The United States is already Korea’s top
supplier of a broad variety of agricultural exports at $2.85 billion
($3.4 billion including fish and forest products) in 2006, making Korea
the sixth largest export market for U.S. farm products. The new
agreement is expected to expand those sales even further. The United
States is the No. 1 supplier to Korea of many farm products including
almonds, beef, fresh cherries, hides and skins, poultry, soybeans, corn,
and wheat. Lower tariffs benefit both U.S. suppliers and Korea’s
consumers. The tariff reductions will help the United States compete
against China and Australia, which have increased their presence in
Korea’s $12 billion agriculture market. The KORUS FTA will help the
United States compete against Korea’s other major agriculture suppliers
and help keep the United States on a level playing field with Korea’s
current free trade partners, such as Chile, and any future FTA partners.
Almost two-thirds of Korean imports of U.S. farm
products will become duty free immediately. These include wheat, corn,
soybeans for crushing, whey for feed use, hides and skins, cotton,
cherries, pistachios, almonds, orange juice, grape juice, and wine.
Other farm products that will benefit from immediate duty-free access
within new tariff-rate quotas (TRQs) and safeguards include skim and
whole milk powder, whey for food use, cheese, dextrins and modified
starches, barley, popcorn, soybeans for food use, dehydrated and table
potatoes, honey, oranges, and hay.
U.S. farm products benefiting from expanded
market opportunities with 5-year tariff phaseouts include grapefruit, a
broad range of processed food products, chocolate and chocolate
confectionery, sweet corn, sauces and preparations, alfalfa, breads and
pastry, orange juice, dried mushrooms, sausage, and cucumbers. These
products represented 12 percent of Korean imports of U.S. farm products.
Market access for beef and pork will be improved with tariffs for the
most important pork products phased out by 2014, and those for beef
products, by year 15 of the agreement.
Key Market Access Elements of the Agreement
Liberalization of Korea’s market will occur
through a combination of tariff phaseouts, TRQs, and safeguards applied
immediately or for a period of up to 23 years. There is no additional
market access for rice in the KORUS FTA; however, rice exporters
currently benefit from the World Trade Organization (WTO) rice agreement
that the United States and other WTO members negotiated with Korea in
2004.
Korea currently applies a complex hierarchy of
tariffs on agricultural products. These include most-favored nation (MFN)
tariffs, WTO TRQs agreed to during the Uruguay Round, and autonomous
TRQs (annual adjustment tariffs and TRQ rates that are less than the WTO-bound
rates). After implementation, a fourth tariff type, KORUS FTA TRQs, will
be applied to U.S. products.
Tariff Elimination
Under KORUS, nearly all tariffs for U.S. agricultural products will be
eliminated. About $1.91 billion, or 64 percent, of Korea’s imports from
the United States will be immediately duty free. Virtually all other
tariffs will be reduced in equal annual increments over a phaseout
period, with the first tariff cut made upon entry-into-force of the
agreement.
Tariff-Rate Quotas (TRQs)
For some products with tariff phaseouts, immediate duty-free market
access will be provided through the creation and annual expansion of
TRQs (providing duty-free access for a specified quantity of imports).
Annual TRQ growth is on a compound basis. Products subject to TRQs are
skim, whole, evaporated, and prepared dry milk; whey for food use;
butter; cheese; honey; feed supplements and hay; table potatoes;
soybeans for food use; and ginseng. Oranges are subject to a seasonal
TRQ.
Safeguards
The KORUS FTA safeguards have an annual trigger based on import volume
of U.S. products. When the import quantity from the United States
reaches the trigger level, the over-safeguard tariff comes into effect.
KORUS safeguards for several products include duty-free quantities under
the trigger level. Those products are barley, malt and malting barley,
corn starch, dextrins, beans, sweet potatoes, dehydrated potatoes,
popcorn, buckwheat, corn for industrial use, cereal and groats, and
miscellaneous starches. Generally, the duty-free volumes and the
safeguard trigger levels increase over time. The over-safeguard duty
decreases over time.
