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Table
6: South Korean Agricultural production, by sector 1999
Source:
South Korean Agricultural information and Statistics Bureau Farming
in Fruit
is the most dynamic product in 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
Table 7: Fruit Production and Cultivated Area Production (1000MT),
Area (1000ha)
Source: Ministry of Agriculture and Fishery (MAF), 1998, Under
the terms of the Uruguay Round Agreement on Agriculture (URAA) signed
in 1995, Ø
Agri-food trade with
Table 8: Chilean Fresh Fruit Exports to
Source : Prochile based on Central Bank of 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
Potential benefits 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. Potential costs / Sensitive sector Conclusion Table 9: Expected Economic
Effects of a South Korea-Chile FTA (Unit: US$ millions)
Note: 1) In value terms
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 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
Note: 1) The number of grape farming households is 53800, which represents 19.3% of the entire fruit farming households in South Korea . 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,
Table 11: Comparison of marketing season between Chilean grapes and
local grapes
Chilean
imported grapes are much cheaper than local greenhouse grapes, as
evidenced by Table 12. Currently, the import cost of Chilean fruits
is 2300 won per kilogram with a current tariff rate of 47 percent.
With the complete elimination of duties under FTA, the import price
might fall to 1600 won. The marketing cost of imported grapes, however,
including transport, storage and other costs added, could double the
price. On the other hand, the KIEP study predicts that with complete
tariff elimination, Chilean grape imports are likely to increase by
66 percent from 1997 levels
Table 12: Price comparison between local and Chilean imported grape
(unit; won/kg)
Source;
Ministry of Agriculture and Fishery (MAF) With
FTA implementation, the increase of lower-priced Chilean grape imports
will likely decrease demand for domestic greenhouse grapes, inflicting
damage on domestic greenhouse grape farmers. The government should
thus consider a special measure in the FTA negotiation to address
the potential harm on local greenhouse grape producers. Nonetheless,
greenhouse grape production represents only about 2.6 percent of total
domestic grape production. Consequently, the overall effects on the
domestic grape industry are expected to be less than economic benefits
for Greenhouse
grape producers are not the only ones concerned—domestic pear farmers
also worry about the loss of income from increased imports of Chilean
products. They fear that income will decrease about US $2 million. Yet,
it is known that Chilean pears are not the same as domestic pears. Since
they are currently banned from the domestic market, it is hard to predict
precisely how much impact imported pears and apples would have on the
local industry. It is almost certain, however, that pear and apple imports
from Though
the local fruit farmers’ concern is considered overblown, the domestic
fruit industry will likely be the most affected by the FTA. Therefore,
the government must take a cautious approach and negotiate special
terms that could minimize damage. A gradual market opening over a
long period for grapes, pears and apples should be considered an alternative
to the complete exclusion of those fruits from the tariff elimination.
3.
Political Analysis Opening
the agricultural market in The
current impasse in the FTA negotiation can largely be attributed to
domestic politics of the agricultural sectors in Over
time, these ties—and the political power they lend the farm sector—are
likely to weaken with the continued decline in agricultural population.
Only 6 percent of young workers (age 20 to 24) are farmers, and almost
70 percent of the agricultural work force is over 50 years old. In
the near term, however, agriculture poses the largest obstacle to
the South Korea-Chile FTA. The
agricultural sector in The
farming community, which felt threatened by the possible increase
of Chilean fruit imports, has called for the cessation of the FTA
negotiation or the exclusion of the agriculture sector from the agreement.
Farm groups have been staging a fierce campaign against the agreement,
claiming that the FTA may threaten the livelihood of 5 million farmers.
While the fiercest opposition is from the ‘Farmers Association of
Grapes’, the National Farmers Association is leading concerted efforts
among 21 farm groups against FTA talks. They argue that the government
has forsaken the agriculture sector for the manufacturing sector,
and that large conglomerates will benefit at the expense of farmers.
They also fear that a South Korea-Chile FTA might lead to future FTAs
with larger economies like Politicians,
keenly conscious of farmers’ votes in the upcoming presidential election,
have been lukewarm on pushing ahead with the agreement. The ruling
party, Millennium Democratic Party (MDP), called for the government
to either slow down the FTA process or to exclude agriculture from
the agreement. Rep. Jang Jeong-eon of MDP announced that he would
push for parliamentary rejection of South Korea-Chilean FTA by generating
supra-partisan support. Noting Chilean apples, grapes and kiwi fruit
are among the world’s finest, he said that a free trade accord with
such an agrarian country will devastate Despite
such remarks, in light of the fact that the FTA negotiation were initiated
under the leadership of President Kim Dae-Jung, the official head
of MDP, it is unlikely that the ruling party and its presidential
candidate will completely denounce the FTA process unless the opposition
party candidate criticizes the deal. The official remarks have not
been made by the opposition party (Grand National Party, GNP) on the
South Korea-Chile FTA issue. If the GNP decides to attack the current
FTA negotiation, however, the potential MDP candidate would have no
choice but to oppose the South Korea-Chile FTA deal in efforts to
win farmers votes during the election period. This would result in
complete cessation of the negotiation amid the swirl of domestic politics. In the
meantime, the lack of consensus among government agencies has further
complicated the FTA process. While MOFAT remains firm in its plan
to conclude FTA talks as soon as possible, the Ministry of Agriculture
and Forestry (MAF) has been largely negative toward the FTA, often
presenting uncompromising proposals on the agricultural market opening.
The Minister of Agriculture and Forestry Kim Dong-tae recently recommended
that the government suspend its FTA negotiations with Chile until
after 2005 when the WTO finalizes the new Doha round of global trade
talks. His remarks came just as the two countries resumed working-level
talks in February after a year of suspension. It’s hard to fathom
the intention of his remarks, but the apparent disunity among government
agencies only creates confusion and hinders the negotiation process.
Already, some media blame the lack of unity among government agencies
for the failure of FTA negotiations. It is
important that policymakers work in a consistent and responsible manner
to gain public confidence and support for its FTA policy. MOFAT should
coordinate with MAF to gain support from farm groups in completing
the FTA with Opening
the South Korean agricultural market is a painful process for It is
not possible to exclude the agricultural sector, as requested by domestic
farmers and some politicians, from negotiating free trade agreements.
This is particularly true of the FTA negotiation with Chile
is willing to allow unhindered access of manufactured goods if South
Korea opens its agriculture sector. Therefore, the successful conclusion
of a South Korea-Chile FTA depends largely on gaining domestic consensus
on agriculture. To narrow
the difference with 4.
Public opinion Public
opinion of the current FTA process, influenced by agricultural groups’
strong protests, remains negative. Without correct understanding of
the FTA and its potential benefits, the general public thinks of it
as a unilateral market opening process, with trade liberalization
leading solely to import surges that hurt the domestic industry. Some
even consider the FTA, with its large economies, a form of subordination
to a dominant economic power. Ironically, consumer groups that oppose
the South Korea-Chile FTA would actually benefit from cheap imports. While
the agricultural community leading the campaign against the FTA is
shaping public opinion, proponent groups that stand to gain from the
FTA are less vocal in their support. The
government should also be blamed for the current lack of understanding
among the general public. The government did not make sufficient efforts
to educate people on the benefits of the new policy and did not solicit
the private sectors’ opinion in its trade policy decision-making process.
Unfavorable attitudes towards the government’s FTA policy and the
South Korea-Chile negotiations resulted.
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