THE IMPACTS OF FREE TRADE AGREEMENT BETWEEN THE UNITED STATES OF AMERICA AND REPUBLIC OF KOREA (KORUS FTA) TOWARDS AGRICULTURE SECTOR OF REPUBLIC OF KOREA (2012-2014) By Du’uwatul Munajah ID No. 016201300042 A Thesis presented to the Faculty of Humanities President University in partial fulfillment of the requirements for Bachelor Degree in International Relations Major in Diplomacy Studies 2017
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THE IMPACTS OF FREE TRADE AGREEMENT
BETWEEN THE UNITED STATES OF AMERICA
AND REPUBLIC OF KOREA (KORUS FTA)
TOWARDS AGRICULTURE SECTOR OF
REPUBLIC OF KOREA (2012-2014)
By
Du’uwatul Munajah
ID No. 016201300042
A Thesis presented to the
Faculty of Humanities
President University
in partial fulfillment of the requirements for
Bachelor Degree in International Relations
Major in Diplomacy Studies
2017
i
THESIS ADVISER
RECOMMENDATION LETTER
This thesis entitled “The Impacts of Free Trade Agreement
Between The United States of America and Republic of
Korea (KORUS FTA) towards Agriculture Sector of
Republic of Korea (2012-2014)” prepared and submitted by
Du‟uwatul Munajah in partial fulfillment of the requirements for
the degree of Bachelor of Arts in the Faculty of Humanities has
been reviewed and found to have satisfied the requirements for a
thesis fit to be examined. I therefore recommend this thesis for
Oral Defense.
Cikarang, Indonesia, April , 2017
Recommended and Acknowledged by,
Drs. Teuku Rezasyah, M.A., Ph.D.
ii
DECLARATION OF ORIGINALITY
I declare that this thesis, entitled “The Impacts of Free Trade
Agreement Between The United States of America and
Republic of Korea (KORUS FTA) towards Agriculture
Sector of Republic of Korea (2012-2014)” is, to the best of my
knowledge and belief, an original piece of work that has not been
submitted, either in whole or in part, to another university to
obtain a degree.
Cikarang, Indonesia, April, 2017
Du’uwatul Munajah
iii
PANEL OF EXAMINER
APPROVAL SHEET
The panel of examiners declare that the thesis entitled “The Impacts of
Free Trade Agreement Between The United States of America and
Republic of Korea (KORUS FTA) towards Agriculture Sector of
Republic of Korea (2012-2014)” that was submitted by Du’uwatul
Munajah majoring in International Relations from the Faculty of
Humanities was assessed and approved to have passed the Oral
Examination on 17th
__________________________________
Chair – Panel of Examiners
_____________________
Examiner I
Drs. Teuku Rezasyah M.A., Ph.D
Adviser
iv
ABSTRACT
Du’uwatul Munajah, International Relations, President University
Thesis Title: The Impacts of Free Trade Agreement Between The United
States of America and Republic of Korea (KORUS FTA) towards
Agriculture Sector of Republic of Korea (2012-2014)
The purpose of this thesis is to analyze the impact of Free Trade Agreement
(FTA) between The United States of America and Republic of Korea
(KORUS FTA) towards agriculture sector of Republic of Korea. This thesis
provides the detailed information trade relation between The United States
of America (U.S.) and Republic of Korea (ROK), negotiation and impacts
of KORUS FTA towards agricultural sector of Republic of Korea.
Agriculture sector has been included in the bilateral trade relation of U.S.
and ROK is sensitive sector of ROK, and FTA has been seen as a threat for
the agriculture sector due to the fact that agriculture sector of ROK was the
one that should be sacrifice. And as agriculture sector included in KORUS
FTA, this had reaped debate the two governments and protest from Korean
farmers. The involvement of agriculture sector in the KORUS FTA brings
positive and negative impact towards the agriculture sector of ROK its self.
This descriptive analytical study uses the qualitative and literature research
method which analyze historical records and government documents of
KORUS FTA for gaining informations. Hopefully this research will be
useful and enhance knowledge in FTA and its advantages and disadvantages
in form of positive and negative impacts.
Key Word: Free Trade Agreement, KORUS FTA, Agriculture Sector
v
ABSTRAK
Du’uwatul Munajah, Hubungan Internasional, Universitas Presiden
Judul Skripsi: Dampak Perdangangan Bebas antara Amerika Serikat
dan Republik Korea (KORUS FTA) terhadap Sektor Agrikultur
Republik Korea (2012-2014)
Tujuan dari skripsi ini adalah untuk menganalisis dampak dari Perjanjian
Perdagangan Bebas antara Amerika Serikat dan Republik Korea (KORUS
FTA) terhadap sector agrikultur Korea. Skripsi ini menyediakan informasi
yang rinci mengenai hubungan perdagangan antara Amerika Serikat dan
Republik Korea, negosiasi dan dampak dari KORUS FTA terhadap sektor
agrikultur Korea. Sektor agrikultur yang sudah termasuk dalam hubungan
perdagangan bilateral Amerika dan Korea merupakan sektor yang sensitif
Korea, dan Perdagangan Bebas dilihat sebagai ancaman untuk sektor ini
karena fakta bahwa sektor agrikultur harus dikorbankan untuk Perdagangan
Bebas. Terlibatnya sektor agrikultur dalam KORUS FTA memunculkan
perdebatan kedua negara dan protes dari petani Korea. Keterlibatan sektor
agrikultur dalam KORUS FTA memberi dampak positif dan negative bagi
sektor agrikultur di Korea. Penelitian deskriptif analitis ini menggunakan
metode kualitatif dan studi literature yang menganalisis rekaman sejarah
dan dokumen pemerintah berkaitan dengan KORUS FTA untuk
mendapatkan informasi. Diharapkan penelitian ini dapat berguna dan
memberi pengetahuan tentang Perdagangan Bebas serta keuntungan dan
kerugiannya dalam bentuk dampak positif dan negatif.
Kata Kunci: Perdagangan Bebas, KORUS FTA, Sektor Agrikultur
vi
ACKNOWLEDGEMENT
Alhamdulillah. I would like to praise and say thanks to the One and
Only God Allah Subhanahu wa Ta‟ala for His uncountable and unlimited
grace which help me by giving strength, health during the writing process.
Thanks to Prophet Muhammad Sallallahu Alaihi Wassalam for the
teachings and inspirations. And would like to take this opportunity to thank
all the persons who have encourage me with supports, prayer, love, and
knowledge.
1. Beloved Umi Hj. Badiah, Bapak Alm. Zohdi, and my family. Thank you
for always, sending a lot of prayer, tons of love, also supporting me to
finish the thesis.
2. For my thesis advisers, Drs. Teuku Rezasyah, M.A., Ph.D., Haris
Rahmat Pratama, M.A. Thank you so much for the knowledge and
guidance in writing this thesis. Not to forget, all IR lecturers and staff.
3. Pamela Nur Johnson (Didi, Amal, Sasa) and Sweet Circle (Endang,
Inas, Winda). Thank you for the motivation, sharing, loves, laughter,
tears, joy you guys gave to me.
4. Solo Group (Lela, Yanri, Ega, Maretha, Dwi, Tando). Thank you for
your support and help till the first until the last semester.
5. Tama, Kidi, Eric, Jae. Thank you for completing this last year by your
support.
And for everyone who I have not mentioned who helped me in contributing
supports for me, thank you so much.
For those people, I hope you guys will always be in His protection, may
your kindness will be replied by more kindness. Aamiin.
Cikarang, Indonesia, April 8, 2017.