Sanitary and Phytosanitary (SPS)
Measures The United States and
Korea affirmed their rights and obligations under the WTO SPS Agreement
and also agreed to establish an SPS Committee under the FTA to enhance
cooperation and consultation on sanitary and phytosanitary matters
LIVESTOCK PRODUCTS
Chilled and Frozen Beef and Beef Offal
Korean tariffs on imports of beef muscle cuts will decline from the
current 40 percent to zero in 15 equal annual reductions. The agreement
includes a quantity safeguard of 270,000 metric tons for beef muscle
cuts, growing at a compound 2-percent annual rate to a final safeguard
level of 354,000 tons in 15 years. In year 16 and beyond, tariffs will
be zero and the safeguard will no longer apply. Korean tariffs on beef
offal also decline in 15 equal annual reductions from their current 18
and 27 percent levels. Offal trade faces no safeguards.
Pork
Korean tariffs on imports of more than 90 percent
of U.S. pork products will become duty free by January 1, 2014. This is
a reduction from current applied rates of 22.5 and 25 percent and
applies to all frozen and processed pork products. Duties on fresh pork
bellies and other miscellaneous fresh cuts will be phased down over 10
years leading to unlimited duty-free access in year 11. A transparent
first-come first-served safeguard quota for fresh pork bellies and other
miscellaneous fresh cuts starting at 8,250 tons, nearly twice current
trade volume, will increase at 6 percent compounded annually. The
over-safeguard duty rate will be phased out at the end of year 10.
Poultry Meat and Egg Products
Korean tariffs on imports of chicken cuts, including the dominant U.S.
frozen leg import category, will decline from the current 20 percent to
zero in 10 equal annual reductions with the exception of frozen breast
and wings, which will decline in 12 equal reductions. Korean tariffs on
frozen turkey cuts will decline from the current 18 percent in seven
equal annual reductions. Korean tariffs on egg products (egg yolks are
the key import item) will decline from the current 27 percent in 12
equal annual reductions.
Dairy
The KORUS FTA creates TRQs for dairy products
that double the amount of current access. The TRQ established for
cheese, with an initial duty-free quantity of 7,000 tons, grows 3
percent annually. Over-quota tariffs on cheddar cheese are eliminated
over 10 years, and over-quota tariffs on all other cheeses are
eliminated over 15 years. The TRQ for skim milk powder, whole milk
powder, and evaporated milk has an initial duty-free quantity of 5,000
tons, growing 3 percent annually in perpetuity. The over-quota tariffs
on these milk products remain at the current MFN rates, ranging from 89
to 176 percent. The TRQ for food-grade whey has an initial duty-free
quantity of 3,000 tons, growing 3 percent annually. The over-quota
tariff for food-grade whey is reduced from the current 49.5 percent to
20 percent upon implementation of the agreement and is phased out over
10 annual reductions. The agreement establishes a TRQ of 200 tons for
butter and a TRQ of 700 tons for infant foods, with both of these quotas
growing at 3 percent, and becoming duty free in 10 years. The 36-percent
tariff on whey blends is phased out through 10 annual reductions.
Feed-grade whey becomes duty free immediately.
HORTICULTURE
Citrus Fruit and Orange Juice
Korean tariffs on oranges imported
during the out-of-season period (March 1 – August 31) will be reduced
from the current 50 percent to 30 percent immediately and then will be
eliminated in six equal annual reductions. The out-of-season tariff
reduction benefits an estimated 70 percent of current U.S. orange
exports to Korea. In addition, during the in-season period (September 1
– end of February), a duty-free quota shall be established with an
initial quantity of 2,500 tons, with 3-percent annual compound growth in
perpetuity. The over-quota tariff will remain at the current MFN rate of
50 percent. Korea’s current 30-percent tariff on lemons and grapefruit
will be eliminated in 2 years for lemons and 5 years for grapefruit in
equal annual installments. Korean import tariffs of 54 percent on U.S.
frozen orange juice become duty free immediately.
