U.S.-Korea Free Trade Agreement: Potential Economy-wide ... - USITC

Grain (Wheat, Corn, and Other Feed Grains) 5
Assessment
The U.S.-Korea FTA would likely have a negligible impact on U.S. grain exports to Korea
as a result of the increased market access afforded through tariff removal. Based on current
export patterns and trends, about 80 percent of the expected additional U.S. grain exports to
Korea would likely consist of yellow corn, with the remainder being wheat and barley.
Estimates from the Commission’s economy-wide analysis of the long-term effects of tariff
and TRQ liberalization indicates that cereal grains exports, which include corn and other
feed grains, would likely increase by approximately $7 million (2.2 percent), and U.S. wheat
exports would likely increase by approximately $2 million (1.0 percent). 6 These increases
depend substantially on the estimated increases in U.S. exports of meat products to Korea,
as significant expansion in the meat sector could cause U.S. exports of cereal grains and
wheat to Korea to decline. Such a decline would result from the effect of supply or demand
changes in other upstream or downstream sectors. For example, on the U.S. supply side, the
anticipated expansion in exports of beef and other food products increases demand for
upstream agricultural products that may compete with wheat and cereal grains for resources,
which may induce the reorientation of production for U.S. meat that will ultimately be
exported to Korea, or may encourage switching to other crops or activities. On the Korean
demand side, a substantial increase in shipment of bovine meat products to Korea would
reduce Korean cattlemen’s demand for wheat and corn for feed, dampening Korean demand
for grain despite the removal of the tariff. 7
Table 3.1 outlines the first full year of market access for U.S. grain exports to Korea under
the FTA. The 2006 Korean tariff treatment for U.S. products is shown under the column,
“Applied rate, 2006.” U.S. wheat and yellow corn exports to Korea would attain immediate
duty-free treatment upon implementation of the agreement. TRQs established are for barley
and popcorn, although the United States has not exported significant amounts of these grains
to Korea during 2002–06. The first-year quota levels for barley and popcorn are well above
U.S. exports in 2006.
5 Includes Harmonized Tariff Schedule of the United States (HTS) headings 1001 through 1008, except
rice (HTS subheading 1006). The grain sector as described in this section of the report focuses on corn and
wheat, although the FTA also addresses sorghum, and barley, whose trade is negligible with Korea. Corn is
destined for livestock feed in Korea, processing into corn byproducts, and direct food use. The products
covered in this assessment represent 100 percent of U.S. exports to Korea in the GTAP “cereal grains” and
“wheat” sectors, and represent 100 percent of U.S. imports from Korea in the GTAP “cereal grains” sector,
for 2006.
6 These estimated increases in exports of corn and other feed grains ($7 million), and wheat ($2 million)
represent mean values of the range estimates provided by the economy-wide analysis, relative to an
estimated 2008 base. Cereal grains exports could decrease by up to $4 million (-1.5 percent) or increase by
up to $18 million (6.1 percent); and wheat exports could decrease by up to $5 million (-2.9 percent) or
increase by up to $9 million (4.9 percent). As a result, the economy-wide analysis estimated that output and
employment changes in the wheat and cereal grains sectors could range from -0.7 percent to 0.0 percent. See
chap. 2 of this report for additional information regarding the economy-wide analysis.
7 Given that the model assumes a fixed quantity of resources, it is possible for exports to decrease despite
reduction in Korean tariffs as a result of the reallocation of resources in the United States to other more
liberalized sectors. See chap. 2 of this report for additional information on the economy-wide general
equilibrium analysis of tariff and TRQ liberalizations under the FTA.
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