vii
Du’uwatul Munajah
TABLE OF CONTENT
THESIS ADVISER ......................................................................................... i
RECOMMENDATION LETTER .................................................................. i
DECLARATION OF ORIGINALITY .......................................................... ii
PANEL OF EXAMINER ............................................................................. iii
APPROVAL SHEET .................................................................................... iii
ABSTRACT .................................................................................................. iv
ABSTRAK ..................................................................................................... v
ACKNOWLEDGEMENT ............................................................................ vi
TABLE OF CONTENT ............................................................................... vii
LIST OF TABLES AND FIGURES .............................................................. x
LIST OF ACRONYMS ................................................................................ xi
CHAPTER I ................................................................................................. 1
INTRODUCTION ........................................................................................ 1
I.1 Background of the study ....................................................................... 1
1.2 Problem Identification .......................................................................... 6
1.3 Statement of the Problem ..................................................................... 9
1.4 Research Objective ............................................................................... 9
1.5 Significance of Study ......................................................................... 10
I.6 Theoretical Framework ....................................................................... 11
I.6.1 International Political Economy ................................................... 12
I.6.2 Trade Liberalization Theory ......................................................... 13
I.7 Scope and Limitation of the Study ...................................................... 15
viii
I.8 Definition of Terms ............................................................................. 15
I.9 Literature Review ................................................................................ 17
I.9.1 International Trade Agreement by Giovanni Maggi .................... 17
I.9.2 The Political Economy of International Trade by Helen V. Milner
.............................................................................................................. 17
I.9.3 Politics of Free Trade Agreements by Gene M. Grossman and
Elhanan Helpman.................................................................................. 18
I.9.4 Benefits and Threats of Free Trade by Jolanta Drozdv and
Algirdas Miškinis ................................................................................. 19
I.9.5 Trade Liberalization, Competition and Growth by Omar Licandro
and Antonio Navas Ruis ....................................................................... 20
I.10 Research Methodology ..................................................................... 20
I.10.1 Research Instrument ................................................................... 22
I.11 Thesis Structure ................................................................................ 22
CHAPTER II .............................................................................................. 24
THE OVERVIEW OF TRADE BETWEEN U.S. AND REPUBLIC OF
KOREA ....................................................................................................... 24
II.1 The Role U.S. in ROK‟s Recovery after Korean Peninsula War ...... 24
II.2 The Pattern of Trade between U.S. and ROK ................................... 25
II.3 Interdependence of Trade between U.S. and ROK............................ 28
II.4 Trade Dispute between U.S. and ROK .............................................. 31
II.4.1 Major U.S.-ROK Agricultural Dispute ....................................... 34
CHAPTER III ............................................................................................ 36
LINK BETWEEN KORUS FTA AND AGRICULTURE SECTOR OF
ROK ............................................................................................................ 36
III.1 Free Trade Agreement Insight .......................................................... 36
III.1.1 The Understanding About Free Trade Agreements ................... 36
ix
III.1.2 Reason for Generating Free Trade Agreement .......................... 38
III.1.3 Advantages and Disadvantages of Free Trade Agreement ........ 40
III.2 Free Trade Agreement between United States and Republic of Korea
(KORUS FTA) ......................................................................................... 42
III.2.1 Description of KORUS FTA ..................................................... 42
III.2.2 Actors Involved in KORUS FTA .............................................. 43
III.2.3 Concern of ROK Agriculture Sector in KORUS FTA .............. 47
III.2.4 Negotiation Process of KORUS FTA ........................................ 50
III.2.5 Delayed Ratification of KORUS FTA ....................................... 54
III.3 Result of KORUS FTA negotiations on Specific Sectors ................ 56
CHAPTER IV ............................................................................................. 61
THE IMPACT OF KORUS FTA TOWARDS AGRICULTURE
REPUBLIC OF KOREA ........................................................................... 61
IV.1 Agriculture Export and Import Before and After KORUS FTA ..... 61
IV.2 The Impact of KORUS FTA towards Agriculture Sector of Republic
of Korea: Positive and Negative Impacts ................................................. 63
IV.2.1 Positive Impact of KORUS FTA towards ROK‟s Agriculture
Sector .................................................................................................... 67
IV.2.2 Negative Impacts of KORUS FTA towards Agriculture Sector
of ROK.................................................................................................. 80
CHAPTER V .............................................................................................. 87
sCONCLUSION ......................................................................................... 87
BIBLIOGRAPHY ...................................................................................... 90
x
LIST OF TABLES AND FIGURES
Tables
Table I.1 Agriculture Land (km square) ..... Error! Bookmark not defined.
Table II.1 Trade Volume between U.S.-ROK selected years (billion U.S.
dollars) ......................................................... Error! Bookmark not defined.
Table II.2 Interdependence of Economic U.S. and ROK (2005) .......... Error!
Bookmark not defined.
Table III.1 Possible Advantages and Disadvantages of Free Trade
Agreement .................................................... Error! Bookmark not defined.
Table III.2 Negotiation result on specific sectors ....... Error! Bookmark not
defined.
Table III.3 ROK‟s Tariff Reduction on Agricultural Sector in KORUS FTA
...................................................................... Error! Bookmark not defined.
Table IV.1 Livestock Export-Import 2012-2014 (thousand USD) ....... Error!
Bookmark not defined.
Table IV.2 Cereals Export-Import 2012-2014 (thousand USD) ........... Error!
Bookmark not defined.
Table IV.3 Fruits Export-Import 2012-2014 (thousand USD) ............. Error!
Bookmark not defined.
Table IV.4 Dairy Products Export-Import 2012-2014 (thousand USD)
...................................................................... Error! Bookmark not defined.
Table IV.5 Positive and Negative Impacts of KORUS FTA ................ Error!
Bookmark not defined.
Table IV.6 Share of R&D Budget of Ministry of Agriculture, Food and
Rural Affairs, Rural Development Administration, and Korea Forest Service
(in unit 100 million won) ............................. Error! Bookmark not defined.
Table IV.7 The Variety Products of Hansalim ........... Error! Bookmark not
defined.
Table IV.8 Number of agriculture corporation by business ................. Error!
Bookmark not defined.
xi
Table IV.9 Agricultural Export of Korea by Country (in million dollars)
...................................................................... Error! Bookmark not defined.
Table IV.10 ROK Agricultural Export to U.S. (2011-2014) (US Thousand
Dollar) .......................................................... Error! Bookmark not defined.
Figures
Figure I..1 Theoritical Framework ............................................................... 11
Figure III.1 Level of Economic
Integration....................................................................................................35
xii
LIST OF ACRONYMS
FTA Free Trade Agreement
KORUS FTA Free Trade Agreement between United States of
America and Republic of Korea
U.S. United States of America
ROK Republic of Korea
MOFAT Ministry of Foreign Affairs and Trade
USTR United States Trade Representative
MAFRA Ministry of Agriculture, Food, and Rural Affairs
RDA Rural Development Administration
KFS Korea Forest Service
1
CHAPTER I
INTRODUCTION
I.1 Background of the study
As the world enter the twenty first century where the era is marked
as globalization era, the societies and economics – from one side of the
world the other side, from one corner to another corner – are becoming
more integrated than they were before. Globalization is the ongoing process
that deepens and broaden the relationships and interdependence among
countries.1
An unprecedented global integration had been existed since 1980.
The first wave of globalization took place from 1870 to 1914.2
Transportation advanced and negotiation to reduce barriers conducted
which increased the flow of capital, goods, and labor. This condition
doubled the export and increased migration as the world population
increasing ten percent. Second wave of globalization happened between
1950 to 1980 where the focus is on the integration between rich countries.3
It was marked by the effort of North America, Europe, and Japan to restore
their trade relation under the help of General Agreement of Tariff and Trade
(GATT). GATT allowed the creation of the global environment of trade.
Due to during this second wave, the developing countries were stuck at the
primay commodity exporting and they were isolated from capital flows, so
the existence of GATT took place on persuading developed country to cut
down import rate from developing and undeveloped country.
Then the most recent wave of globalization starting around 1980
until recent day, this has been marked by rapid change and development in
1 International Business Environment and Operations: Global Edition, Background for
International Business (2011). Pearson Education. 2 Collier, Paul, Collar, David (2002). Globalization, Growth, and Poverty : Building an
Inclusive World Economy . New York: World Bank Publications. 3 Ibid
2
transportation and communication technologies which create no boundaries
for people to get variety informations and knowledges from different
cultures and backgrounds. This third wave also has been marked by the
decision of developing countries to be more open towards foreign trade and
investment.4
Trade and investment are the way to expand internationally and the
way to survive this globalization era. Survival in globalization era increase
the Foreign Direct Investment (FDI) and also the international trade for
goods and services, and this linked to the growing economic integration
between countries. In short, globalization has changed the world economic,
especially in financial and trade sector. Alteration in trade sector encourage
country to to adapt with globalization by doing the practice of international
trade and economic integration. There are a lot form of international trade
and economic integration has been established, one of them is Free Trade
Agreement.
Free Trade Agreement (FTA) is a treaty of trade binds two or more
countries that have agreed to eliminate tariffs, preferences and quotas on
most (if not all) goods and services which are traded among them.5 The
purpose of conducting FTA is the access to markets for each other trading
partners of FTA, this access created by reducing or even removing the
border markets protection such as the taxes imposed on import and export,
and other barriers imposed such barriers (tariff barriers and non-tariff
barriers), maximum quotas for trade, ban on trade, and the standard also
process of trade imposed by each country of trading partners.
Trade in goods or services can be covered in FTA. Areas such as
investment, competition policy, intellectual property rights (IPRs), and
government procurement also can be included in FTA. The purpose of FTA
4 Collier, Paul, Collar, David (2002). Globalization, Growth, and Poverty : Building an
Inclusive World Economy . New York: World Bank Publications. 5 Indian Merchant‟s Chamber – Economic Research and Training Foundation. Paper on-
Free Trade Agreement
3
is to remove the barriers to trade and investment in order to make the trade
grow as a result of division of labor, specialization, and comparative
advantage. The principle of “comparative advantage” says countries prosper
first by taking advantage of their assets in order to concentrate on what they
can produce best, and then by trading these products for products that other
countries produce best.6
FTA creates a freer flow for not only goods and services, but also
investment and people.7 Trade in goods and services without tax or barrier
imposed is one of the features promoted by FTA. Beside it, features that
have been promoted by FTA are the removal of trade distorted policies, free
access for FTA trading partners to enter the markets of each other along
with the information regarding the condition of each other trading partner.
