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

potential changes in trade based solely on the removal of tariffs resulting from
implementation of the FTA, and assumes no significant SPS measures that would restrict
access to the Korean market. 236
Tariff elimination under the FTA should positively affect U.S. beef exports. U.S. beef
exports to Korea currently face a 40 percent tariff, which the FTA would phase out in 15
equal annual stages. 237 The agreement also includes a safeguard measure that begins at
270 thousand mt and grows 2 percent compounded annually and is eliminated in year 16. 238
This initial safeguard quantity is approximately equal to the largest quantity exported by the
United States to Korea, which occurred in 2003, the most recent year of normalized trade
prior to the Korean ban on beef imports from the United States (box 3.1). At current import
unit values, the quantity under the initial safeguard measure would be valued at
approximately $1.0 billion during the first year after implementation of the agreement. The
safeguard measure, based on quantity, performs much like a TRQ, but is advantageous
because it allows U.S. exporters to bypass import permits and licenses. U.S. beef exporters
are globally competitive and well-positioned to take advantage of the tariff removal.
Box 3.1 Key events in recent U.S.-Korea Beef Trade
• Prior to Korea's ban on imports of U.S. beef following the discovery BSE in a Canadian-born cow in the
state of Washington in late 2003, Korea imported an average of 5,670 tons of U.S. beef—primarily “short
ribs”— per month. Product primarily consisted of “short ribs.”
• In September 2006, Korea allowed U.S. shipments of boneless beef to resume, albeit with a “zero”
tolerance policy for bone chips or other material considered “at risk.” In addition, Korea will not accept
beef from animals over 30 months of age, which is a more stringent approach than international
standards of the World Organization for Animal Health (also known as the OIE).
• In late May 2007, OIE classified the United States as a “Controlled Risk” region for BSE. Controlled Risk
is the second highest safety rating.
• Korea rejected the first three shipments of U.S. beef after reopening its market in September 2006 upon
finding bone fragments in several boxes. Typically beef is shipped in prepackaged boxes. U.S. beef is
mechanically deboned, which invariably results in small bone fragments, although this is considered
commercially acceptable in the industry. The entire shipment, instead of the individual boxes, was
rejected.
• In June 2007, several boxes of ribs were found in a shipment to Korea resulting in a “stoppage” of U.S.
shipments. After a USDA investigation it was determined that the shipment was safe and was meant for
U.S. domestic sale and mistakenly sent to Korea. Korea is presently accepting U.S. boneless beef and
has indicated that it will only return individual boxes instead of entire shipments.
• Negotiations are currently ongoing.
Sources: World Organization for Animal Health (OIE). Official Animal Health Status, “Bovine Spongiform
Encephalopathy”; Industry officials, e-mail and telephone correspondence with Commission staff, Washington, DC,
June 2007; Johnston, Tom. “South Korea Reopens to U.S. Beef Imports,” June 8, 2007; and USDA, FAS, “Korea
Lifts Suspension of Six U.S. Meat Plants,” June 25, 2007.
235 (...continued)
issues are not addressed in the FTA text).
236 For additional analysis regarding SPS and other NTMs, see chap. 5 of this report.
237 USTR, “Final - Untied States - Korea FTA Text,” 2007, Korean General Notes and Annex 2-B.
238 Ibid., Annex 3-A.
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