Research Reports
Strategies for Agricultural Sector To Cope With Free Trade Agreements
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AuthorKwon, Ohbok
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Publication Date2005.12.01
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Original
Korea is actively involved in the Free Trade Agreement(FTA) Negotiation focussed on big five economies: the United States, China, Japan, ASEAN, and the European Union (EU). This study analyzes the impact of the FTAs on the agricultural sector, and suggests the strategies to cope with the opening of the agricultural market under the FTAs.
The Korea Rural Economic Institute - Agricultural Simulation Model (KREI-ASMO) was utilized to analyze the impact. The baseline scenario was prepared based on the assumption that the tariff rates of 2004 will be maintained during the analyzed period. Three FTA scenarios were established: I) tariffs on all products except rice will be eliminated after ten years; ii) tariffs on all products except rice will be immediately removed, but tariffs on products whose tariffs are 200 percent or higher will be removed after five years; and iii) tariffs on all products except rice, red pepper, beef, dairy products, clementine, apple, grape, pear, strawberry, and ginseng will be immediately removed, but tariffs on products whose tariffs are 200 percent or higher will be removed after five years. Based on the G20+ proposal, the impact of the Doha Development Agenda(DDA) on the agricultural sector was analyzed as well.
It is expected that the production value of red pepper and garlic after ten years from the FTA implementation will decrease by 37~83 percent, while that of onion will drop by 12~15 percent compared with their production values of the year prior to the FTA implementation. The income from vegetable production is projected to drop by 27~42 percent.
Among fruits, the production of apple, pear, and clementine will be severely influenced by the FTAs. The production value of apple will amount to only 41~60 percent of the value of the reference year. The clementine production after ten years of the FTA implementation will decrease by 63~67 percent. As a whole, the income from fruit production will be equivalent to only 37 percent of the income of the reference year.
It turns out that the livestock industry will be relatively less affected by the FTAs. It was found that the livestock production value after ten years will increase compared with the production value of the reference year. However, the income from livestock production is expected to decrease by 22 percent at maximum during the FTA implementation period.
It is expected that the accumulated income loss will be about 29 trillion won under Scenario 2, while it will be 20 trillion won under Scenario 1. In most cases, it is obvious that the effect of the FTAs on the agricultural sector will be greater than that of the DDA.
To ease the FTA shock to the agricultural sector, the existing laws including the Comprehensive Measures for Agricultural and Rural Development and the Special Law for FTA need to be reinforced. In addition, the law for the Trade Adjustment Assistance (TAA), which is being prepared by the industrial sector, could be referred to when establishing the measures on agriculture.
Supporting farms exited from the agricultural business, enhancing agricultural competitiveness, and compensation for the income loss stemming from the FTAs are suggested as the basic directions to cope with the FTAs. It is also underlined that the agricultural production and marketing system should be re-oriented in order to meet consumers' needs for safer and high-quality domestic agricultural products. This may be the most effective way to keep Korean agriculture viable in the face of cheaper imported agricultural products flooding the agricultural market.
Researchers: Kwon Oh-bok, Choi Sei-kyun, Song Joo-ho,
Kim Bae-sung, Hong Seung-ji, Kim Kyung-phil,
Kang Hye-Jung and Heo Joo-nyung
E-mail address: obkwon@krei.re.kr
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