FTA also aims to combat monopoly or oligopoly power by local
government.
The existence of FTA benefit on the creation of job opportunity.
Due to the market expansion, local market is widened to international
market. This extended market will have impacts in the form of growing
demand of goods and services, which lead to the need of the labor to
produce related trading goods and services which are in growing demand.
The conduct of FTA allows the trading goods and services to
compete in the market. By this competition of goods and services, later
known which products or services include in the most demanded goods or
services and from which trading partner or country this trading goods or
services come. This result to the acknowledge of country regarding their
most traded or most demanded goods or services compare to the trading
partner, and this goods or services will be considered as the most efficient
6 Understanding The WTO – The Case for Open Trade. Retrieved on 23/5/2017 from
World Trade Organization:
https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact3_e.htm 7 Indian Merchant‟s Chamber – Economic Research and Training Foundation. Paper on-
Free Trade Agreement
4
trading goods or services. The most efficient trading goods or services will
create the efficient allocation of resources and specialization of goods or
trade for the country producer.
As the competition for trading goods and services is raising,
countries involved try to offer most reasonable price with good quality in
order to win the market and make the goods and services offered to be in
demand. One of the way to produce goods or services in high demand, the
country producer will try to improve and develop their technology and
knowledge on how to produce good quality goods or services with low
price. In short this result to the effort for advance knowledge and
technology.
United States of America (U.S.) as the 2nd
major exporting countries
– after China according to World Integrated Trade Solution – has been
using FTA as the finest way for its exporter to enter the foreign market. In
2015, 47 percent of U.S. goods exports went to FTA partner countries. U.S.
merchandise exports to the 20 FTA partners with agreements in force
totaled $710 billion. The United States also enjoyed a trade surplus in
manufactured goods with our FTA partners totaling $12 billion in 2015.8
The very first FTA off U.S. is North American Free Trade
Agreement (NAFTA). This FTA was signed on December 1992. As
NAFTA implemented in 1994, the world‟s largest free trade area is created,
it links 426 million people within the area and it produces more than $12
trillion worth of services and goods.9
After NAFTA, the 2nd
biggest FTA U.S. ever have is KORUS FTA.
KORUS FTA is the name after FTA between U.S. and Republic of Korea
(ROK), KORUS FTA stands for Korea – U.S. Free Trade Agreement.
8 International Trade Administration. Free Trade Agreement. Retrieved on 13/10/2016
from http://www.trade.gov/fta/ 9 Office of the United State Representative. NAFTA: A Decade of Success. Retrieved on
15/10/2016 from https://ustr.gov/about-us/policy-offices/press-office/fact-
sheets/archives/2004/july/nafta-decade-success
5
According to Inbom Choi and Jeffrey J. Schott from Institute for
International Economics in Washington, D.C., the ROK and the U.S. first
discussed the idea of a KORUS FTA in the 1980s.10
And until the end of
2006, those two countries already had five rounds of negotiation regarding
the FTA. And in June 30th
2007, U.S under the government of President
George W. Bush and ROK under the government of President Roh Moo-
Hyun, signed the KORUS FTA. KORUS FTA was expected to strengthen
the bilateral relationship of these two countries by boosting the free flow of
products and services between U.S and ROK.
Even after the signing of KORUS FTA, the debate over FTA was
still on its track. U.S business community largely welcomed to KORUS
FTA, but when it came to ROK business community, the respond was
different. Early in the talks, a KBC Media survey found that 58.1% of
Koreans supported an FTA while only 29.2% disapproved.11
Somehow, the
campaign and public support came from this opposition group decline
dramatically. Beside the opposition, many issues had been the concerns
towards the ratification of KORUS FTA that yield to the delay of KORUS
FTA ratification. The government regimes for both U.S and ROK had
changed, U.S under President Barack Obama, and ROK under President Lee
Myung Bak.
President Obama and President Lee continued the talk of KORUS
FTA in order to restore the health of bilateral relationship and national
security alliance between of them. Aside of that, President Lee sees that the
idea to make this FTA is related to his economic strategic and goals and
President Obama has deepen and broaden his administration to renegotiate
the KORUS FTA. This result to the modification of KORUS FTA, the
approval of KORUS FTA by The United States Congress on October 12th
10
Saito, Junko (2006). SOUTH KOREA - U.S. ECONOMIC RELATIONS AND
BILATERAL FREE TRADE NEGOTIATIONS. U.S. – Korea Institute at SAIS 11
Saito, Junko (2006). SOUTH KOREA - U.S. ECONOMIC RELATIONS AND Saito, J.
(2006). SOUTH KOREA - U.S. ECONOMIC TRADE RELATIONS BILATERAL FREE
TRADE NEGOTIATIONS. In SAIS U.S. - KOREA YEARBOOK 2006. Washington, DC:
U.S. - Korea Institute at SAIS.
6
2011 and by The Korean National Assembly on November 22nd
2011, and
later on March 15th
2012 the KORUS FTA was already into force.
1.2 Problem Identification
KORUS FTA which had been signed by ROK and U.S and gone
into force since March 15th
2016. KORUS FTA has been included as the
national policy in term of bilateral relations between U.S and ROK to
encourage the industrial development and competition in the country with
another country. The existence of KORUS FTA is the mark of the reduction
of obstacles in the trade process between U.S and ROK, and the start for the
competition in quality, price, quantity of goods and services among U.S and
ROK.
Implementation of KORUS FTA in ROK reaped pros and cons. In
the ROK, major businesses generally supported a KORUS FTA but took a
low-profile approach. Some experts suggested that ROK businesses feared
that anti-FTA groups might retaliate, perhaps with boycotts. Also, since
Korean chaebol (conglomerates) would likely benefit the most from an
FTA, they may have feared that industries suffering losses from an FTA
might appeal to them for compensation.12
KORUS FTA covered the products and services in trade which are
agriculture, textiles, and apparels, pharmaceutical and medical devices,
financial services, telecommunications, electronic commerce, government
procurement, and intellectual property right. Implementing KORUS FTA,
lead ROK to face its opportunity cost. Opportunity cost is a benefit that
must be given up to acquire or achieve something else.13
12
Saito, Junko (2006). SOUTH KOREA - U.S. ECONOMIC RELATIONS AND Saito, J.
(2006). SOUTH KOREA - U.S. ECONOMIC TRADE RELATIONS BILATERAL FREE
TRADE NEGOTIATIONS. In SAIS U.S. - KOREA YEARBOOK 2006. Washington, DC:
U.S. - Korea Institute at SAIS. 13
Opportunity Cost. Retrieved on 23/5/2017 from Business Dictionary:
http://www.businessdictionary.com/definition/opportunity-cost.html
7
Agriculture as one of the sector included will be the one that should
be sacrificed in order to expand the market for ROK. Agriculture is the
science, art, or practice of cultivating the soil, producing crops, and raising
livestock and in varying degrees the preparation and marketing of the
resulting products.14
Since the very first talk of FTA, agriculture had been
the most matter in debate of FTA establishment. Agriculture accounts for
only 3 percent of bilateral trade but is a crucial component of each country‟s
trade politics.15
ROK‟s agriculture sector is included as one of U.S interest towards
KORUS FTA. U.S Department of Agriculture observed that ROK has
increased its food import in order to satisfy the consumers for the demand of
more variation of food with low prices, this thing leads ROK as major food
importing country with limited resources to expand its agricultural capacity.
Compare to 1970s, ROK‟s total employment in agricultural sector was
50.4% meanwhile in 2010 the total employment from agricultural sector
decreasing into 6.6%. Agriculture land of ROK compare to U.S in 2013 is
1:229. This is a rational reason for ROK to give disproportionately strong
domestic political support by giving 52% on its average tariff for
agricultural product, meanwhile non-agricultural products is only 7%.
Table I.1 Agriculture Land (km square)
Country Agriculture Land
U.S. 4,054,370
ROK 17,687
Source: World Bank, Agriculture Land (km square) (2013)
Eventough ROK applies high protection policy towards its
agricultural market, ROK still tried to be open towards U.S agricultural
products. ROK government expected that its openess towards U.S
14
Agriculture Definition. Retrieved from http://www.merriam-
webster.com/dictionary/agriculture 15
Schott, Jeffrey J. The Korea-US Free Trade Agreement: A Summary Assessment.
