
liberalized imports of all agricultural products
except beef and rice. Still, most agricultural products remain highly
protected by both tariff and non-tariff barriers. Tariff rates on
most imported fruit and vegetables are between 30 and 50 percent.
South Korea
’s main agricultural import partners are the
United States
(31.5%), China
(13.2%) and
Australia (8%).
Ø
Agri-food trade with
Chile
South Korea is
a net importer of agri-food products from
Chile . In 1999,
agricultural imports from
Chile reached US $14 million
against agri-food exports of only US $0.9 million. Agricultural imports
from Chile
totaled 26 million dollars in 1997, 6 million
dollars in 1998 and 14 million dollars in 1999, accounting for just
a slight percentage of South
Korea ’s total agricultural
imports (See Table 8).
South Korea ’s
main agricultural imports from
Chile are fresh grapes, kiwi
and tomato paste. Most other fruits, including Chilean apples and
pears, are forbidden at present due to quarantine regulations. Chilean
grapes, which in 1997 accounted for 98% of South Korea’s total grape
imports, currently account for more than 90 percent.
Table 8: Chilean Fresh Fruit Exports to
South Korea
(US$
millions)
| Fruits
|
Chilean
global exports(1997) |
Applied
tariff |
South
Korea ’s
total imports |
Imports
from Chile
(1998.9)
|
| 1997 |
1998.9 |
| Grapes(fresh)
|
628
|
47%
|
18.9
|
2.1
|
2.0
|
| Apples(fresh)
|
211
|
48%
|
0
|
0
|
0(forbidden)
|
| Pears(fresh)
|
102
|
48%
|
0.08
|
0
|
0(forbidden)
|
| Peach
|
29
|
50%
|
0
|
0
|
0(forbidden)
|
| Plums
|
72
|
50%
|
0
|
0
|
0(forbidden)
|
| Kiwi
fruits |
78
|
48%
|
14.5
|
4.3
|
0.4
|
Source : Prochile based on Central Bank of
Chile data, KOTIS,
South Korea Custom Service
Climatic
and geological conditions, market oriented agricultural policies,
and the plantation structure of processing, marketing and logistics
make Chilean fruit exports competitive. By comparison, the South Korean
fruit industry is characterized by limited arable land, a less temperate
climate for growing fruits, an underdeveloped marketing structure,
small family subsistence farming and the government support.
(Refer to Appendix 2 for a comparison of South Korea-Chile agriculture
sector and bilateral trade, 1999)
1. WTO Agricultural Negotiation
WTO members agreed to initiate negotiations for agricultural
trade reform a year before the end of the implementation period, i.e., by the
end of 1999. These talks began in early 2000 under the original mandate of Article 20
of the Agriculture Agreement. At the November 2001 Doha Ministerial Conference,
the agriculture negotiations became part of a single undertaking in which virtually
all linked negotiations are set to end by January 1, 2005.
The first phase of agricultural negotiations consisted of countries
submitting proposals for their starting positions. The second phase of negotiations
ended with discussions on specific topics and technical details. The next tasks
are formulas and other “modalities” for countries’ commitments
by March 2003, and for countries to submit comprehensive draft commitments by
the Fifth Ministerial Conference in Mexico in 2003. Significant tariff reductions,
domestic support and export subsidies can be expected to be the main focus of
agricultural negotiations.
In the ongoing WTO agricultural negotiations, South Korea is
trying to secure developing-country status. South Korean agriculture still needs
some degree of protection, and developing-country status would facilitate gradual
liberalization and minimize shocks to local farmers from the market opening.
On the other hand, as a member of Cairns group of agricultural exporting countries,
Chile supports a substantial opening in agricultural markets and the elimination
of export subsidies.
