South Korea: Issues and Analysis

Overview Basic Information Trade Policy Issues and Analysis Recommended Readings Recommended Data Related Links

Animal Disease Outbreaks and South Korea's Meat Trade
South Korea's World Trade Organization Cases
    Shelf Life
    Distilled Spirits
    Import Clearance Procedures
    Treatment of Imported Beef

Animal Disease Outbreaks and South Korea's Meat Trade

One of the world's major meat importing countries, South Korea also has hoped to export pork and poultry meat. However, animal disease outbreaks beginning early in 2000 have seriously disrupted trade, production, and consumption of meat in South Korea.

U.S. beef and poultry meat exports to South Korea, the third largest foreign market for U.S. meat, have been heavily affected by outbreaks of Bovine Spongiform Encephalopathy (BSE, or "mad cow" disease) and Avian Influenza. ERS provides information about the effects of BSE on U.S. markets and trade and is conducting research on the growing effects of several animal diseases on meat markets. The Foreign Agricultural Service's Agricultural Trade Office in Seoul provides further BSE information on its website.

Beef imports, the most important part of South Korea's meat trade, were disrupted by South Korea's ban on imports from the United States, its largest supplier, in late December 2003. South Korea banned U.S. imports of beef meat and offals because of the discovery of one case of BSE in Washington State. The import ban remains in effect.

The largest component of South Korea's imports from the United States was frozen beef. Analysis of the trade in 2000 by the U.S. Meat Export Federation showed that over half of this beef was from two cuts, the short rib and chuck roll. Aided by the successful resolution of several World Trade Organization (WTO) cases (see below), imports of chilled beef became feasible and showed rapid growth in 2001-03. South Korea has been one of the most important U.S. markets for beef offal, with import value reaching $73 million in 2003. In general, South Korea imports beef cuts and organs that its consumers have a higher preference for than U.S. consumers do. Therefore, U.S. producers can sell these parts to South Korea for a higher price than they would get if they remained in the U.S. market. The closure of South Korea's market reduces the value of beef animals to U.S. producers.

South Korea: Imports of bovine products from the United States

Imports from New Zealand and Australia increased in 2004 and 2005 above 2003 levels, but replaced only a fraction of the 2003 volume of imported U.S. beef. Total imports of frozen beef fell by one half, chilled beef imports declined by over 40 percent in 2004 before rebounding in 2005, and beef offal imports fell by over 50 percent. South Korean beef consumption fell by 23 percent in 2004 in response to reduced demand caused by consumer concerns and reduced supply as a result of the import ban, and fell even more in 2005.

South Korea: Beef imports by country

Poultry meat imports by South Korea were disrupted in 2004 by bans imposed because of outbreaks of Avian Influenza in several exporting countries. South Korea banned imports from Thailand and China in January 2004, and imports from the United States in February 2004. At the same time, South Korea's own poultry flock was devastated by an outbreak of Avian Influenza, and South Korea's small export trade to Japan was banned by Japan.

South Korea reopened trade in heated chicken meat products in July 2004—influenza viruses are killed by exposure to high temperatures. In May 2005, South Korea lifted its ban on imports of fresh, chilled, and frozen chicken meat from the United States. Bans on unheated poultry meat from China and Thailand remain in place.

Because South Korea had not finished the process of certifying Brazilian broiler slaughter and processing facilities for imports by South Korea, the Avian Influenza bans meant that only parts of Europe could feasibly export poultry meat to South Korea in 2004. South Korea's consumption of broiler meat fell by 13 percent in 2004. Four Brazilian plants became eligible to export poultry meat to South Korea in early 2005.

South Korea: imports of poultry meat and offals by country

Pork exports by South Korea to Japan ended in March 2000 because of an outbreak of foot-and-mouth disease (FMD). While Japan has subsequently recognized that South Korea is again FMD free, an outbreak of classical swine fever in South Korea in October 2002 triggered a second ban on exports to Japan, before the FMD ban had expired. The Korean island province of Cheju may be cleared for exports to Japan in the last half of 2005. For the rest of South Korea, the possibility of exports to Japan is foreclosed until 1 year after the last vaccination against classical swine fever occurs.

