Research Reports
Analysis of Structural Change of Agricultural Trade for an FTA between Korea and China
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AuthorJeon, Hyoungjin
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Publication Date2011.11.30
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Original
Agricultural trade between Korea and China shows a clear one-way trade from China to Korea and consists mainly of inter-industry trade. The products available for intra-industry trade are rare with the exception of several processed foods. This overwhelmingly unbalanced trade structure makes it difficult for the two countries to avoid severe competition and build a mutually beneficial cooperative relationship in the agricultural sector, and is not expected to change in the near future.
Since the establishment of diplomatic relations between Korea and China in 1992, the share of grain in their bilateral agricultural trade has decreased, but the shares of vegetables and processed foods have increased. The pattern will set in because grain trade is quite restrictive to the supply and demand in the Chinese domestic market and most of fruits, vegetables, and livestock products trade is not allowed due to inspection and quarantine barriers, which is not expected to be completely removed in the near future.
The implications from our analyses on relevant issues in the agricultural trade structure between Korea and China are summarized as follows:
First, Chinese agriculture is now on the stage of labor productivity-led growth and changes its production structure to the one relying on intermediate inputs gradually. Hence, the rises of input prices including agricultural wage and land rent are likely to threaten the price competitiveness of Chinese agricultural export.
Second, China is a young market economy and the economy is not sophisticated yet due to the government's frequent interventionist economic policies. Most of all, China still clings to the socialist system in politics. Thus, resource allocation in the Chinese agricultural sector would be distorted by other factors rather than market principles. In this case, the prospect that the structural change in Chinese agriculture will follow a stylized path, through which developed countries already passed, will lead to a mistaken prediction of its change and then fail to properly act in the light of the Korean agricultural sector.
Third, agriculture in two countries has similar production structure and development course, but also has distinctive resource endowments and growth stages, which lead to the current overwhelming one-way trade and leave not much room for complementary relation in the near future. It is necessary to find constructive cooperation plans between the trading partners towards co-prosperity under a more liberalized trade in the future, focusing on the establishment of a specialization system reflecting their comparative advantages in agricultural production.
Fourth, the removal of inspection and quarantine barriers usually takes quite a long time, because the import prohibiton of a product on account of plant disease, pest, and animal disease is lifted through a various risk assessment process having eight steps. Recently, however, exporting countries and international organizations are seeking to reduce the period of the risk assessment and to set a common standard. Bilateral quarantine negotiations are also affected by political and diplomatic situations and may accelerate the procedure.
Fifth, the Chinese government has adopted several policies for promoting disease-free agricultural production regions. Also, China is trying to introduce the concept of regionalization in its FTA negotiations, persuading their trade partners. Therefore, the Korean government should prepare for a possible request of the Chinese government on the issues in the forthcoming Korea-China FTA negotiation.
Sixth, the survey results reflect the change of consumer perceptions about Chinese agricultural products toward a more positive direction. Korean residents in China and restaurant managers, who have experienced Chinese agricultural products more than general consumers, responded more positively about taste, food safety, and prices of Chinese agricultural products and showed higher willingness to pay than general consumers did. It suggests that general consumers are likely to become more positive on Chinese agricultural products if they have more opportunity to experience these products, implying the potentiality of import increase of Chinese agricultural products when a bilateral FTA between the two countries goes into effect.
Seventh, it is necessary to establish a monitoring system about Chinese agricultural products and regional products, performing ordinary surveillance on supply, demand, price, and relevant policies of China, for the important products in Korean agriculture. Furthermore, it is also required to develop and manage the ‘China Agriculture Forecasting Model’ which is applicable to evaluate direct and indirect impact of change in Chinese production and market circumstance and to respond quickly with proper domestic measures.
Researchers: Hyoung-Jin Jeon, Sei-Kyun Choi, Myong-Keun Eor, Suk-Ho Han, Han-Phil Moon, Dae-Hee Chung, Min-JI Nam and Jun-Ho Seung
E-mail address: hjchon@krei.re.kr
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