Research Reports
Effects of Northeast Asian Economic Cooperation on Korean Agriculture
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AuthorEor, Myongkeun
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Publication Date2004.12.01
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Original
ABSTRACT
Effects of Northeast Asian Economic Cooperation on Korean Agriculture
The FTA between China, Japan and Korea (CJK FTA) would be a great opportunity and a challenge to the Korean agriculture at the same time. When the FTA becomes effective, Korean farmers will face full competition without regulatory protection against imported products, such as tariff and non-tariff barriers. The possibility worries Korean farmers, since it has been known that Chinese agricultural products have comparative advantages.
China, Japan and Korea constitute the core of Northeast Asia and are sharing some common characteristics in terms of farming, such as small-scale farming and production of similar types of agricultural products, so that they have to compete each other. At the same time, however, factor endowment ratios differ among them, so that they are also in complementary relations. For example, land productivity is highest in Korea, while labor productivity is higher in Japan than other two countries. China commands highest capital productivity in agriculture. These facts imply that there is a possibility of intra-industry trade among the three countries through cooperative specializations in the agricultural sector.
The CJK FTA would reduce the total agricultural income in Korea. According to the scenario on rice tariffication and its exclusion from the FTA, the agricultural income would drop by 39% by 2014. It shows that the agricultural income of Korean farmers will get the smallest when rice tariffication is deferred and rice is excluded from FTA. To the contrary, the agricultural income may fall greatly if rice is tariffed and also included in the FTA. But, the simulation shows that the effects of FTA are almost same regardless of rice tariffication, as long as rice is excluded from the FTA. This result conveys an important policy indication that rice should be excluded from the CJK FTA in order to prevent agricultural income plunge.
Measured potential bilateral trade(PBT) also suggests that the CJK FTA may expand agricultural trade among the three countries. Korean agricultural import from Japan is expected to increase by 240 percent or 720 million dollars, while export will increase by 90 percent or 580 million dollars due to the CJK FTA. On the other hand, Korean agricultural import from China is expected to increase by 92 percent or 1.9 billion dollars, while the export to China is estimated to rise by 180 percent or 460 million dollars. As a result, in the agricultural trade with Japan, Korea is expected to lose its surplus by 140 million dollars while, in the trade with China, Korea is projected to expand its deficit by 1.4 billion dollars.
Effects of the CJK FTA on production and prices of other agricultural products appear to differ in accordance with their relations with rice. Pork has almost no impact from the FTA and rice tariffication. Production and prices of beef and chicken, however, are expected to fall due to the CJK FTA.
Qualitative analyses of agricultural competitiveness shows that most Chinese products have absolute advantages in price but not in quality. Considering various conditions of agricultural production in China, such as water supply, land systems, labor productivity and access to consumers in cities, the comparative advantage of Chinese agriculture might be faced with some limitations in the near future. With the growing interests in food safety and higher quality, Korean farmers should also diversify their production and develop niche markets for higher value-added products, such as clean and organic food and environmental friendly agricultural products.
Researchers: Myong-Keun Eor, Chung-Gil Chung,
Bae-Sung Kim and Joo-Nyung Heo
E-mail Address: myongeor@krei.re.kr
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