Microsoft Word - 2017-12 IATR KORUS Benefits (2)

InternationalAgriculturalTradeReport

December2017

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United States Department of Agriculture

ForeignAgriculturalService

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U.S.AgricultureReapsBenefitsofFreeTradeAgreementwithKorea

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U.S.agriculturalexportstoSouthKoreahavegrowninrecentyears,largelyduetotariff

reductionsandtheliftingofnon‐tariffbarriers.TheU.S.‐KoreaTradeAgreement(KORUS)

enteredintoforcein2012,immediatelyremovingtariffsontwo‐thirdsofU.S.farmandfood

exportstoSouthKorea.Already,theUnitedStates’averageexportstoSouthKoreahave

increasedfrom$5.4billioninthethree‐yearperiodbeforeKORUSimplementation(2009‐2011)

to$6.37billioninthethreeyearsfollowing(2014‐2016).Asadditionaltariffsarephasedout,

U.S.agriculturalexportstoSouthKoreawillgrowfurther.

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Withapopulationof51millionandagrowingmiddleclass,SouthKoreacontinuestobeoneof

thetopdestinationsforU.S.agriculturalgoods,rankingastheUnitedStates’sixth‐largest

marketin2016.TheUnitedStatesisSouthKorea’stopagriculturalsupplier,providing28

percentofthecountry’sfarmimports.



U.S.AgriculturalTradewithSouthKorea

AgriculturalTotal

3‐YearAverage

(millionUS)



Change

2009‐11 2014‐16

U.S.ExportstoSouthKorea $5,404 $6,371+18%

U.S.ImportsfromSouthKorea $290 $486+68%

TradeBalance $5,114 $5,884+15%

Source:USDAFASGlobalAgriculturalTradeSystem(GATS)

–

BICO‐HS

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Note:Total,averages,andpercentagesmaydifferduetorounding.

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U.S.ExportGainsFollowingKORUSImplementation

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WhenKORUStookeffectin2012,manytariffsimmediatelyfelltozerowhilethephase‐outof

othersbegan.FormanyU.S.exports–includingpreparedfoods,freshfruits,anddistillers

grains–thebenefitswereseenimmediately.Forinstance:

 U.S.preparedfoodexportstoSouthKoreareached$423millionin2016,up57percent

from2011.

 U.S.orangeexportswerevaluedat$181millionin2016,up19percentfrom2011.

 U.S.cherryexportsreached$104millionin2016,up163percentfrom2011.

 U.S.freshgrapesexportsreachedarecord$27.8millionin2016,a102‐percentincrease

from2011.

 U.S.distillersgrainsexportsreached$176millionin2016,up95percentcomparedto2011.

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2

BenefitsContinuetoGrowasTariffsPhaseOut

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Duetothecyclicalnatureofagricultureanditssusceptibilitytoclimaticevents,pestsand

disease,U.S.agriculturalexportstoSouthKoreagotofftoaslowstartintheearlyyearsof

KORUS.TheUnitedStates’twolargestexports,cornandbeef,declinedintheinitialyearsof

implementationforreasonsunrelatedtotheagreement.U.S.cornproductionsufferedfrom

thehistoric2012‐13droughtand,asaresult,U.S.cornexportstotheworldfellfrom45million

metrictons(MMT)in2011to23MMTin2013.AfterU.S.cornproductionandexports

recovered,U.S.cornregaineditscompetitiveedgeinSouthKoreaaswell,withexportsrising40

percent,from3.4MMTin2015to4.8MMTin2016.U.S.cornexportstoKoreawerevaluedat

$865millionin2016.DespiteimprovementincornexportstoKorea,theUnitedStatesisfacing

strongcompetitionfromSouthAmericancountriesthathavehadrecordharvestsinrecent

years.

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InthetwoyearspriortoKORUSimplementation,U.S.beefexportstoSouthKoreasoaredas

thecountryfaceditsworstoutbreakoffootandmouthdiseaseinhistory.Thisledtotheculling

ofdomesticherdsandaresultingshortageindomesticproduction.Coincidently,withthe

initiationofKORUS,U.S.beefexportsfellin2012becauseKoreanherdlevelsandbeef

productionrecoveredtonormallevels.Butsincethen,U.S.beefhasbenefitedfromincreased

pricecompetitivenessandlowerdutiesthankstoKORUS.Asaresult,U.S.beefandbeef

productexportstoSouthKoreagrewfrom$806millionin2015to$1.1billionin2016,an

increaseof32percent.BeefandbeefproductsremainthetopU.S.agriculturalexportstoSouth

Korea.

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3

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SouthKoreaRemainsaSignificantMarket

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SouthKorearemainsasignificantandexpandingmarketformanyU.S.agriculturalexports.For

example:

 SouthKoreaisthetopmarketforU.S.freshoranges.In2016,28percentofallU.S.fresh

orangeexportswereshippedthereandtheUnitedStateshelda95‐percentmarket

share.