Grapes, Raisins, Grape Juice, and Wine
Korean tariffs on U.S. table grapes
during the out-of-season period (October 16 - April 30) will be reduced
from 45 to 24 percent immediately and will be eliminated in four equal
annual reductions. The out-of-season tariff reduction benefits an
estimated 70 percent of current U.S. table grape exports to Korea. In
addition, the in-season (May 1 – October 15) tariff covering the
remaining 30 percent of U.S. fresh table grape exports will be phased
out in 17 years in equal annual installments. Korean import tariffs on
raisins, grape juice, and wine will be eliminated immediately from their
current 21, 45, and 15 percent levels, respectively.
Cherries, Apples, and Pears
Korean tariffs of 24 percent on U.S. fresh cherries will be eliminated
immediately. Import tariffs of 45 percent on U.S. apples, other than the
Fuji variety, will have a 10-year phaseout and tariffs on Fuji apples
will have a 20-year phaseout. The agreement also includes an initial
quantity safeguard of 9,000 tons that increases in year 5 to 12,000
tons, growing 3 percent annually thereafter to 20,429 tons in year 23
after which the safeguard no longer applies. Beginning in year 11, the
safeguard only applies to Fuji apples. Korean tariffs on non-Asian pear
varieties will be eliminated in 10 years, and in 20 years for Asian pear
varieties. (Note: neither apples nor pears currently have access due to
SPS issues.)
Vegetables and Pulses
The U.S. share of Korea’s growing import
market for these products can be expected to expand with the KORUS FTA
tariff cuts. Tariffs on vegetables are eliminated in a range from
immediately duty free to 18 years. In some cases access is enhanced
through the use of duty-free, TRQs and safeguards that allow varying
levels of duty-free access. These tariff cuts should make the United
States more competitive in this market. For example, fresh asparagus
will be duty free upon implementation of the agreement. Another example,
the current 30-percent tariff on frozen sweet corn, carrots, and dried
mushrooms, will be eliminated within 5 years. The current 27-percent
tariff on most pulses (peas, beans, and other legumes) will be
eliminated within 5 years while the tariff for lentils will be removed
within 10 years.
Potatoes and Potato Products
Frozen potatoes (French fries) will
enter duty free immediately, eliminating the current 18-percent tariff
on $22.8 million worth of U.S. frozen potatoes. Dehydrated potatoes
(flakes and powder) will enter under a 10-year safeguard with an initial
duty-free quantity of 5,000 tons that grows 3 percent compounded
annually. Korea has imported very little pure dehydrated product in the
past. This significant access will allow U.S. exporters to expand the
market and uses of this product. Potatoes for chipping will receive
seasonal treatment that will be phased out over 15 years. All quantities
will enter duty free during the out-of-season period (December 1- April
30), currently the period when the majority of U.S. chipping potatoes
enter Korea, eliminating the 30-percent applied tariff. During the
in-season period (May 1 - November 30), the tariff will be phased out
over 15 years. Fresh potatoes for table use will enter under a new TRQ
starting with a duty-free quantity of 3,000 tons that will grow 3
percent compounded annually in perpetuity. The over-quota tariff will
remain at the current MFN rate of 304 percent. This represents access
that U.S. fresh potatoes currently do not enjoy.
Tree Nuts (Walnuts, Almonds, and Pistachios)
Both shelled and in-shell almonds
(current tariffs of 8 percent) will become duty free upon implementation
of the agreement. Pistachios (current tariff 30 percent) also will enter
duty free immediately. Shelled walnuts (current tariff 30 percent) will
be duty free within 6 years. In-shell walnuts (current tariff 45
percent) will be duty free within 15 years.