Analysis
1. Analysis of the Economic Effects of a South Korea-Chile FTA
Potential benefits
A South Korea-Chile FTA is expected to benefit both countries. While Chile exports
raw materials, South Korea exports manufactured goods. According to a study
by the South Korea Institute for International Economic Policy (KIEP), an FTA
with Chile would boost South Korean exports by $660 million and imports by $220
million, thereby improving South Korea ’s trade balance by about $440
million. The FTA will also improve South Korea ’s welfare by $960 million
dollars (See Table 9). South Korean producers of automobiles (occupying 18%
in Chilean import market), refrigerators (31%), microwave ovens (69%), washing
machines (65%), tires and automobile batteries, textiles, elevators and PVC
would be the greatest beneficiaries of a free trade agreement.
Tariff elimination with Chile will have secondary benefits for
South Korea . The FTA’s that Chile has already signed with other countries
act to block South Korean exports. For example, preferential tariffs imposed
by Chile on Canadian and Mexican exports through FTA agreements block South
Korea ’s export of automobiles and tires. A South Korea-Chile FTA will
provide South Korean products price competitiveness, enabling them to compete
with other countries in Chilean market.
Mexico, with an industrial structure similar to South Korea ’s, benefited
significantly from its own FTA with Chile. Mexican exports to Chile jumped from
$180 million in 1992 to $930 million in 1996. South Korea is expected to enjoy
a similar export expansion with a Chilean FTA. Furthermore, the FTA has potential
for securing an effective gateway to the Latin American market. The Latin American
population is a huge potential market for South Korean automobiles and other
South Korean manufactured products.
Potential costs / Sensitive sector
Of the manufacturing sectors, the copper processing industry in South Korea
will be most affected by a South Korea-Chile FTA. This is because Chilean copper
is leading the world in exploitable reserves, production, and export volume.
The mining sector is the most important and competitive sector in the Chilean
economy, accounting for more than half of global exports.
The most affected industry from a South Korea-Chile FTA, however, is likely
to be South Korea ’s agricultural sector. According to the Revealed Competitive
Advantage (RCA) indices, relative competitiveness for grapes, plum, kiwi, pears
and apples were higher than any other Chilean agricultural products. Therefore,
it is likely that the export of such Chilean fruits as grapes, apples and pears
to South Korea would increase as the South Korea-Chile free trade agreement
entered into force.
Agricultural imports from Chile totaled $26 million in 1997, $6 million
in 1998 and $15 million in 1999, accounting for a tiny fraction of South Korea
’s total agricultural imports. Moreover, due to their respective geographical
locations, the fruit harvesting seasons differ and thus most Chilean fruit imports
do not compete directly with local fruits. Though the increase of Chilean fruit
imports is likely to inflict some damage on competing domestic fruit producers,
the impact on South Korea’s entire agricultural sector would be small.
The study by South Korea Agriculture Economic Institute (KREI) predicts that
with the complete tariff elimination on the agricultural sector, domestic fruit
and vegetable production would decrease by about 0.007 percent while imports
would increase by about 96%.
Conclusion
Some argue against the South Korea-Chile FTA, not because of potential damage
to South Korean fruit farmers, but rather because the economic size, purchasing
power and trade volume of Chile is relatively small. The spending power of Chile
is only 20 percent that of South Korea . Regionalism, however, is an important
trend today and a growing number of countries are affiliating themselves with
regional trade arrangements in one form or another. FTAs involving South Korean
trading partners but excluding South Korea can seriously damage South Korean
exporters. KIEP estimates that such non-participation will cost South Korea
about US $35 billion worth of lost exports.
As a country whose economy heavily depends on foreign trade—total foreign
trade represented about 73 percent of South Korea ’s GDP in 2000—
South Korea has few BATNA (Best Alternative To a Negotiated Agreement) other
than to engage in regional trade agreements. If South Korea does not participate
in FTAs, it will lose a golden opportunity to expand economic ties and promote
further economic growth and development. A number of recent studies conclude
that as countries reduce barriers to trade (both internal and border restrictions),
per capita income increases significantly.
A South Korea-Chile FTA will likely bring sizable gains to South Korea in the
long run. South Korea should learn from Chile ’s experience in establishing
FTAs, and South Korea should pursue its own FTAs with major trading partners
like Japan and the United States. The positive side of an FTA is not limited
to growing trade volume. As seen in the case of the EU, the agreement is a catalyst
for competition among member nations to accelerate industrial realignment and
expedite economic reformation.