 SouthKoreaisthesecond‐largestimporterforU.S.beefandbeefproducts,behind

Japan,with17percentoftotalU.S.beefexportsdestinedtherein2016.

 SouthKoreaisthetopdestinationforU.S.freshcheese.In2016,31percentofallU.S.

freshcheeseexportswenttoKorea,wheretheUnitedStatesholdsa45‐percentmarket

share.

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Importsofconsumer‐orientedU.S.productsareforecasttoremainstrongasSouthKorean

consumerscontinuetodemandvalue,quality,anddiversity.



TopU.S.AgriculturalExportstoSouthKorea

Product

Value(millionUS)

Rank

Among

U.S.

Customers

2012 2013 2014 2015 2016

TotalAgriculturalExports $6,032.9 $5,257.4 $6,889.0 $6,033.6 $6,189.4 6



1.Beef&BeefProducts

$575.9 $604.8 $844.1 $805.9 $1,064.6



2.Corn

$618.3 $243.4 $1,055.6 $655.0 $869.4



3.PreparedFoods

$272.8 $325.3 $337.8 $366.8 423.5



4.FreshFruit



$369.7 $356.1 $347.1 $374.2 389.1

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Oranges

$216.1 $190.1 $130.9 $160.8 180.5



Cherries

$73.6 $81.5 $114.9 $102.0 104.9



FreshGrapes

$16.4 $17.7 $24.5 $16.6 27.8

9



5.Pork&PorkProducts

$409.9 $262.8 $431.3 $466.8 359.8



6.TreeNuts



$253.5 $300.6 $362.0 $355.4 297.7



Almonds,NoShell

$120.7 $157.5 $204.0 $179.9 164.6



Walnuts,NoShell

$105.5 $100.2 $120.6 $112.4 93.4



Nuts,SeedPrep

$9.7 $11.5 $15.9 $43.2 18.7



7.Hides&Skins

$573.8 $485.8 $449.3 $366.0 286.2



8.Wheat

$645.3 $340.3 $412.5 $309.2 248.1



9.Hay

$234.1 $234.2 $223.1 $262.2 235.6



10.DairyProducts



$223.2 $298.9 $409.3 $303.9 230.4



FreshCheese

$61.6 $127.2 $198.9 $146.8 105.4



Cheeseexc.Fresh

$60.1 $33.7 $62.3 $42.3 26.9



ProcessedCheese

$16.1 $23.1 $23.4 $23.4 22.7



Source:USDAFASGATS

–

BICO‐HS



Includestopthreecommodities

4



LookingForward:KoreaHas15FTAsandIsNegotiatingMore

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SincetheconclusionoftheUruguayRoundnegotiationsin1994,SouthKoreahasbeenactively

pursuingfreetradeagreements(FTAs).Todate,thecountryhasFTAsinforcewithChile,

Singapore,theEuropeanFreeTradeAssociation,theAssociationofSoutheastAsianNations

(ASEAN),India,theEuropeanUnion,Peru,theUnitedStates,Turkey,Australia,Canada,China,

NewZealand,Vietnam,andColombia.Currently,SouthKoreaisrevisingitsexistingagreements

withASEAN,India,andChile.



SouthKoreaisalsoinnegotiationsfortenadditionalmultilateralandbilateralFTAs:withthe

16‐countryRegionalComprehensiveEconomicPartnership(orRCEP),economicintegration

withbothChinaandwithJapan,withagroupofsixcountriesinCentralAmerica,andwith

Japan,theEurasianEconomicUnion,theGulfCooperationCouncil,Indonesia,Mexico,Ecuador,

andIsrael.



EventhoughSouthKoreahasnumerousFTAsinforce,theUnitedStatesstillenjoyspreferential

treatmentintheSouthKoreanmarket.However,asKoreacontinuestosignnewFTAs,theU.S.

willlosemuchofthetariffadvantageitcurrentlyenjoys.WithouttheKORUSagreement,the

UnitedStateswouldfacehigherdutiesthanmanyofitscompetitors.



SouthKoreaRecentlyReopenedtoU.S.Poultry



InAugust2017,USDAannouncedthatSouthKorealifteditsbanonU.S.poultryafteran

outbreakofhighlypathogenicavianinfluenza(HPAI)wasreportedinTennesseeinMarch2017.

SouthKoreahasexperiencedseveralrecentoutbreaksofHPAI,increasingitsrelianceon

importstoavoidmarketdisruption.However,SouthKorea’spolicyofplacingnationwidebans

onpoultrycomingfromcountriesexperiencingHPAIoutbreakshashamperedU.S.exportsto

SouthKoreainrecentyears.U.S.chickenexportstoSouthKoreadropped89 percentbetween

the2014and2016marketingyears,from64,937metrictons(MT)toonly7,110MT(link).For

anyfutureoutbreaks,theUnitedStateshasbeenworkingwithSouthKoreatoreachan

agreementonHPAIregionalization.RegionalizationwouldonlypreventexportsfromaU.S.

statewithHPAIratherthantheentirecountry.ThisagreementwouldensurethatU.S.poultry

exportstoSouthKorearemainuninterrupted.