Peterson Institute For International Economics
8
agricultural product will improve the competitiveness of local farmers to
produce better quality of agricultural products so it can compete with U.S
agricultural products. ROK agreed to immediately grant duty-free status
towards two-third US farm products immediately exclude rice. Although the
Korea FTA does not cover rice, the Agreement on Agriculture has already
gradually opened the Korean rice market. By 2014, it will be completely opened.16
ROK‟s concern on KORUS FTA was also put on the U.S beef. In
2003, prior to official FTA talks, the U.S. discovery of a cow with Bovine
spongiform encephalopathy (BSE) (commonly known as „mad-cow
disease‟) prompted the South Korean government to impose a
comprehensive ban on all imports of American beef. 17
This was a hard hit
towards U.S beef industry due to the fact that ROK was the third largest
market of U.S beef that valued estimated US$800 million a year. ROK
lifted the ban partially in 2006 as the pre-condition for the KORUS FTA
talk, but then the permission again revoked due to the meat imported did not
meet the ROK‟s import standard. The lifted ban on U.S beef in 2008 by
President Lee drew massive protest which includes around 750,000 people
asking for the resignation of President Lee and the reinstatement of the ban
towards U.S beef to protect the health of society. And in the end, South
Korea only required the United States to voluntarily certify the safety of
U.S. beef.18
Jeju National University Professor Hyun Kong Nam of the
department of industrial and applied economics and one of the authors of
“The Development History of the Mandarin Industry” explained that the
existence FTA will threaten the farmers job in Jeju island. Profit gained
16
Miles, A., & Ahn, C. (2015, February 11). Free Trade Kills Korean Farmers. Retrieved
on 18/10/2016 from Foreign Policy in Focus:
http://fpif.org/free_trade_kills_korean_farmers/ 17
Miles, A., & Ahn, C. (2015, February 11). Free Trade Kills Korean Farmers. Retrieved
on 18/10/2016 from Foreign Policy in Focus:
http://fpif.org/free_trade_kills_korean_farmers/ 18
Kim, J. (2008, May 31). Anti-U.S. beef protest draws 100,000 S.Koreans. Retrieved on
19/10/2016 from Reuters: http://www.reuters.com/article/us-korea-protest-
idUSSEO21734120080531
9
from Jeju fruits especially mandarin orange will be in damage. The cost for
imported fruit was 50% of the purchasing price, and by the existence of
KORUS FTA the tariff will be 30% for the three first year and will be
eliminated totally in seven years. The jeju mandarin needs to compete with
the foreign oranges which are cheaper, and it will lead to more
uncompetitive Jeju mandarin orange. He says the cost of oranges that will
be imported from the US, on a basis of gradually reducing tariffs, will make
people switch from traditional mandarins, creating an exodus from the
growing industry and potential unemployment.19
And even there was many ignorances and anti-FTA movements, the
KORUS FTA was still signed by both ROK and U.S, this FTA clearly will
give effect after its implementation, especially in agriculture sector of ROK.
1.3 Statement of the Problem
Topic : This research is about determining the effects of KORUS FTA
towards ROK‟s agriculture sector. Based on what I have been identified, the
statement of the problems of this research is as follows :
What were the effects of KORUS FTA towards agriculture
sector of Republic of Korea (2012-2014) ?
1.4 Research Objective
The purpose of thise research is to understand the effects of
implementation of KORUS FTA listed below:
1. To gain deeper understanding about KORUS FTA
19
Kim, A. & Lim, K.J. (2012, February 24). Jeju produce under threat by FTA: Mandarin
farmers should be worried over KORUS FTA, says JNU professor. Retrieved on
19/10/2016 from The Jeju Weekly:
http://www.jejuweekly.com/news/articleView.html?idxno=2416
10
2. To elaborate KORUS FTA‟s effect towards ROK‟s agriculture
sector
1.5 Significance of Study
The findings of study related to FTA have explained that FTA is
conducted in the expectation to bring benefit for the countries related
despite of the countries need to adjust its economic condition with the term
agreed on the FTA. FTA is eventually phased over the year by countries in
the world to widen the market for the product and service produced,
multinational company in the region reform its structure and strategy also
rationalize its production network by taking U.S and ROK as a single
market due to the existence of KORUS FTA.
In the long term, KORUS FTA is expected to boost the creativity
and competitiveness of U.S. and ROK both internal and externally, since the
FTA needs to stimulate each government to have domestic reforms and
promote the local industries to compete in the widen market. Based on this
issue, it founds that KORUS FTA has some obstacles for its establishment.
This research aim to found the concerns from ROK‟s side in order to
conduct KORUS FTA with U.S, and further to found the effect of KORUS
FTA towards the agriculture sector of ROK since agriculture sector claimed
will be facing a hard hit from the FTA.
11
Figure I.0.1 Theoritical Framework
I.6 Theoretical Framework
12
I.6.1 International Political Economy
The study of International Relation is a specific study that
learns the relation between nations. The study of international learns
about the political relations among nations at first and keep
developing by time to time. In the twenty centuries, development in
technology brings a great innovation towards transportation and
communication which result to the integrated world. The study of
international relations which focused on the political issue of
country widened to the economic issues. Issues in politics and
economics cannot be separated and has been integrated as
international political economy.
The field of international political economy gained
prominence in the early 1970s, when the Arab oil embargo and other
crises ended the postwar era of virtually unhindered economic
growth in the United States and Europe, and today is an essential
part of both political science and economics.20
Benjamin C. Cohen
explained in his book that the international economy cannot be
separated from political issue. International economic is raised along
with the political interest and international political decision is taken
based on the related conomic consideration.
“International Political Economy is an interdisciplinary
social science field of study that investigates, analyzes, and
proposes changes in the processes of economic flows and
political governance that cross over and/or transcend
national boundaries.”21
In highly oversimplified terms, economic nationalism, (or,
as it was originally called, mercantilism) which developed from the
practice of statesmen in the early modern period, assumes and
avocates the primacy of politics over economics. It is essentially a
20
Cohen, B. C. (2008) International Political Economy: An Intellectual History.
Princeton:Princeton University Press 21
Miller, R. C. (2008). International Political Economy: Contrasting World Views.
Oxon:Routledge
13
doctrine of state building and assert that the market should be
subordinate to the pursuit of state interest.22
Mercantilism as
included in the theory of International Political Economy argues that
the political factors considered by the nation affect to the economic
relationship that the nation has, or in short that the nation is the
dominant actor in the political economy.
In the study of this thesis, Free Trade Agreement is part of
international economic. The decision to conduct KORUS FTA based
on the political consideration taken by U.S. and ROK in order to
pursue their national economy interest. U.S. and ROK. Relationship
between U.S and ROK is strong, and ROK is considered as the
strongest ally of U.S in the area of East Asia. Bilateral economic as
the essential of relationship of U.S and ROK and it has been
evolving. As the ally of ROK, U.S put concern towards what thing
threaten the security of ROK include the threat comes from
Democratic People of Republic Korea, because it will effect ROK as
the ally in bilateral economic relationship of U.S. To secure the
economic bilateral relationship of U.S and ROK is the main reason
for the establishment of KORUS FTA.
I.6.2 Trade Liberalization Theory
Trade liberalization is the way to promote what is called free
trade. The aim of trade liberalization is to obtain greater market and
to give more opportunity for each country to develop their product
more. Each country will posses their own role in order to develop
their product that should be circulated in the market, and also they
will seek for more opportunities by delivering certain policies
regarding cooperation that they will establish.
22
Gilpin, R. (1987). The Political Economy of International Relations. Princeton:Princeton
University Press
14
Liberalization of trade draws the open of domestic market
towards foreign producst. Trade liberalization believed to increase
the wealth distribution between countries along with trade quantity
of world and economic efficiency by reducing tariff and non tariff
barriers, also eliminating quotas. Definition of trade liberalization is
the removal of or reductionin the trade practices that thwart
free flow of goods and services from one nation to another. It
includes dismantling of tariff(such as duties, surcharges, and export
subsidies) as well as nontariff barriers (such as licensing regulations,
quotas, and arbitrary standards).23
According to Melnikas, 2008, in
Economia Economics: Benefits and Threats of Free Trade, trade
liberalisation refers to the relaxation of previous government
restrictions, usually in the areas of social or economic policy.
The open of domestic market and the integration of market
can be the result of another factor such agreement for example
(AFTA, GATT, KORUS FTA) or being member of economic
cooperation (WTO, APEC). The existence of trade liberalization
allows a country to have a specialized products or services, this
result to the economic growth of country, lower price for imported
products or services for the consumer, increasing competition for
local producer with foreign producer, this believed to increase the
competitiveness and creativity.
The disadvantage of trade liberalization can result in the
form of the shift of economic balance, exploitation of government,
damaging the locals who cannot compete, and seems like trade
liberalization will be more beneficial for the more developed
country.
23
Trade Liberalization definition. Retrieved on 21/10/2016 from
http://www.businessdictionary.com/definition/trade-liberalization.html
15
I.7 Scope and Limitation of the Study
The scope of this research only cover the investigation of the
implementation of KORUS FTA in term of agriculture sector and analyze
the benefit obtained from the economic integration among ROK and U.S
which is harmonious and competitive. The time of framework taken in the
scope and limitation of study is during the first time KORUS FTA is in
force 2012 until the implementation in 2014, from this time frame can be
seen the result of the implementation of KORUS FTA and its effect towards
agriculture sector of ROK.
