CME: US-Korea FTA Deal After Three-Year Limbo

US - Over the weekend US and South Korean negotiators appeared to strike a deal on the long awaited US - South Korea Free Trade Agreement, write Steve Meyer and Len Steiner.
calendar icon 7 December 2010
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The FTA has been siting in limbo for more than three years as the two countries failed to agree on a number of issues, particularly on autos and beef. The latter has been subject of much debate in the US livestock industry. South Korea used to be a significant buyer of US beef. For the period 2000–2003, US packers shipped around 40 million pounds of beef a month to this market. In 2003, the last year before trade stopped following the discovery of a BSE infected cow in the US, total beef exports to South Korea were some 586.6 million pounds and accounting for about 23 per cent of US beef exports in that year. After the BSE outbreak, the South Korean market was closed for the next five years (with a brief resumption of trade in late 2007). So far this year, US beef exports to South Korea have averaged about 22.5 million pounds a month, about half of what US beef exports were back in 2003. So far this year, beef trade with South Korea has accounted for about 12 per cent of overall US beef exports.

The coverage of the latest FTA agreement in the press has been somewhat mixed, with some reports underscoring the fact that South Korea will maintain its ban on US beef from cattle that were older than 30 months at slaughter. In our opinion, the objections do not raise critical issues and current rules do not pose a significant barrier to US beef trade with this country. It would be next to impossible to get South Korean officials to lower this standard while other countries in the region continue to maintain it, particularly Japan that has an even more stringent rule, with only beef from cattle 20 months or younger allowed. We think it is quite significant that the FTA agreement proscribes a steady phase out of tariffs on a wide range of US agricultural goods, including beef and pork.

It is our understanding that South Korea will remove its tariff on US pork by 2015. Originally the agreement was supposed to provide for the elimination of tariffs on US pork by 2013 but the two year extension was provided in exchange for some Korean concessions on auto trade. While we have not seen the text of the most recent agreement, prior versions included a provision for the elimination of the 40 per cent tariff on US beef over a 15 year period. The agreement does allow South Koreans to impose safeguard tariffs on a temporary basis if/when there is a significant surge in US beef exports. Overall, we think that the elimination of tariffs is a much more positive development for US beef exports to this market than the elimination of the age requirement for cattle at slaughter. Over time, the tariff benefits will provide US producers with a significant competitive advantage over Australia, the main competitor to US beef in this market.

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