References

Methodology and Results of the Value of Beef Exports Analysis, U.S. Meat Export Federation, 2002.

Structure of the Global Markets for Trade, USDA, Economic Research Service, September 2003.

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South Korea's World Trade Organization Cases

The Uruguay Round Agreement on Agriculture (URAA) set new rules for trade. Among the first cases before the WTO were complaints that South Korean import restrictions violated these rules. The United States challenged South Korea's restrictions in four agriculture-related WTO cases, and the outcomes reformed South Korea's treatment of food and beverage imports.

Shelf Life
Distilled Spirits
Import Clearance Procedures
Treatment of Imported Beef

Shelf Life

The United States and South Korea reached a settlement on shelf life in July 1995. South Korea agreed to phase out its government-mandated expiration dates and, similar to most other countries, allow manufacturers to set their own "use-by" dates. Effective on July 1, 1996, the new system applied to chilled, vacuum-packed pork and beef and all frozen food, including beef, pork, and poultry. For all dried, packaged, canned, or bottled products, the manufacturer's use-by system went into effect on October 1, 1995. The 1995 agreement also covered other concerns raised in the petition, such as pork tendering procedures and temperature requirements.

South Korea's shelf-life issue was a precedent-setting case for settling disputes on trade barriers couched as food safety regulations under WTO Article XXII. "Shelf life" of a product means the period between the date of manufacture of the product and the date by which a product must be sold at the retail level. South Korea imposed an official shelf-life requirement on imported foods while most countries in the world relied on manufacturer determined "use-by" dates to control food safety quality. In particular, South Korea's government-mandated shelf-life requirements effectively prohibited imports because the expiration dates on the products were so short that, by the time a product cleared South Korean customs inspections and reached the shops, the dates were close to expiration or had already expired.

The issue ignited in February 1994 when South Korea suddenly enforced a 30-day shelf life for imported U.S. sausages. The dispute over U.S. sausage shelf life also expanded to other meat imports and then to a wide variety of food, including canned and frozen foods, bottled water, and dried and packaged products. South Korea ultimately reversed itself and extended the shelf life for sausages to 90 days in January 1995, but not until the U.S. meat industry filed a Section 301 petition. In November 1994, the U.S. Trade Representative (USTR) accepted a Section 301 petition filed by the U.S. meat industry (the National Cattlemen's Association, the National Pork Producers' Council, and the American Meat Institute). In its investigation, USTR found that South Korean shelf-life standards were not supported by scientific studies and were applied in an arbitrary and discriminatory manner. The bilateral consultations between the United States and South Korea, however, broke down at the end of April 1995, and the United States requested WTO consultations on May 3.

Informal consultations organized by the Chairman of the WTO Committee on Agriculture obtained a favorable settlement without proceeding all the way through the dispute settlement panel process. South Korea, however, continues to maintain government-mandated shelf-life requirements for sterilized milk products such as ultra heat-treated milk and for bottled water. The United States reserves the right to use WTO dispute settlement procedures to address these restrictions.

Distilled Spirits

South Korea's liquor taxes favored soju, a traditional drink, and discriminated against whisky and other Western-type distilled spirits. A WTO panel ruled against South Korea in a complaint filed by the European Union (EU) and the United States, and a subsequent appeal also failed in January 1999. After arbitration about the length of time in which compliance was required, South Korea harmonized its taxes on imported and domestically produced liquor on January 1, 2000.

South Korea assessed significantly higher excise taxes on imported and domestic Western-style distilled spirits than on soju. Soju was taxed at 35 percent, but whisky and brandy were taxed at 100 percent, other distilled spirits at 80 percent, and liquors at 50 percent. South Korea's education tax further compounded the discrimination between imported and domestic distilled spirits. A 30-percent education tax was imposed on distilled spirits whose excise tax was 80 percent or higher, but the tax was only 10 percent on spirits, such as soju, whose excise tax was under 80 percent. South Korea's discriminatory tax on distilled spirits had the effect of sharply raising their prices, which significantly diminished competitiveness. These tax measures were similar to the Japanese tax measures on alcoholic beverages that were found to be inconsistent with WTO rules in December 1997.