TherecentliftingofthebanprovidesanopportunityforincreasedU.S.exports.Further,poultry

consumptioninSouthKoreaisexpectedtogrowduetoseveralupcominginternational

sportingevents.TheSouthKoreanchickenindustryreportsafive‐percentincreaseinchicken

consumptionduringbigsportingeventsbothwithinandoutsidethecountry.NotonlyisSouth

KoreahostingthewinterOlympicGamesinFebruary2018,butpoultryconsumptionshould

alsoincreaseasKoreansspendtimeathomewatchingthemen’ssoccerWorldCupinRussiain

June2018andtheAsianGamesinIndonesiainAugust2018.



5

U.S.AgricultureReliesonTariffReductionstoStayCompetitive



TopU.S.agriculturalexportstoSouthKoreahavebenefitedfromthetariffreductionssetby

KORUS,givingU.S.exportersacompetitiveedge.Forinstance,U.S.beefandbeefproducts

faceda40percenttariffratebeforeKORUS,butthatwillgraduallyphaseoutover15years.In

2017,thecurrentapplicabletariffonU.S.beefisdownto24percent(link).Meanwhile,Korea’s

tariffsonAustralianandCanadianbeefare29.3percentand32percent,respectively.While

AustraliaandCanadawillalsoseetheirbeeftariffsphasedout,theUnitedStateshashada

headstartandwillcontinuetohavethelowestbeeftariffscomparedtoAustraliaandCanada

foradecade.



Forfreshoranges,theUnitedStatesmaintainsitsdominantpositionwithafavorableFTAduty

rateoffivepercentin2017.U.S.porkexportswillcontinuetocompetewithEUporkin2017,

largelyduetolowerFTAtariffrates.TheEUisthesecond‐largestporksuppliertoSouthKorea,

aftertheUnitedStates.Othersubcategories,suchaspoultryproducts,havedifferenttariff

reductionschedules.Forexample,SouthKorea’s20‐percenttariffonimportsinthedominant

frozenlegquartercategorywillbephasedoutby2021.Additionally,tariffsonU.S.exportsof

frozenbreastsandwingstoSouthKoreawillbeeliminatedby2023.



Otherexports,suchasfreshcheese,fallunderthetariffratequota(TRQ)system.Currently,

U.S.goodscanenterSouthKoreaduty‐freeuptothemaximumvolumepermittedbythe

quota,withadutychargedonexportsabovethequota.However,basedontheKORUS

agreement,thetariffonU.S.freshcheesewillbephasedoutin15yearsandallU.S.cheesewill

enterSouthKoreaduty‐freeby2026.



SouthKoreaTariffSchedulesBeforeandAfterKORUS

TopU.S.AgriculturalExports

(rankedby2016value)

Staging

Category

Pre‐KORUSTariff Post‐KORUSTariff



1.Beef&BeefProducts Year15,Safeguard 40% 24%

1,3

/0%(in2027)

2.Corn Immediate 328%

 0%

3.PreparedFoods Varies Varies Varies

4.FreshFruit

  

Oranges Year7

 50% 5%



Cherries Immediate 24% 0%

FreshGrapes Year17 45%14.5%

1

/0%(in2028)

5.Pork&PorkProducts Year3 22.5% 0%

6.TreeNuts

  

Almonds,Shelled Immediate 8% 0%

Walnuts Year6 30% 0%



Nuts,SeedPrep Year10 45% 18%

1

/0%(2021)



7.Hides&Skins  Varies Mostly0%

8.Wheat Immediate 1.8‐3% 0%

6

9.Hay Varies 18.5–100.5% Varies

10.DairyProducts

  

FreshCheese Year15,TRQ 36% 21.6%

1,4

/0%(in2026)

Cheeseexc.Fresh Year15,TRQ 36% 21.6%

1,4

/0%(in2026)



ProcessedCheese Year15,TRQ 36% 21.6%

1,4

/0%(in2026)

Source:USDA‐FASAgriculturalTariffTrackerandUSDA‐FASGATS–BICO‐HS6

Present(2017)

OnlyappliestoorangesimportedbetweenMarch1‐August31

3

Under300,000metrictons,30%safeguardtariffrateisappliedifoverquota

4

Commodityhasa 21.6percenttariffrate(in2017)ifexportsexceedthequotaof8,115metrictons.Otherwise,the

tariffratewillremainat0percentforcheeseimportswithinthequota.

Includestopthreecommodities

U.S.cornexportstoSouthKoreaweresubjecttotariffratequotasbeforeFTAimplementation.Thetariffratefor

cornwas328percentoutofquotaand0percentwithinthequota.



FormoreinformationpleasecontactSaquibAhsan,FASOfficeofGlobalAnalysis,

[email protected]or(202)720‐3223.