Background of Research
Due to the recent and simultaneous FTAs, there has been a stark increase in imports of agricultural products, thus showing the construction of a new distribution system exclusively for imported agricultural groups from import to consumption. In particular, the reduction and removal of customs with the signing of the FTA has been judged to partially contribute to improving welfare for consumers and stabilizing market prices thanks to the drop in consumer prices resulting from lower purchasing costs of imported ingredients and imported agricultural products. However, in the case of some major imported agricultural products, the benefits of lower customs have contributed to an irrational import structure and inefficient distribution process, thus not being able to lower consumer prices as expected. Therefore, in order to establish appropriate measures to let the reduced customs tariffs be reflected in actual consumer prices, it is necessary to first identify the distribution structure and status of the current imported agricultural products. Afterwards, the changes in the import quantity and price of major imported agricultural products before and after the FTA should be evaluated by distribution stage in order to examine the effects of the FTA on the welfare of each economic agent.

Method of Research
After the FTA has gone into effect, the import market distribution structure and price decision structure from the import stage to the consumption stage was analyzed through the comprehensive analysis of import statistics, distribution channel and distribution margin analysis of major imported agricultural products. Also, in order to examine the effects of various factors such as the customs tariffs reduction effects and the market dominance of imported agricultural products after the FTA on changes in the import quantity and import price, trade creation effects and trade diversion effects models, as well as import price response functions were applied. Lastly, in order to examine how the change of import quantities and import prices of imported agricultural products due to the above FTA, as well as the new distribution system of imported agricultural products affect changes of social welfare, an equilibrium displacement model (EDM) was utilized to identify the changes of import quantity and prices for major imported agricultural products before and after the FTA by each distribution stage. By doing so, the effects of the FTA customs reduction on welfare changes of economic agents per distribution stage and the price changes and distribution margins per distribution stage for producers, consumers, wholesale and retail importers, and the government were compared and analyzed.

Research Results and Implications
Since signing the Korea-Chile FTA, Korea has signed a total of 10 FTAs with 47 countries, and due to the preferential tariff given to the countries with which the agreement was signed, the amount of agricultural products imported from FTA countries rose vastly. Accordingly, it was expected that the discriminative tariff reduction benefits resulting from the FTA would lead to a drop in consumer prices and thus increase the general social welfare. However, it was found that in the case of major imported agricultural products after the FTA, customs reduction benefits did not lead to drop in consumer prices as much as it was expected to.
A major reason why the domestic prices of imported agricultural products from FTA countries did not drop as much as the drop in tariffs due to the FTA is that after signing the FTA, based on the tariff reduction benefit and high market share in the imported agricultural product market, they held practical market dominance. Thus, they upward adjusted the export price in the country of origin and took part of the benefits of reduced tariffs for themselves. Another factor is that a considerable part of the tariff reduction effect of imported agricultural products through the FTA was absorbed as distribution margins by the importers, and thus was unable to lead to consumer price drops, while the consumer surplus decreased. Results of empirical analysis showed that upon comparing the price change and distribution margin per distribution stage, the introduction price of import grapes dropped by 17% and oranges by 40%. However, the distribution margin increased in the wholesale and retail stages, and thus the consumer prices rose more than prior to the FTA, causing a reduced consumer surplus. The same results were found in the cases of imported beef and pork. Accordingly, it was found that the FTA effects were not as positive as expected due to the increased distribution margin for import distributors and exporters having a monopolistic position, instead of increased consumer welfare.
Therefore, it is first necessary to provide a policy that can fundamentally resolve the market dominance issue focusing on the monopoly effects for the market and distribution structure of imported agricultural products. Accordingly, in order to prevent the domestic market dominance of imported agricultural products from being concentrated in specific countries or countries with FTA agreements, it is necessary to sign free trade agreements such as the currently pursued Korea-China, Korea-Canada, Korea-Australia, Korea-New Zealand FTAs and TPPs to diversify import channels creating international competition, and thus lowering import prices. On the other hand, if the market dominance of distribution companies is too strong, the distribution companies will have the potential to increase their distribution profits without changing the import price and sales price. Hence, certain levels of regulations are necessary through the constitution's monopoly regulations and the fair trade act. Adjustments of import and sales quantities of import distributors and discount distributors, price-determining through the acquisition of surplus profits, and other monopolistic behaviors should be regulated as monopoly or collusion. In conclusion, assertive efforts by the government as stated above are necessary to maximize the positive effects of the FTA and effectively respond to its negative effects.

Researcher(s): Lee Byoung-hoon, Song Joo-ho, Moon Han-phil, Chung Dae-hee, Park Han-Ul
Research Period: 2013. 1 ～ 2013. 12
E-mail address: bhlee@krei.re.kr