USTR raised the distilled spirits issue with South Korea in October 1996 and sought a timetable for the reduction of taxes on Western-style spirits. On April 2, 1997, the EU, the principal supplier to the South Korean market, requested consultations under WTO dispute settlement procedures. The United States participated in these consultations as an interested third party.

Import Clearance Procedures

For years, South Korea's burdensome, slow, import-clearance process—frequently out-of-step with international norms—was one of the most cited trade barriers to U.S. agricultural exports. After two rounds of talks, South Korea revised its procedures to allow fresh produce to clear customs within 5 working days. Since then, the consultations between the two countries have continued concerning other issues of import clearance process.

In April 1995, the United States requested consultations under the WTO dispute settlement procedures after U.S. exporters complained that grapefruit and orange shipments were detained at the port for up to 3 weeks, causing catastrophic levels of decay.

Consultations between the United States and South Korea since 1995 resulted in certain changes in South Korean procedures, including:

• establishment of expedited (5 working days) clearance procedures for fresh produce;
• development of a new sampling system to replace 100 percent sampling;
• abolition of sorting requirements for horticultural products;
• elimination of mandatory incubation testing for California fruit;
• development of a quarantine pest list to determine fumigation requirements;
• revision of some of the South Korean food additive standards to bring them into closer conformity with the standards of the Food and Agriculture Organization/World Health Organization Codex Alimentarius Commission; and
• elimination of the requirement for manufacturing process information and ingredient listing by percentage for all ingredients.

South Korea's import clearance procedures remain problematic. Imports of new food products into South Korea reportedly take considerably longer to clear the port than similar products in other Asian countries.

Treatment of Imported Beef

Except for rice, beef was the last major commodity liberalized by South Korea. The liberalization process began in 1988, first under the rules of the General Agreement on Tariffs and Trade (GATT), and, from 1995 on, under the auspices of the WTO.

Under a record of understanding between the United States and South Korea signed in July 1993, and extended in December 1993, South Korea agreed to import certain quantities of beef each year—establishing minimum import quotas (see policy). The size of the quotas would rise through 2000, and the quota system would disappear in 2001. Although the record of understanding spelled out rules that encouraged fair marketing of the imported beef, South Korea's government discriminated against imported beef in several ways:

• When domestic beef cattle prices were weak, the Government failed to import the agreed-on minimum amounts (in 1997, 1998, and 1999).
• Beef imports had to be designated in advance to go into certain marketing channels and could not be shifted among them if market conditions changed.
• Retail shops had to register as sales points for domestic or imported beef, but not both. This naturally limited retail interest in selling imported beef.

The system as applied inhibited efforts to market U.S. beef directly to consumers. The market for chilled—as opposed to frozen—beef imports, for example, was slow to develop, compared to the results in nearby Japan.

Consultations held in March 1999 failed to achieve an agreement, and a Dispute Settlement Body (DSB) was formed in May 1999. In July 1999, an Australian case against South Korea's beef import regime was added to the U.S. case before the same DSB.

In its case, the United States complained that:

"South Korea has established a regulatory scheme that discriminates against imported beef by confining sales…to specialized stores, limiting the manner of its display, and otherwise constraining the opportunities for the sale of imported beef. In addition to the regulatory scheme…Korea imposes a markup on sales of imported beef, limits import authority to certain so-called supergroups and the Livestock Producers Marketing Organization, and provides domestic support to the cattle industry…in amounts that cause Korea to exceed its aggregate measure of support as reflected in Korea's WTO schedule." U.S. Trade Representative, Highlights in U.S. International Trade Dispute Settlement, October 25, 2000.

The DSB issued a final report on July 31, 2000, upholding the United States, finding that South Korea's retail distribution system for beef was discriminatory and that South Korea must include certain payments to the beef sector in computing its Aggregate Measurement of Support. South Korea appealed the result, but the appeal failed and the DSB adopted the appeal panel's decision on January 10, 2001. South Korea must now bring its measures into compliance with the WTO rules within a "reasonable" period of time.

References

Trade Policy Agenda and National Trade Estimate Report on Foreign Trade Barriers, U.S. Trade Representative.

Agricultural Trade Office of USDA's Foreign Agricultural Service (FAS) in Seoul, South Korea.

South Korea: Food and Agricultural Import Regulations and Standards, FAS, August 2005.

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