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How will free trade deal with EU affect Korea`s farmers?

Dong-A-Ilbo, Korea

How will free trade deal with EU affect Korea`s farmers?

6 May 2011

The National Assembly has ratified the free trade agreement with the European Union, which will allow the deal to take effect in July.

The government expects the pact to boost exports of Korean cars and electronics to the EU, eventually raising GDP up to 5.6 percentage points and creating an annual average of 360 million U.S. dollars in trade surplus.

But the Korean agriculture and livestock industries are expected to suffer more than 90 percent of the country`s losses from the deal. Losses of 2.2 trillion won (2 billion dollars) over the next 15 years are predicted for the two sectors, with livestock alone accounting for 2 trillion won (1.8 billion dollars), according to government analysis.

Korean livestock is considered the least competitive in price and quality against EU products.

Domestic farming and livestock will also suffer from free trade deals with other countries. The pending agreement with the U.S. will incur far more losses after taking effect, with an estimated 10 trillion won (9.3 billion dollars) in losses in farming expected and livestock accounting for 7 trillion won (6.5 billion dollars).

Pending free trade deals with major agricultural and livestock powerhouses such as Latin American countries and Australia will also pressure Korea to open its agricultural market.

Negotiating with agricultural powerhouses

As part of its national growth strategy, the Korean government has simultaneously promoted free trade pacts with more than 80 countries and concluded and enacted agreements with 17 of them, including Chile, members of the Association of Southeast Asian Nations, and India.

More than 20 countries await conclusion of their trade deals with Korea, including Australia, Canada, China and Colombia. The problem is, however, that most of them are major farming countries.

A Korea-China free trade agreement, on which joint research was completed last year, will likely have a different impact on the Korean farming sector. According to an official at the Korean Food, Agriculture, Forestry and Fisheries Ministry, unlike Europe and the U.S., China is adjacent to Korea, which can inflict huge damage on the domestic fresh food sector, and domestic farmers can be hit hard once the deal takes effect since fresh foods such as vegetables and flowers are the main source of income for them.

Another problem is that the countries Korea is negotiating with require the same level of opening Korea had with the U.S. and Europe. One trade official said, “The biggest problem is that Australia and Canada are asking us for the same level we had with the U.S. and Europe. We have had difficulty negotiating with Australia in beef and dairy food because the former is included in the deal with the U.S. and the latter with the EU.”

Another official said, “The government is pursuing free trade deals with countries that have high potential for car exports, and is thus yielding to them in the farming and livestock sectors. With surging international grain prices and unusual climate changes, opening up the farming sector needs a cautious approach.”

Wasteful government spending to calm farmers

The Korean government is expected to put priority on manufacturing instead of agriculture because of the huge role exports play in the economy. “Ideally, we should conclude (free trade) deals after devising measures to fundamentally support farmers. But we still go ahead with a deal when conditions for the manufacturing sector are met,” a government official said.

The National Assembly also tends to calm farmers with money after the deal is concluded, rather than conducting serious consideration before negotiating.

In the ratification process for the deal with the EU, the government got the support of opposition parties only after it offered support measures for farmers; it decided to lift the transfer tax to farmers whose farm or land size is less than 990 square meters and who have been operating them directly for eight years. When the price of farm goods fall 85 percent below that prior to the conclusion of a deal due to imports of EU farm goods, the government will pay farmers 90 percent of the price gap as subsidies.