GRAINS, OILSEEDS, AND PRODUCTS
Corn
Korea’s imports of U.S. corn for feed are
guaranteed to enter at zero duty immediately. Although Korea currently
imports large quantities of feed corn at zero tariff under its
autonomous quota, Korea can legally discontinue this zero autonomous
tariff at any time and revert back to the WTO tariff of 5 percent for
the first 6.1 million tons, and 328 percent for any imports above this
quantity. Under the KORUS FTA, the tariff for U.S. corn will be fixed at
zero.
Wheat
U.S. wheat for milling will enter Korea duty
free immediately. Korea’s imports of U.S. wheat will no longer be
subject to the 1.8-percent WTO tariff or the autonomous TRQ of 1
percent. Although this tariff differential may be small, it could
provide some additional advantage when competing against Canada and
Australia.
Rice
Under the KORUS FTA, the United States did not gain
additional access for rice. However, access for U.S. rice was
significantly enhanced in 2004 as a result of Korea's WTO Minimum Market
Access Agreement (MMA) negotiation to extend special treatment for rice.
With the extended WTO MMA, Korea agreed to purchase at least 50,076 tons
of U.S. rice each year until 2014 under a country-specific quota. In
addition, U.S. rice exporters can compete for a portion of the global
quota that is part of the agreement. The United States will continue to
push for additional market access through the WTO Doha negotiations.
Soybeans and Products
The greatest potential benefit for the soybean sector is likely to come
from improved access to Korea’s 300,000-ton market for food quality
soybeans. Korea has agreed to immediately eliminate its 5-percent tariff
on food use soybeans. In addition, Korea will also establish a TRQ for
identity-preserved soybeans for food use (the production of soybean
curd). This quota will operate outside the current state trading entity,
which has charged a reported $250 per ton markup on soybean imports
supplied to soybean curd processors. (For comparison, Korea’s average
2006 import price for soybeans used for food was $330 per ton.) The TRQ
will be operated by an association of food-grade soybean processors.
Korean tariffs on soybeans for crushing will decline from the current
1-percent autonomous tariff to zero upon implementation of the KORUS FTA.
Korean tariffs on imports of crude soybean oil (the majority of Korea’s
soybean oil imports) will decline from the current 5.4-percent WTO
tariff in 10 equal annual reductions. Refined oil tariff rates will
decline from the current 5.4 percent in five equal annual reductions.
Korea’s 3-percent tariff on soybean flour and meal will immediately go
to zero.
Barley KORUS
will give U.S. barley a tariff advantage over its competitors. The
agreement creates a 2,500-ton duty-free quota for U.S. unhulled and
naked barley (excludes malting barley), which increases 2 percent per
year while the tariffs are phased out over 15 years. Outside the KORUS
FTA, Korea has an unhulled barley autonomous TRQ of 50,000 tons at a
2-percent tariff and a WTO 23,582-ton TRQ that covers both unhulled and
naked barley at 5 percent with over-quota tariffs of 324 and 300
percent, respectively.
Malt and Malting Barley
In the first year of the agreement, the United States will be able to
export 9,000 tons of unroasted malt and malting barley, combined, into
Korea duty free. This 9,000 tons duty-free quota grows 2 percent each
year through year 15, at which time all U.S. shipments of malt and
malting barley will enter duty free. This provides the United States a
10- percent tariff advantage over our competitors for malt and 20
percent for malting barley. (At a minimum, this will keep the United
States on a level tariff playing field if Korea concludes similar free
trade agreements with Canada, the EU, and Australia.)
LIVESTOCK FEEDS
Fodder
With this agreement, 200,000 tons of U.S. hay
(excluding alfalfa) can enter Korea duty free annually through year 15,
while the current tariff of 100.5 percent phases out. In recent years,
Korea imported about $80 million (423,000 tons) of this product from the
United States. Although Korea has an autonomous quota for 600,000 tons
at 2-percent tariff covering this and another fodder tariff line, the
WTO tariff is 20 percent for 32,133 tons, and the over-quota tariff is
100.5 percent. Korea can discontinue its autonomous TRQ at any time. The
KORUS FTA locks in the zero tariff rate for a substantial amount of U.S.
historical shipments for 15 years, and after that, for an unlimited
amount of exports.
