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FTA deals a wild card: farmers

JoongAng Daily Korea

FTA deals a wild card: farmers

By Yoo Jee-ho

5 February 2006

To the delight of free traders and the apprehension of Korean farmers and other globalization foes, the United States and Korea announced Thursday that they would begin negotiations on a free trade agreement. The formal talks will begin in three months, after a required notification period by the U.S. administration to the Congress, but it is already clear that such an agreement, despite the billion-dollar benefits to both sides, is being approached with very different mindsets in Seoul and in Washington.

The major sticking point, which some fear will be serious enough to scuttle the talks entirely, is the question of tariffs on agricultural products.

Korea’s average applied tariff on all goods and services is 11.2 percent, more than three times that of the U.S. figure. But on agricultural products, the Korean average tariff is 52 percent, more than four times as large as the U.S. average.

Agricultural trade between the two nations is lively but lopsided, as would be expected given the sprawling American farmlands and Korea’s postage-stamp plots. In 2004, Korea exported $285 million of food products to the United States, making it this country’s second-largest export market for such products after Japan. But Korea imported about $2.7 billion of farm goods from U.S. suppliers.

The U.S. trade representative’s office has made it clear that it will be gunning to abolish many of the tariffs imposed by Korea. A press release from the agency said that lower tariffs on farm goods here would be of "significant benefit to U.S. farmers and workers. An official at the agency told Yonhap News that Washington is seeking "the most comprehensive, highest-quality free trade agreement."

That is a problem for trade negotiators here, who find themselves staring down angry and often violent farmers in the streets when something reignites their ire. At least publicly, Korea has no choice but to go into the trade negotiations with the position that it has to maintain the present tariffs and quotas on at least some agricultural products.

Farmers complain that a free-trade deal with the United States would be their death warrant. Some protested at a public hearing on the proposed agreement Thursday, forcing its cancellation. The farmers demanded no less than that the talks be cancelled.

If tariffs on agricultural products were reduced or eliminated entirely, research groups here say, there would indeed be a rise in imports of U.S. products and a fall in domestic production. Estimates of the size of that drop range from 1 trillion won ($1 billion) to 8.2 trillion won. Trade officials here are trying to minimize the possibility of such damage, asserting that the rise in exports from the United States would mainly affect imports from other nations - there would be much more of a change in import sources than in competition with domestic goods, said Kim Jong-hoon, who has been named Korea’s chief negotiator for the talks.

But even he admitted at least some damage to Korean farmers appeared inevitable. Kwon Oh-bok, a senior fellow at the Korea Rural Economic Institute, said the success of the Korea-U.S. free-trade negotiations would hinge on how the Korean government manages its ties with local farmers.

"If the free-trade negotiations must get underway for the sake of our national interest, then they have to take place in a way that takes our farmers into consideration," Mr. Kwon wrote in a report presented at Thursday’s public hearing. "The talks should not demand the full sacrifice of our farmers."

Experts here say that pressure from the farm sector, combined with more general anti-U.S. sentiment among Korea’s left wing, could change the nature of the negotiations.

"The key for the Korean delegation will be negotiating with the farmers here in addition to talking with its U.S. counterparts," said Yu Hyun-seok, a political scientist at Kyung Hee University in Seoul. He added that he expected Korean farmers to organize their protests much more thoroughly than they did when they tried to block a free-trade deal with Chile several years ago. He said that experience, plus the campaign last year to block additional rice imports here in line with a 1994 global commitment by Korea, would make farmers an even more dangerous adversary.

In order to appease the local farmers and minimize damage from the free-trade agreement, Mr. Yu said, "The government must lay out some concrete, long-term solutions, not just come up with quick answers." In the past, the government has tried to placate farmers by announcing increases in farm support that, if carried out, would cost in the hundreds of billions of dollars over a decade.

In the period before negotiations begin, the Korean government seemed willing to concede the opening of many service sectors to U.S. companies if the United States in turn would be willing to exempt some agricultural sectors from the agreement.

"Negotiations of any kind involve give and take," said Mr. Kim, the chief negotiator. "It depends on our negotiating skill, but I am hopeful that the U.S. side will understand our problems."

That is not good news for doctors, teachers and other service providers here, who also fear an onslaught of U.S. competition. Even while conceding that U.S. investment in those sectors would benefit both economies, some fear that there would be fewer social safety nets for the poor. There would also be, some critics say, disruption arising from the need to change local government policies and practices in areas related to public services.

Some observers also point to the example of Mexico, where the North American Free Trade Agreement brought a surge of U.S. investment and bilateral trade. But despite the gaudy numbers, the Mexican economy has not been able to grow at anything approaching the rates of the Asian tiger economies in their prime.

"The Korea-U.S. free-trade agreement could have an adverse impact if Korea’s market-opening strategy isn’t efficiently linked to local industrial policies," said Lee Hong-shik, head of the free-trade agreement team at the Korea Institute for International Economic Policy.

"As was the case with Mexico, we must note that we could have all the investment we wanted but not necessarily have the economic development."