It may be a great opportunity and a challenge for Korean agriculture to implementing the FTA between China, Japan and Korea. With the FTA, Korean farmers must enter into full competition without regulations on importing products such as tariff and non-tariff barriers. The kicking point for Korean agriculture is the possibility of import from China since it has been known to maintain comparative advantage for many agricultural products.
China, Japan and Korea are the core of Northeast Asia and are sharing some common characteristics such as small-scale farming and the composition of agricultural products so that they are supposed to be mutually competitive. At the same time, however, factor endowment ratios are differ among them so that they are also in a complementary relations. For example, land productivity is highest in Korea while labor productivity is higher in Japan than any other two countries. China commands highest capital productivity in agriculture. These may imply the possibility of intra-industry trade through a cooperative specializations in agricultural sector.
The effects of CJK FTA on Korean agriculture can be expressed in terms of reductions in total agricultural income; our simulation tells us that the reduction rate will range from 10% to 39% in 2014 according to the scenario on rice tariffication and on exception from the FTA. It shows that agricultural income will most slightly when rice tariffication is deferred and rice is excluded from FTA. On the contrary, agricultural income may fall greatly if rice is tariffied 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 convey us an important policy implication that rice should be excluded from CJK FTA in order to prevent agricultural income from enormouse falling.
Measured potential bilateral trade(PBT) also tells us that CJK FTA may expand agricultural trade among the member 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 by 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 export to China is estimated to rise by 180 percent or 460 million dollars. As a result, agricultural trade balance of Korea with Japan is expected to reduce its surplus by 140 million dollars while that with China is prospected to expand its deficit by 1.4 billion dollars.
Effects of the CJK FTA on production and prices of other products are appeared to differ according to their relations with rice. Pork has almost no impact from the FTA as well as rice tariffication. Production and prices of beef and chicken, however, are expected to fall by the CJK FTA even though there're no changes by rice tariffication.
Qualitative analyses of agricultural competitiveness showed us that most Chinese products have absolute advantages in price but not in the quality. Considering various conditions of agricultural production in China, such as water supply, land systems, labor productivity and access to consumer in the cities, the competitive 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 diverse toward the niche markets for higher value-added products such as clean and organic food and environmently friendly products both internally and externally.
Researcher : Myong-Keun Eor, Chung-Gil Chung,
Bae-Sung Kim, Joo-Nyung Heo
e-mail Address: myongeor@krei.re.kr