The following table is a summary of KIEP studies on the economic effects of
a South Korea-Chile FTA. In assessing economic effects, three basic scenarios
are presented. The first scenario is based on complete tariff elimination by
both countries across all sectors. The second scenario is based on complete
tariff elimination in general sectors and partial tariff reduction for agricultural
products and livestock. The last scenario assumes zero tariffs in all sectors
except for agriculture and livestock.
Table 9: Expected Economic
Effects of a South Korea-Chile FTA (Unit: US$ millions)
|
|
Overall tariff
Liberalization
|
50% Tariff Reduction
in Agriculture |
With Agriculture Excluded
|
|
Welfare
|
960
|
960
|
950
|
|
GDP(%)
|
0.01
|
0.01
|
0.01
|
|
Exports
|
660
|
660
|
660
|
|
Imports
|
260
|
250
|
240
|
|
Trade Balance
|
400
|
410
|
420
|
Note: 1) In value terms
Source; Cheong In-kyo (2000). South Korea-Chile FTA: Background, Economic Effects and
Policy Implication KIEP Policy Analysis 00-27
2. Commercial Analysis of the FTA Impact on the South Korean Fruit
Industry
A South
Korea-Chile FTA would likely bring a surge of Chilean fruit imports,
affecting the domestic fruit industry. As already stated, Chilean
fruit exports, both natural and processed, are highly competitive
and maintain a dominant position in the world market. South Korean
farmers and agricultural organizations fear that imports of grapes,
pears and apples from Chile
will dramatically increase with tariff elimination,
resulting in decreased sales and domestic prices and reduced income
for farmers. South Korean farmers argue that a South Korea-Chile FTA
would completely destroy the domestic total fruit industry.
The
domestic grape industry is the most sensitive sector in the South
Korea-Chile FTA negotiation. Since 1996, when the domestic grape market
was liberalized for the first time, Chilean grapes have accounted
for over 90 percent of market share of total imported grapes. Even
after the introduction of Chilean grape imports to the domestic market,
however, domestic grape production continued to rise. In 1999, domestic
grape production amounted to 0.47 million tons. Chilean imported grapes
represented only 1.3 percent of the total domestic grape production,
as shown by Table 10.
Table 10: Domestic grape production and imports
| |
93 |
94 |
95 |
96 |
97 |
98 |
99 |
| Domestic production (A) (ton) |
163,780 |
211,930 |
316,443 |
357,274 |
393,195 |
397,784 |
470,124 |
| Area
Harvested(ha) |
16,991 |
19,773 |
26,030 |
27,196 |
28,290 |
29,871 |
30,537 |
| Grape imports (ton) |
|
|
|
2403 |
8896 |
1140 |
6111 |
| Import from Chile
(B)(tom) |
|
|
|
2403 |
8896 |
1140 |
6062 |
| B/A |
|
|
|
0.67% |
2.26% |
0.29% |
1.29 |
Note: 1) The number of grape farming households is 53800, which represents 19.3% of the entire fruit farming households in South Korea .
2) Greenhouse production of grapes accounts for 772 ha, 2.6% of the total grape production.
Source: KREI, <agriculture outlook>
That
domestic grape production has expanded despite increased imports is
partly due to a steady increase in domestic fruit consumption. Per
capita consumption of fresh fruit has increased from 41kg in 1990
to 58kg in 1997. That imported grapes have had insignificant impacts
on domestic grape production, however, is mainly due to different
marketing seasons for imported and local grapes. As revealed by Table
11, Chilean fruit imports are largely received during the March-June
period, South Korea
’s non-marketing season. Local grapes start
to enter the market by July, with an exception of the greenhouse-produced
grapes, which are being released by May. Thus, for the most part,
the Chilean imported grapes are unlikely to compete with local grapes.
Table 11: Comparison of marketing season between Chilean grapes and
local grapes
| January
|
February
|
March
|
April
|
May
|
June
|
July
|
August
|
September
|
October
|
| Chilean
Grape Production
|
|
|
|
|
|
|
|
|
|
|