National Potato Council
March 28, 2007

The Honorable Sander M. Levin
House Ways & Means Trade Subcommittee
U.S. House of Representatives
1102 Longworth House Office Building
Washington D.C. 20515

Dear Chairman Levin:

On behalf of U.S. potato growers, I am writing to provide comments for the record in response to the Ways and Means Committee’s March 20 hearing on the US-Korea Free Trade Agreement.  The National Potato Council (NPC) represents potato farmers from every large potato producing region on legislative and regulatory matters.  The NPC remains committed to providing a unified voice for the U.S. potato industry on national legislative, regulatory, environmental, and trade issues to promote the increased profitability for growers and greater consumption of potatoes.

The U.S. potato industry strongly supports the completion of a U.S.-Korea Free Trade Agreement as long as the final agreement results in significant additional access for U.S. potatoes and potato products in the South Korean market.  South Korea is currently our fifth largest export market for frozen fries, with more than $22 million exported in 2006.  It is also an important and growing market for both dehydrated and fresh potato exports.  We believe that a successful Korean FTA should result in significant increases in exports of all U.S. potato products and will guarantee market share for US potato products against our primary international competitors, Canada, New Zealand, Australian and the European Union.

The U.S. potato industry has four priorities for the U.S.-Korean Free Trade Agreement.

Frozen Fries (H.S. 2004.1). Korea currently applies an 18% ad valorem MFN tariff on U.S. fry exports.  Although Korea is our fifth largest fry export market, this 18% tariff hinders our ability to expand the market.  The U.S. potato industry seeks the immediate elimination of this tariff as a result of the U.S.-Korean FTA.

Korea has no fry processing facilities.  Moreover, given that Australia and Canada, major fry producing competitors, have expressed an interest in their own Korean FTAs, it is vital for U.S. fry producers that this tariff be eliminated.  A zero fry duty would ensure that the U.S. remains the major fry supplier to Korea and yield a significant increase in fry exports.

Dehy:  Korea has the potential to be a significant export market for U.S. dehydrated potato exports.  Unfortunately, that potential is limited by Korea’s quota system.  Traditionally, pure dehy flakes, pellets, and granules are exported under Chapter 11 of the Harmonized Tariff System code (H.S. 1105.2).  Korea currently has an overly restrictive tariff rate quota for this tariff line.  Exports of 60 metric tons (the equivalent of two ocean-going containers) can enter under the quota and face a 5.4% tariff.  Once that quota is filled, the tariff increases to a prohibitive 304%.  Furthermore, this quota volume covers imports from the entire world, so essentially Korea applies a 304% tariff on all dehy products.

In order to avoid this 304% duty, U.S. dehy shippers export a blended dehy product under Chapter 20 (H.S. 2005.2) with an applied 20% ad valorem tariff (below the 54% bound rate).  While there is no quota here, in order to qualify for this tariff line as a processed good, Korea requires that the dehy products be blended with at least 10% other components.  U.S. shippers have been forced to create dehy blend formulas to meet the Korean requirements to export under this tariff line and avoid the quota.  Such blending limits the end use of the product in Korea.

The U.S. potato industry is seeking the significant expansion and eventual elimination of the Chapter 11 quota on dehydrated potatoes, and the elimination of the Chapter 20 processed dehy tariff.

Fresh Potato Quota:  Like the dehy quota, Korea has established a restrictive TRQ for fresh potatoes.  Korea allows the importation of 18,810 metric tons of fresh potatoes every year.  The in-quota duty is currently duty free, but the over-quota duty is again a prohibitive 304%.  U.S. fresh potato growers must share this quota with other countries, especially Australia.  The Korean government also divides the quota into two categories, one for chipping potatoes destined for chip processing and one for fresh potatoes sold at retail.  It is unclear whether these distinctions are allowable under the WTO.

Korea is a promising market for U.S. fresh potato exports.  As recently as three years ago, it was the third largest and fastest growing export market with over $1.7 million in sales.  The industry believes that the Korean market has enormous potential for fresh potato sales.

The U.S.-Korean FTA provides an excellent opportunity to address the restrictive TRQ.  The U.S. potato industry is seeking a separate tariff line for chipping potato market access, which would allow the U.S. to ship their product at certain times of the year duty free outside the quota.  The industry also wants this seasonal distinction phased out in the future so duty free access can occur year round for chipping potatoes.   The industry is also seeking a significant expansion of the table stock TRQ, which would allow for additional shipments of U.S. table stock potatoes to Korea.

Fresh Potato SPS Issues:  Although U.S. potato producers have recently had some difficulties with Korean quarantine standards, Korea’s National Plant Quarantine Service has been working with USDA and the U.S. industry to address these issues.

The U.S. government can assist with fresh potato quarantine issues through the FTA by facilitating the approval of additional states allowed to export to Korea.  Although major potato producing states such as Idaho (temporarily suspended), Washington, Oregon, Wisconsin, Michigan, Minnesota, and Maine are approved for export to Korea, other potato producing states such as North Dakota, Colorado, California, New Mexico, Arizona, and Pennsylvania are prohibited from exporting to Korea due to concerns over five pests[1]. 

The U.S. industry believes these pests either do not exist in the states in question or can be addressed through simple mitigation measures.  In the North Dakota case, the restriction is unjustified.  North Dakota and Minnesota are considered one growing region.  Korea allows exports from Minnesota, but not from North Dakota.  The U.S. potato industry would like to see the states listed above approved for export to Korea as a result of the Korean FTA. 

The National Potato Council and US Potato Board have worked with USDA’s Animal Plant Health Inspection Service (APHIS) to provide Korea requested information about each state in the hopes that they can be approved in the near future.

The U.S. potato industry stands to benefit from the completion of the U.S.-Korea Free Trade Agreement.  A successful agreement will result in increased potato sales to Korea and will maintain U.S. potato market share within Korea.  Failure to complete an agreement could result in our competitors finishing a FTA with Korea and taking market share from the U.S.

The U.S. potato industry has been actively involved in the talks through frequent consultations with the US Trade Representative’s Office and USDA.  The industry also had an official in Seoul in late March to support the U.S. negotiators at the talks.  Please feel free to contact the National Potato Council should the committee have any questions regarding the NPC’s support of the U.S.-Korea Free Trade Agreement.

Sincerely,

John Keeling
Executive Vice President and CEO, National Potato Council

[1] Peronospora tabacina (tobacco blue mold), Synchytrium endobioticum (potato wart), Globodera rostochiensis (golden nematode), potato yellow dwarf virus, and potato spindle tuber viroid.