I.8 Definition of Terms
Trade
“Commercial transaction involving the sale and purchase of a good,
service, or information.24
”
Free Trade Agreement:
“Treaty (such as FTAA or NAFTA) between two or more countries
to establish a free trade area where commerce in goods and services
can be conducted across their common borders, without tariffs or
hindrances but (in contrast to a common market) capital or labor
may not move freely. Member countries usually impose a uniform
tariff (called common external tariff) on trade with non-member
countries.25
”
Commodity
“a class of economic goods; especially: an item of
merchandise whose price is the basis of futures trading .26
”
Export
24
What is Trade? Definition and Meaning. Retrieved on 23/10/2016 from
http://www.businessdictionary.com/definition/trade.html 25
What is Free Trade Agreement? Definition and Meaning. Retrieved on 28/10/2016 from
http://www.businessdictionary.com/definition/free-trade-agreement.html 26
Definition of Commodity. Retrieved on 22/11/2016 from http://www.merriam-
webster.com/dictionary/commodity#legalDictionary
16
“to carry or send (as a commodity) to some other place (as another
country).27
”
Import
“Bring (goods or services) into a country from abroad for sale.28
”
Barrier
“A fence or other obstacle that prevents movement or access.29
”
Tariff Barrier
“a barrier to trade between certain countries or geographical areas
which takes the form of abnormally high taxes levied by a
government on imports or occasionally exports for purposes of
protection, support of the balance of payments, or the raising of
revenue.30
Non -Tariff Barrier
“a form of restrictive trade where barriers to trade are set up and
take a form other than a tariff. Nontariff barriers include quotas,
embargoes, sanctions, levies and other restrictions and are
frequently used by large and developed economy.31
”
Agriculture:
“The science of cultivating the soil, harvesting crops, and raising
livestock and also as the science or art of the production of plants
and animals useful to man and in varying degrees the preparation of
such products for man's use and their disposal.32
”
27
Definition of Export. Retrieved on 22/11/2016 from http://www.merriam-
webster.com/dictionary/export#legalDictionary 28
Definition of Import in English. Retrieved on 22/11/2016 from
https://en.oxforddictionaries.com/definition/import 29
Definition of Barrier in English. Retrieved on 22/10/2016 from
https://en.oxforddictionaries.com/definition/barrier 30
Definition of Tariff Barriers. Retrieved on 22/10/2016 from
http://www.collinsdictionary.com/dictionary/english/tariff-barriers 31
Nontariff Barrier. Retrieved on 22/11/2016 from
http://www.investopedia.com/terms/n/nontariff-barrier.asp 32
Black, H.C. (1994(. Black's Law Dictionary - Sixth Edition Minnesota:West Publishing
Co.
17
I.9 Literature Review
I.9.1 International Trade Agreement by Giovanni Maggi
This book chapter focuses on the motives for trade agreement,
design of the rules, and regional trade agreement, the book started
with recent developments in trade agreement and then followed by
the purpose of establishing trade agreement which are to prevent
government to manipulate the term of trade, provide a government
with a means to tie its own hands vis-à-vis domestic agents, and also
in order to create the role of trade agreement its self in the imperfect
competition in the market. 33
Then followed by discussion regarding
design of trade agreements, with a particular emphasis on the role of
transaction costs where the writer argues that taking these
transaction costs into account is essential for understanding the
design of substantive policy rules (such as tariff ceilings, non-
discrimination rules, etc.), enforcement rules (which regulate
punishment/retaliation), and dispute settlement procedures.34
And
also this chapter includes the debate regarding impact of trade
agreement.
I.9.2 The Political Economy of International Trade by Helen V.
Milner
Freer trade between countries in the world was caused by several
factors. First, many focus on changes in trade policy preferences
among domestic actors, either societal groups or political leaders.35
Political leaders and societal groups changed their view towards
what are the best trade policies, this leaded to the launch of
economic reform with massive trade liberalization, and effort to
lower the trade barriers. Increasing trade leaded to the increasing
33
Maggi, Giovanni (2014). International Trade Agreements. In Handbook of International
Economic, Volume 4. Amsterdam: North Holland 34
Maggi, Giovanni (2014). International Trade Agreements. In Handbook of International
Economic, Volume 4. Amsterdam: North Holland 35
Milner, H. V. (1999). The Political Economy of International Trade. Annual Reviews of
Political Science
18
interest of it and created greater liberalization. Democratization also
boosted the liberalization of trade, by the collapse of communist and
socialist economist. Second, scholars examine changes in political
institutions to account for such policy change.36
GATT gave
permission to countries to set design of wide trade which foster
liberalization along with EU help to promote liberalization in
Europe. IMF and also World Bank played their role within.
International institutions played in the boost of liberalization due to
the domestic crisis of economy in the countries. The first and second
factors seeks to the explanation for the international political
economic transformation.
I.9.3 Politics of Free Trade Agreements by Gene M. Grossman
and Elhanan Helpman
Economic conditions necessary for an FTA to be an equilibrium
outcome, both for the case when the agreement must cover all
bilateral trade and when a few, politically sensitive sectors can be
excluded from the agreement.37
FTA emerged as the balance result
of negotiation between politically-minded government. This
politically-minded government reconsider FTA as the respond
towards special industries interest and also not to forget as the form
of paying attention towards non-special industries interest.
Government which consider this FTA has a belief that this FTA
might generate welfare and profit gains for the parties involved. This
paper also mention that not every industry must be added in the
FTA, some of them can be excluded, or can be granted for some
period, then its prospect can be improved later. By excluding some
36
Milner, H. V. (1999). The Political Economy of International Trade. Annual Reviews of
Political Science 37
Grossman, Gene M., Helpman, Elhanan (1993). NBER Working Paper Series: The
Politics of Free Trade Agreement. Cambridge:National Bureau of Economic Research
19
sensitive sectors, a government may be able to diffuse the opposition
to an FTA.38
I.9.4 Benefits and Threats of Free Trade by Jolanta Drozdv and
Algirdas Miškinis
Free trade is defined as a policy of unrestricted foreign trade with no
tariffs or subsidies on imports or exports and no quotas or other
trade restrictions.39
Free trade occurs when there are no artificial
barriers put in place by the governments to restrict the flow of goods
and services between trading nations.40
This free trade results in
varieties of benefits and threats for the government. Benefit of free
trade are the existence of open market access, the creation of trade
its self, boost economic growth, increasing employment,
improvement of investment climate, preventing monopoly, raw
material exchange, modifies intra-industry trade, generate
economies of scale, gain foreign exchange rate, production
efficiencies, higher collaboration, greater variety of producst, rising
standard of living, and lower the prices. Meanwhile the threats come
from free trade are aggresive market entry policies, trade diversion,
trade imbalance, complexity of international trading system,
economic instability, economic under development, inlexibility,
structural unemployment, difficulties in establishing and
development of new industries, and also corporate restructure, along
with environmental concern, export of primary products, higher
competition, dumping, export concentration, misrepresentation,
lower quality, unfair competition, and also it affects to the cultural
identity of the parties involved.
38
Grossman, Gene M., Helpman, Elhanan (1993). NBER Working Paper Series: The
Politics of Free Trade Agreement. Cambridge:National Bureau of Economic Research 39
Drozdv, J., & Miškinis, A. (2011). Benefits and Threats of Free Trade. In Economia
Economics. Wroclaw:Publishing House of Wroclaw University of Economics 40
Ibid
20
I.9.5 Trade Liberalization, Competition and Growth by Omar
Licandro and Antonio Navas Ruis
Increasing evidence support the claim that international trade
enhances innovation and productivity growth through an increase in
competition.41
This working paper use two-country endogenous
growth model to support the claim. This paper found that
international trade boost the growth in participant countries by the
increasing competition and openness to trade its self, and this lead
firms to be more innovated. This paper views that developed
countries enhance the innovation and growth by trade openness and
also developed countries see international trade has pro-competitive
effect for them. This effect is determined by the market size and
factor endowment. However, preferential trade liberalization
agreements, will enhance growth in the liberalizing countries
reducing growth in protectionist third countries due to the fact that
the reduction of trade barriers between the two liberalizing countries
increasescompetitiveness of their firms in both economies with
respect to third country firms.42
I.10 Research Methodology
This research entitled “The Effect of KORUS FTA towards ROK‟s
Agriculture” is a qualitative research since quantitative research is different
with this research due to the answer of research question cannot be
answered by numbers, it takes believe, opinion, perception of the one who
are being observed. And due to reason of free trade is included as human or
social interaction, so it cannot be described in measurable term.
41
Licandro, Omar, Ruis, Antonio Navas (2010). Barcelona Economic Working Paper
Series: Trade Liberalization, Competition, and Growth. 42
Licandro, Omar, Ruis, Antonio Navas (2010). Barcelona Economic Working Paper
Series: Trade Liberalization, Competition, and Growth.