Alfalfa hay and cubes
The KORUS FTA phases out the tariff for U.S. alfalfa hay, cubes, and
pellets within 5 years. Korea is currently importing about $29 million
of alfalfa hay from the United States under an autonomous TRQ at
1-percent duty.
Feed Supplements
With this agreement, the United States could increase its current 20-
percent share of Korea’s supplementary animal feed imports. Korea
imports about $7 million (5,300 tons) of supplementary feeds from the
United States annually. The agreement creates a 5,500-ton KORUS
duty-free quota for U.S. supplementary animal feeds, which increases 3
percent each year, while the over-quota duty is phased out in 12 years.
This provides the United States with a relative tariff advantage over
its competitors. Korea’s WTO TRQ for supplementary animal feeds is 4,171
tons at a 5-percent tariff. The over-quota rate is 50.6 percent.
OTHER PRODUCTS
Dextrins
During the first year of the agreement, 14,000
tons of U.S. dextrin exports can enter Korea duty free. This is about 14
times higher than Korea’s present imports of U.S. dextrins. The TRQ will
grow 3 percent annually through year 12, when all U.S. dextrin exports
will enter duty free. Korea charges an 8-percent tariff under its WTO
46,000-ton dextrin TRQ and a 386-percent tariff on dextrin imports above
the WTO quota level.
Corn Starch
With this agreement, the United States will have an opportunity to
establish a foothold in Korea’s corn starch market. During the first
year of the agreement, 10,000 tons of U.S. corn starch will enter Korea
duty free. This 10,000-ton quota will grow 3 percent each year through
the beginning of year 15, when all U.S. corn starch will enter duty
free. Currently Korea imports practically no corn starch from the United
States as almost all of its 6.1-million tons WTO 1.8-percent TRQ is used
to import feed corn and corn for starch manufacturing. Korea’s
over-quota tariff on corn starch is 226 percent.
Honey
Access for U.S. honey will be enhanced through
a TRQ that begins with a duty-free quantity of 200 tons growing 3
percent annually in perpetuity. The over-quota tariff remains at the
current MFN rate of 243 percent. U.S. suppliers will also continue to
have access to the WTO TRQ of 420 tons with an in-quota tariff of 20
percent.
Cotton
Duty-free access being enjoyed by U.S. cotton
exports will become permanent upon implementation. This permanent access
will continue to allow U.S. cotton exports to compete on a level playing
field with Korea’s other trading partners. Korea is the eighth largest
market for U.S. cotton exports.
Animal Hides and Skins
U.S. exports of nearly all animal hides
and skins, including furskins, will receive immediate duty-free access
upon implementation. This is a reduction from current applied rates of 5
percent or less. Korea is the United States’ second largest market for
cattle hides and third largest market for mink furskins.
Processed Products and Beverages
Tariffs on sauces and condiments
including soy and pepper sauces, bean paste, ketchup and other tomato
sauces (including salsas), mayonnaise, mixed condiments (including salad
dressing), curry, and other mixed seasonings will be eliminated within 5
to 10 years. While the average current tariff for these products is 8
percent, they have also been subject to arbitrary annual adjustment
tariffs as high as 45 percent. These items were among the high priority
items for the U.S. processed food industry. Tariffs on distilled spirits
currently set at 15, 20, and 30 percent will be eliminated within 5 to
10 years. In addition, Korea agreed to permit stickers to designate
end-use instead of original labels resulting in a cost savings for the
industry. The current 5-percent tariff on U.S. pet foods will be
immediately eliminated. This tariff elimination will help the United
States maintain its current 50-percent share of the Korean pet food
market.