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

Historically, Korea represents the third-largest export market for U.S. beef and beef variety
meats. Korea accounted for nearly 19 percent of all U.S. beef exports by volume and
21 percent by value in 2003. U.S. beef, due to its marbling, is highly valued in the Korean
market and is commonly prepared in the Korean dish galbi, which is made from beef short
ribs. Beef short ribs have been one of the core beef products exported by the United States
to Korea and represent a high-value product in the Korean market versus its U.S. domestic
use as ground beef, which is worth one-third of the value. 239
The baseline values used in the Commission’s economy-wide estimate of increased beef
exports assume the resumption of beef exports to Korea, which have been limited in recent
years because of SPS measures. 240 Figure 3.1 indicates that increased imports from other
foreign suppliers were unable to entirely fulfill Korea’s 2003 import demand. Because of the
small volume of domestic beef production relative to consumption in Korea, relatively high
tariffs and other restrictions on imports, and the inability of suppliers to fully meet excess
demand, 241 Korean consumers witnessed a steep increase in beef prices in the third quarter
of 2004 (figure 3.2). Beef prices have remained high, and Korean consumers pay some of
the highest prices for beef in the world. 242 The elimination of tariffs on beef under the FTA
may also increase the price competitiveness of U.S. beef in the Korean market, potentially
increasing demand for U.S. beef. 243
The phaseout of tariffs under the FTA should positively affect U.S. pork and poultry exports
to Korea. Current U.S. exports of pork and poultry face tariffs ranging from 18 percent to
30 percent (table 3.11). Despite the current high tariffs, Korea is the fourth-largest export
market for U.S. pork. Moreover, U.S. exports increased by approximately 50 percent by
value in 2006 over 2005. After implementation of the FTA most Korean tariffs on pork
products, with the exception of fresh or chilled pork, would be phased out in equal annual
stages, becoming duty-free in 2014. 244 Although tariffs on fresh and chilled pork products
would be phased out in ten equal annual stages, they are subject to a safeguard measure
similar to that for beef. 245 The initial safeguard trigger level is 8,250 mt and increases by
6 percent annually, reaching 13,853 mt by the ninth year, and is eliminated in year 10.
The increased market access would likely enhance the price competitiveness of U.S. pork
in the Korean market, especially with respect to pork from Chile, which implemented an
FTA with Korea in 2004 that gives Chile duty-free access to the Korean market beginning
in 2014. 246 Chile is a major competitor with the United States in the Korean market for pork.
Korea provides a market for many cuts that are less popular in the U.S. market. The tariff
phaseout also provides U.S. producers with an opportunity to enhance sales of value-added
products. 247
239 Truitt, written submission to the USITC on behalf of the NCBA, June 20, 2007; and Truitt, testimony
before the USITC on behalf of the NCBA, June 20, 2007.
240 In addition, industry representative testimony indicated that industry resumption of 2003 export levels
would not pose any difficulty. Truitt, testimony before the USITC on behalf of the NCBA, June 20, 2007.
241 Truitt, written submission to the USITC on behalf of the NCBA, June 20, 2007.
242 Truitt, testimony before the USITC on behalf of the NCBA, June 20, 2007.
243 Johnston, “S. Korean Cattle Prices Fall as U.S. Beef Imports Rise,” June 18, 2007; and Johnston,
“South Korea Cattle Slaughter Surges,” June 21, 2007.
244 USTR, “Final - Untied States - Korea FTA Text,” 2007, Korean General Notes.
245 Ibid., Annex 3-A.
246 Hayes, “Impact of a U.S.-Korea Free Trade Agreement,” written submission to the USITC,
June 20, 2007.
247 NPPC, written submission to the USITC, posthearing comments, June 27, 2007.
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