21
Qualitative research attempts to broaden and/or deepen our
understanding of how things came to be the way they are in our social
world.43
This research is included as qualitative research due to the attempt
of this research to deepen the understanding regarding KORUS FTA and
how it will affect the social world which refers to the agriculture sector of
ROK. Qualitative research method helps to understand and explain linkages
that can cause a thing. As the research is done by qualitative method, it puts
the writer to be a tool to understand, record, and analyze the data of the
object and its surrounding. Analysis of this research is descriptive in nature
and purposing to investigate and present the fact in systematic arrangement
so it can be understandable.
The data used for this research are obtained from primary source and
secondary source. The primary sources are “original documents or objects,
such as an artifact or creative work”.44
In this research the primary sources
refer to the legal text of KORUS FTA its self and report from the official
government. A secondary source is any source about an event, period, or
issue in history that was produced after that event, period or issue has
passed.45
Secondary sources allow to broaden the research by providing
background information, analyses, and unique perspectives one or more
steps removed from an original event or work.46
Secondary sources used in
this research refers to journals, articles, and news mentioning KORUS FTA
and agriculture development of ROK with recorded voice or video of
speeches of prominent persons related.
43
Hancock, B., Ockleford, E., Windrige, K. (2007). An Introduction to Qualitative
Research. Nottingham:The NIHR RDS for Yorkshire and the Humber 44
Primary and Secondary Sources. Retrieved on 10/11/2016 from University of California
Social Research Library: http://www.lib.berkeley.edu/EDP/primary.html 45
Secondary Sources. Retrieved on 10/11/2016 from Writing on History:
http://qcpages.qc.cuny.edu/writing/history/sources/secondary.html 46
Find Secondary Sources. Retrieved on 11/11/2016 from University Library: University
of Illinois at Urbana-Champaign:
http://www.library.illinois.edu/ugl/howdoi/secondarysources.html
22
I.10.1 Research Instrument
In order to complete the research, certain data collection method
used with the qualitative research such as: observational method, narratives,
and analysis of documentary evidence. The instruments used for data
collection comes also with:
Internet Research: In globalization era, information technology can assist
us in educational aspect also. Internet enables us to collect data and
information from everywhere. From internet, the researcher is able to access
data from U.S. Trade Representative, U.S Census Bureau, ROK‟s MOFA
(Ministry of Foreign Affairs), MOTIE (Ministry of Trade, Industry and
Energy), MAFRA (Ministry of Agriculture, Food, and Rural Affairs), and
others.
Reports, Articles, and Journals: Reports used from both governments
bodies, and Non-Governmental Organization which relevant to the research,
along with journal and reports.
I.11 Thesis Structure
Chapter I : The first chapter of this thesis will introduce the reader
about the issue and critical information as the background
of analysis. This chapter aims to be the basis of the writing
and also to provide general insight for the thesis.
Chapter II : Describing information regarding the overview of trade
relation between U.S. and ROK before the KORUS FTA
implemented, starting from beginning of U.S.-ROK
relation, followed by trade pattern, trade interdependence
and trade dispute.
Chapter III : Significant amount of data regarding FTA will be
provided as well to provide in-depth knowledge regarding
23
the AANZFTA, and followed by the link of agricultural
sector of ROK with KORUS FTA.
Chapter IV : Providing the analysis on how was the impact of KORUS
FTA towards agriculture sector of ROK. Indicator of what
had been changed will be given, followed by the positive
and negative impacts given by KORUS FTA to the ROK‟s
agriculture sector.
Chapter V : Providing the summary of all previous chapters. This
chapter will be concluded within several paragraphs, and
will provide a conclusion regarding the impact of KORUS
FTA on agriculture sector of ROK.
24
CHAPTER II
THE OVERVIEW OF TRADE BETWEEN THE
U.S.A AND REPUBLIC OF KOREA
II.1 The Role U.S. in ROK’s Recovery after Korean
Peninsula War
The United States (U.S.) and Republic of Korea (ROK) have been
allies since the U.S. intervened on the Korean Peninsula in 1950 and fought
to repel a North Korean takeover of South Korea.47
More than 30 thousand
of U.S. troops sent to help ROK were killed and more than 100 thousand
were injured in period of 1951 to 1953.
One year following, ROK and U.S signed a Mutual Defense
Treaty.48
The United States has maintained Army, Air Force, Navy, and
Marine personnel in the ROK in support of its commitment under the U.S.-
ROK Mutual Defense Treaty to help the ROK defend itself against external
aggression.49
The relationship between the U.S and ROK operates on many levels.
The economic relationship is one important aspect.50
From 1953 to 1962,
U.S. aid financed an average of 69 percent of imports.51
U.S. economic and
military assistance during this period was vital to the survival of ROK as a
nation and its recovery after the war. U.S. Agency of International
Development has lasting impact towards ROK‟s recovery after the war.
47
Manyin, M. E., Chanlett-Avery, E., Nikitin, M. B.., Williams, B. R., Corrado, Jonathan
R. (2016) U.S. – South Korea Relations. Congressional Research Service 48
Treaty engages the both parties, when one party who signs the treaty is attacked by the
third country, the one who is engaged in treaty with the attacked country will face the same
danger 49
BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS. U.S. Relation with South Korea
(2016, October 17). Retrieved on 23/11/2016 from U.S. Department of State:
http://www.state.gov/r/pa/ei/bgn/2800.htm 50
Noland, M. (2003). The Strategic Importance of US-Korea Economic Relations. Institute
for International Economics 51
U.S. Agency for International Development. CASE STUDY: South Korea: From Aid
Recipient to Donor.
25
Those are food aid and infrastructure, training at U.S universities, and
organizational development.52
During the 1950s, the economic development policy in Korea was based on
import substitution industrialization.53
That time ROK was the poorest
country with GDP $1.5 billion in 1954.54
In 1960, U.S aid decline, and
ROK planned to transform from aid dependent to be independent by giving
assistance to basic industries and invested to the development of social and
economic infrastructures to be able to manifest on export-oriented
industrialization and to be competitive on international market.55
II.2 The Trade Pattern of U.S. and ROK
The bilateral trade volume between U.S. and ROK had been
increasing substantially since 1989.56
Trade pattern between U.S. and ROK
before 1994 was inter-industry trade due to the different resource
endowments.57
U.S exported goods to ROK refers to industry goods based
on natural resources and land-intensive such as agriculture and food
products, along with technology and capital-intensive goods. Meanwhile
U.S. imported goods to ROK refers to products which are labor-intensive
like textiles products.
Inter-industry trade pattern for U.S. and ROK stopped in 1994,
starting 1995 their trade pattern transformed into intra-industry trade as the
existence of significant increasing in the sector of high technology products
and differentiated mid-technology product. Bilateral trade patterns of two
52
U.S. Agency for International Development. CASE STUDY: South Korea: From Aid
Recipient to Donor. 53
Sang-Chul, P. (2014) South Korean Trade Strategies in the Post Global Finance Crisis. 54
Uk, H., Houngcheul, J., Hayam K., Okjim, K. (2008) The Political Economy of South
Korea: Economic Growth, Democratization, and Financial Crisis. 55
Ibid 56
Zhuang, R., & Mattson, J. W., & Koo, W.W. (2007) Implications of the U.S.-Korea Free
Trade Agreement for Agriculture and other Sectors of the Economy. North Dakota: Center
for Agricultural Policy and Trade Studies, North Dakota State University 57
Koo, W. W., & Zhuang, R. (2007) The Role of Exchange Rate in Sino-U.S. Bilateral
Trade. Western Economic Association International
26
countries can be given from the comparison of trade volumes with trade
surpluses by each sector.
As examined by Renan Zhuang and Friends Center for Agricultural
Policy and Trade Studies at North Dakota State University, U.S.-ROK
bilateral trade in six sectors which differentiated into agriculture and
food,natural resources-based industries, textiles, mid-technology product,
high-technology products, and others based on the standard international
trade classification (SITC) two-digit code.58
Sector of agri-food covers primary agricultural goods (live animals,
grains, vegetables, and foods), along with processed food (tobacco products,
beverages, and meat products).. The natural resources sector contains gas,
wood, coal, and petroleum products. Sector of textile covers clothing,
footwear, and apparel. Mid-technology sector involves furniture, fertilizers,
nonferrous metals, and chemical materials. High -technology sector covers
instrument of scientific, machinery and transport equipment. Meanwhile
other sector refers to transaction services.
Figure II.1 ROK-U.S. Trade (in US dollar)
Source: KOSIS (Korean Statistical Information Service).
58
Zhuang, R., & Mattson, J. W., & Koo, W.W. (2007) Implications of the U.S.-Korea Free
Trade Agreement for Agriculture and other Sectors of the Economy. North Dakota: Center
for Agricultural Policy and Trade Studies, North Dakota State University
0
10.000.000
20.000.000
30.000.000
40.000.000
50.000.000
60.000.000
2007 2008 2009 2010 2011Export to U.S. Import from U.S.
