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

Korea imported 3.8 million mt of wheat in marketing year 2005/06, with 31 percent from the
United States, 30 percent from Canada, 25 percent from Australia, and 11 percent from
Ukraine. 13 About 60 percent of Korean wheat imports in marketing year 2005/06 was milled
into wheat flour and about 40 percent was fed to livestock. 14 Korean wheat millers prefer
white wheat for which Australia is a very competitive alternative supplier to U.S. white
wheat.
The FTA is expected to have negligible benefits for exports of U.S. wheat to Korea. U.S.
wheat exports would likely benefit immediately from the elimination in the first year of the
applied 1 percent tariff on U.S. milling wheat. As a result, the United States would likely be
able to gain market share from other leading wheat exporters to Korea, such as Canada and
Australia, but the 1-percent duty savings would likely not induce a major market shift to the
United States. Freight costs from Australia and Canada are generally lower than from the
United States.
Korea imported nearly 41,000 mt of barley in marketing year 2005/06. The 11,500 mt of
TRQ access for U.S. malting and feed barley in the first year of the FTA may allow an
estimated $2 million in U.S. exports of barley to Korea. Thereafter, the growth in U.S. barley
exports to Korea would be limited by the quota, with prohibitive over-quota tariffs. The tariff
and quota on U.S. popcorn and white corn are eliminated over 7 years. While there would
be quota access for U.S. popcorn exports to Korea, U.S. popcorn exports have been small
in most years even though the Korean tariff is 1.8 percent. U.S. exports of white corn for
popping and popcorn reached $2 million in 2004, but Korean repackaging requirements
eliminated all U.S. exports in 2005–06. 15
Views of Interested Parties
In the report of the Agricultural Technical Advisory Committee (ATAC) for Grains, Feed,
and Oilseeds, the majority of members endorsed the FTA, because of the benefits expected
to be realized by most U.S. producers of grains, feed, and oilseeds. According to the report,
in the industry’s view, the agreement is not a perfect agreement, as reflected in the lack of
any improved access for U.S. rice, plus other limitations. The elimination of tariffs on U.S.
corn will likely not significantly affect U.S. corn exports to Korea in the immediate- or midterm
given that Korea is already an open market to corn imports. The zero-bound duty for
U.S. wheat under this FTA would allow American growers to recapture a larger share of
Korea wheat imports; the U.S. share has fallen to less than 50 percent from 100 percent in
the 1980s. The ATAC report indicates, however, that there are complications that may limit
U.S. wheat export gains, including state trading monopolies in wheat exporting countries
such as Canada and Australia, and past Korean use of sanitary and phytosanitary (SPS)
standards as barriers to U.S. wheat. 16
13 USDA, FAS, “Korea Grain and Feed Annual 2007,” May 1, 2007, 13.
14 Ibid., 14.
15 The prior U.S. quota for popcorn was 5,500 mt, with an in-quota tariff of 1.8 percent. The Korean
market in 1996–2000 for microwave popcorn was $13 million annually. USDA, FAS, “Korea Products Brief
Popcorn Market Brief 2006,” July 3, 2006, 5 and 10.
16 ATAC for Grains, Feed and Oilseeds, Advisory Committee Report, April 25, 2007. In the past, Korean
quarantine policies have been a major policy issue affecting U.S. wheat exports. The Korean National Plant
Quarantine Service inspects for foreign weed seeds and for the presence of 108 agricultural chemicals.
USDA, FAS, “Korea Grain and Feed Annual 1997,” April 4, 1997, 5–6; and USDA, FAS, “Korea Grain and
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