27
U.S. exports in agriculture and food sector to ROK is increasing
overtime from 1.64 billion dollars in 1989 and 2.79 billion dollars in 2008.
U.S. agricultural export to ROK play high role in supplementing the food,
feed and raw material processing for ROK as the country become more
industrialized and the agricultural sector more abandoned and the
production of crops declining.
U.S. agricultural export be the chief of agricultural resource for
ROK started from the U.S. grain export under Public Law 480. ROK
imports towards U.S. agricultural products raised due to the high quality,
convenience, low price and attractive packaging offered by.59
The import of
U.S. agriculture product increased also due to the lower tariff and raising of
consumer‟s income in ROK. Unfortunately, in the end of 2003, the
agricultural product of U.S. which was beef was banned by ROK
government due to the found of mad cow disease, this contributed to the
decrease of agricultural export to ROK on that time.
The trade also surplus along with natural resources based industry,
but somehow natural resources based industry has deficit in 2006. Since
ROK is lack of domestic energy resources and has no crude oil production,
ROK relies on the energy imports especially liquefied natural gas and coal.
This relying on energy consumption is increasing due to the highly
economic development in ROK.60
ROK energy consumption has reached
4.9% in 2009. This high reliance emerged due to economic and industrial
development of ROK, and as the oil resource decline ROK needs to engage
to imported oil as its main energy due to the automotive revolution and its
raising electrical consumption also for rapid industrial development.61
59
Trade with South Korea. Retrieved on 24/11/2016 from United States Department of
Agriculture Economic Research Service: https://www.ers.usda.gov/topics/international-
markets-trade/countries-regions/south-korea/trade/ 60
Analysis on South Korea. Retrieved on 25/11/2016 from U.S. Energi Information
Administration (EIA): https://www.eia.gov/beta/international/analysis.cfm?iso=KOR 61
Khayyat, N. T. (2015). Energy Demand in Industry: What factors are important?
Springer:New York.
28
In the sector of textiles, U.S. deficit and the trade for textiles keep
declining over the year for both import and export. In mid-technology
sector, U.S. trade with ROK had balance. In high-technology sector, U.S
trade with ROK deficit increasing over the time even the export to ROK is
increasing from 1989 contributes 5.58 billion dollars and 19.12 billion
dollars in 2006. In 2010, 41% of U.S. exports to South Korea and 50% of
U.S. imports from South Korea were in machinery, suggesting a large
amount of intra-industry
trade, including trade within production networks.62
And for the transaction service the trade is balance for both import
and export. In term of textiles sector and transactional service, their trade
share is small and decreasing overtime.
II.3 Bilateral Trade between U.S. and ROK
In two decades, ROK and U.S. trade relation is increasing over the
year, seen from the Table II.3 above which show the increasing of the trade
between U.S. and ROK from 1990 to 2010. This relationship is based on the
economic ties of U.S. and ROK which arguably that ROK is the U.S. closest
ally in East Asia. By over $70 billion in trade between ROK and U.S. in the
year of 2004, ROK became more important for U.S. as the trade made ROK
to be the seventh largest trading partner after Italy and France, and export
market of U.S.63
.
And in 2010, trade between these two countries reached total
amount of $86.9 billion and still be the 7th
largest of U.S trading partner
include as U.S. 7th
export destination and 7th
importer.64
U.S. exporter see
that ROK‟s market is important especially for California and Oregon‟s
exporter and also for the U.S. agricultural exporter, with manufacturing
62
Cooper, W., & Mark, M. M. (2011) The U.S.-South Korea Free Trade Agreement
(KORUS FTA): Looking Ahead--Prospects and Potential Challenges. International
Journal of Korean Studies Vol. XV, No. 2, 127-150 63
Manyin, M. E. (2006). South Korea-U.S. Economic Relations: Cooperation, Friction,
and Prospects for a Free Trade Agreement. Congressional Research Service 64
Ibid
29
equipment and semiconductor chips, aircraft, machinery plastics corn and
wheat as major U.S. export to ROK and construction vehicles,
semiconductor circuits, cellular phones, flat panel screens and televisions,
along with computer parts as as major U.S. import from ROK.65
Table II.1 Trade Volume between U.S.-ROK selected years (billion U.S.
dollars) 66
Year
U.S. Exports
U.S. Imports
Trade
balance
Total trade
1990 14.4 18.5 -4.1 32.9 1995 25.4 24.2 1.2 49.6 2000 26.3 39.8 -13.5 66.1 2003 22.5 36.9 -14.4 59.5 2004 25.0 45.1 -20.1 70.1 2005 26.2 43.2 -17.0 69.4
2006 30.8 44.7 -13.9 75.5 2007 33.0 45.4 -12.4 78.4 2008 33.1 46.7 -13.6 79.8 2009 27.0 38.7 -11.7 65.7 2010 38.0 48.9 -10.9 86.9
_____________________
Sources: 1990 and 1995 data from Global Trade Information Services. 2000-
2008 data from U.S. International Trade Commission. The 2000-2010 U.S.
export data are for U.S. domestic exports and the data for U.S. imports are for
imports on a consumption basis.
ROK dependst heavily on U.S. ROK‟s dependency to U.S. in trade
is greater than U.S. dependency to ROK. U.S. placed as the third country
with the highest amount of total trade with ROK, second biggest market for
ROK‟s export, third biggest importer for ROK, and number one supplier of
FDI. But in 2003 the total amount of trade of ROK with China was higher
than the total amount of trade with U.S., this was the continues effect of
trade expansion of ROK and China prior to diplomatic normalization.67
And
in 2005 also defeated by Japan in the total amount of trade. As known that
ROK become more industrialized and the agricultural sector‟s role
65
Manyin, M. E. (2006). South Korea-U.S. Economic Relations: Cooperation, Friction,
and Prospects for a Free Trade Agreement. Congressional Research Service 66
Ibid 67
Chung, J. H. (2007). Between Ally and Partner: Korea-China Relations and the United
States. New York:Colombia University Press.
30
decreasing in ROK‟s economy which required ROK relies on the
agricultural import from another country, especially U.S.
Table II.0.2 Interdependence of Economic U.S. and ROK (2005)
Total Trade
Export Market
Source of Imports
Source of FDI
for U.S., ROK ranks
#7
#7
#7
#28
for ROK, U.S. ranks
#3
#2
#3
#1
There have been several factors which encourage both economies of
these two countries, and one of those factors is like they complete each
other‟s economy. The example given is that U.S. have such an arable land
which made U.S. as the producer of agricultural products and also
agricultural products exporter, especially beef and grains. And in the other
side, ROK is a country which is poor in resources and dependent on the
food imports due to the limited agricultural resources, which inefficient and
depends on subsidies, protectionist trade policies and ROK‟s sense of
cultural heritage.
In 2010, U.S. is the biggest supplier for imported grains of ROK,
accounting 64% for those import, and also biggest supplier for imported
beef which account 32% of imports. Before the discovery of BSE in
imported beef from U.S., U.S. is the largest supplier for beef in ROK.
Beside that the domination of machinery product in U.S.-ROK trade in both
exports and imports made the sign that their trade is complementary and this
is the bonding of their bilateral relationship.
U.S. and ROK economies and policies are also complementary.
ROK has been adopted export-oriented economic policies since 1960.
ROK‟s policy makers consider the condition of lack of resource, then their
way to grow is to develop their manufacturing sectors, and promote their
export in order to gain advantages from the market scale. This policy
31
required the foreign market for ROK‟s export and as the other East Asian
developing countries were having same situation and same export-oriented
policy, it was difficult to make them as one of the market.
Then U.S. with its high rate in consumption and its open economy
had a big contribution to the success of export-oriented policy of ROK. This
complementary economic of both countries somehow led to tension due to
the minim of reciprocity in their bilateral trade which result to U.S. trade
deficit with ROK. And as known that U.S. and ROK have built strong
alliance since the Koran conflict and both have mutual security needs in
East Asia, this is other factor that have brought their economic ties. And the
importance of maintaining of the alliance always find ways to temper these
two countries tensions.68
II.4 Trade Dispute between U.S. and ROK
After the financial crisis in 1997, there were some characteristic of
trade dispute between U.S. and ROK.69
First, as known that there is a gap in
the size and economic interdependence between U.S. and ROK, U.S.
usually set an agenda for trade talks with ROK.
Since that financial crisis in 1997, U.S. gave complaint towards the
regulation released by ROK‟s domestic ministries like Ministry of Health
and Welfare, the Korean Food and Drug Administration, and the Ministry of
Environment, that traditionally have had little contact with foreign
governments or firms.70
U.S. intended to raise the pressure towards those
domestic ministries by encouraging the focus of ROK‟s cabinet towards
problem above.
68
Chung, J. H. (2007). Between Ally and Partner: Korea-China Relations and the United
States. New York:Colombia University Press. 69
Oh, Myung, Larson James (2011). Digital Development in Korea: Building an
Information Society. Oxon:Routledge. 70
Korea, South Diplomatic Handbook. (2008) Washington, DC:International Business
Publication.
32
Second, U.S. major complaint has been about the lack of
transparancey in ROK‟s economy. U.S. exporter along with their trade
negotiator recognized that ROK is lack of transparency in trade and ROK‟s
trade regulatory system is the most significant barrier for trade with ROK,
and this applied to almost every major product sector.71
Another complaints
from U.S. government adressed to the regulation government of ROK to
discriminate foreign firms in sensitive industries like telecommunication,
pharmaceutical, and agriculture.
Telecommunication came out as U.S.-ROK controversial trade issue
as ROK‟s government set mandatory which is single technology standards
for wireless communication services led the U.S. Trade Representative to
name South Korea as a “key country of concern” in its annual report under
Section 1377, which requires the USTR to assess U.S. trading partner
compliance with international telecommunication agreements.72
USTR
negotiated with ROK regarding the use of wireless internet platform for
interoperability (WIPI) to download information from Internet in cellphone,
and it end up to the permit of MIC to implement WIPI.
As ROK is ranked as one of the world‟s to pharmaceutical market
with Korea‟s expenditures on pharmaceutical products is about $115 per
person per year, less than half the $240 average for OECD countries.73
And
U.S. had been throwing complaints towards pharmaceutical policies of
ROK are programmed to protect the domestic pharmaceutical industry of
ROK its self, and where the drugs produced are mostly generic drugs.
U.S. growing concern also addressed towards the lack of
transparancy of the Korean Ministry of Health and Welfare regarding the
pharmaceutical issues in ROK. In a sign of pharmaceuticals‟ growing
71
Oh, Myung, Larson James (2011). Digital Development in Korea: Building an
Information Society. Oxon:Routledge. 72
Oh, Myung, Larson James (2011). Digital Development in Korea: Building an
Information Society. Oxon:Routledge. 73
Improving Korea‟s Business Climate 2002. (2002) American Chamber of Commerce in
Korea.
33
importance on the bilateral trade agenda, in January 2002, the two sides
established a bilateral private sector health care reform working group.74
ROK
government aware towards the complaint of U.S., therefor ROK will take
prudent approach in changing pharmaceutical policy.
From ROK‟s side, ROK protested over U.S. antidumping and CVD
practices. U.S. ROK fed up regarding the antidumping and countervailing
duty (CVD) regulation used by U.S. to raise ROK‟s export tariff. This
raising tariff tends to put on ROK big industry such semiconductor, steel,
television, and telecommunication device.75
Beside anti-dumping and CVD,
U.S. Visa Policies also included as ROK main concern. ROK‟s complaints
about U.S. visa policies tend to fall into two categories.76
First, ROK government officials, Korean businesses, the American
Chamber of Commerce in ROK, and Korean-Americans have questioned
why ROK is not a participant in the U.S. Visa Waiver Permanent Program,
under which foreigners traveling from certain countries are permitted to
travel to U.S. for up to ninety days without having the immigration
documents normally required for entry.77
Second, ROK complaints against
U.S. visa policies which implemented since terrorist attack in 2001 to U.S.,
there were a lot requirements to earn U.S. visa, those were interview,
fingerprint, and great scrutiny, especially for business visitor.78
Most
Korean did not agree towards the fingerprint process, it was like the
regulation imposed to the Korean during Japan occupation in Korean
Peninsula.
74
Manyin, Mark E. (2006). South Korea-U.S. Economic Relations: Cooperation, Friction,
and Prospects for a Free Trade Agreement. Congressional Research Service 75
Manyin, Mark E. (2006). South Korea-U.S. Economic Relations: Cooperation, Friction,
and Prospects for a Free Trade Agreement. Congressional Research Service 76
Wasem, R. E. (2004). Visa Issuances: Policy, Issues, and Legislation. Congressional
Research Service. 77
Siskin, Alison (2004). Visa Waiver Program. Congressional Research Service 78
Ibid
34
II.4.1 Major U.S.-ROK Agricultural Dispute
U.S. conceded that agriculture sector of ROK is included as
U.S. top list of agricultural export, yet U.S. government and
agricultural industry official opposed numbers of tariff and non-
tariff barrier imposed by ROK government and led agricultural
exports of U.S. to ROK was limited. ROK agricultural tariffs are
particularly high compared to the United States and most OECD
members; according to USTR, South Korea‟s average applied
agricultural tariffs are 52%, more than four times the U.S.‟s
average.79
The most controversial issues of U.S.-ROK agriculture trade
are in rice and beef. ROK formerly was the third-largest foreign
buyer of U.S. beef as U.S. exported nearly $800 million worth of
beef to ROK in 2003.80
And in the end 2003, ROK banned U.S. beef
import due to the discovery of bovine spongiform encephalopathy
(BSE) or usually known as mad cow disease in U.S. beef.
ROK banned the import of U.S. beef due to the concern of
public health and food safety of the Korean. And in January 2006,
ROK agreed to lift the ban on U.S. beef partially due to the talk of
KORUS FTA began 81
. While welcoming the KORUS FTA talk,
USTR Portman also said he was “extremely disappointed” that
Korea did not fully open its market to all U.S. beef products.
According to Inside U.S. Trade‟s, in the article “Fight Over
Korean Rice Market Puts China Against U.S., Australia”, in term of
rice, U.S. exporters sold 55,000 metric tons (MT) of rice which is
28% of the 200,000 MT minimum access quota, to South Korea, and
79
FTA: United States & Republic of Korea Economic & Strategic Benefits. (2006) United
States Trade Representative 80
FTA: United States and Republic of Korea Opportunities for Agriculture. (2006) United
States Trade Representative 81
Just-food.com. (2006, January 13). S Korea: Ban on U.S. beef imported partially lifted.
Retrieved from Global Food Industry News: https://www.just-food.com/news/ban-on-us-
beef-imports-partially-lifted_id86711.aspx
35
China‟s export of rice was115,000 MT in 2003. ROK government
reached an agreement with U.S. and other countries which interested
in ROK‟s rice market to double the import of rice in next 10 years,
starting in 2005.82
This trade pact on imported rice which was
ratified on November 24th, 2005, guaranteed that the import of rice
will be doubled gradually to 8 percent of domestic consumption
which was 4 percent on that time.83
And for U.S., ROK will give
guarantee a market access for 50,000 MT U.S. rice imported to ROK
in every year.
The ratification of the Pact was not done smoothly, it was
proposed in June and the ratification delayed due to the protests,
which one of them was conducted by 3.5 million ROK farmers.84
Ten thousand rice bags were dumped and scattered on the ground
around local government building, farming machines were burn in
southeastern granary. The Minister of Foreign Affairs and Trade
explained that this pact has been promised by ROK to international
community, image and credibility of ROK will be undermined if the
pact was not ratified.85
82
Chong-Gee, A. (2011) Korea -U.S Economic Relations in 2005. In Korea‟s Economy
Vol.22, 43-47 83
Sang-Hun, Choe (November 25th, 2005). South Korea Ratifies Pact on Rice Imports.
Retrieved on 13/1/2016 from The New York Times:
http://www.nytimes.com/iht/2005/11/24/business/IHT-24rice.html?pagewanted=print 84
Agence France Presse (October 28, 2005). South Korean farmers protest against rice
import law. Retrieved on 13/1/2016 from Institute For Agriculture and Trade Policy:
http://www.iatp.org/news/south-korean-farmers-protest-against-rice-import-law 85
Ibid
36
CHAPTER III
LINK BETWEEN KORUS FTA AND
AGRICULTURE SECTOR OF ROK
III.1 Free Trade Agreement Insight
III.1.1 The Understanding About Free Trade Agreements
There are several stages in economic integration, from the
very loose association of countries within a Preferential Trade Area
into the complete economic integration where the economies of the
countries member completely integrated as one.
Source: Hofstra University (people.hofstra.edu)
Figure III.1 Level of Economic Integration
The most complex one is Political Union, the most advanced
form of integration with common government and the sovereignty of
member country significantly reduced. This Political Union found
within a nation state. Then followed by the less complex one which
is Economic Union where the tariffs are removed completely within
the trade of member countries and become a single market with free
37
flow of labor and harmonized monetary and fiscal policies, for
example is European Union.86
Less complex one after Economic Union is Common Market.
Common Market. In Common Market, there are free movement of
services, goods, labor, and capital. However, there must be
significant level of harmonization of micro economic policies and
common rules in product standard, monopoly power and anti-
competitive practices. Below Common Market, there is a Custom
Union which involves the removal of tariff barriers between the
member and acceptance of a common external tariff against non-
member.87
And the least complex is Free Trade where tariff imposed
between member countries significantly reduced but the tariff for
third countries remained the same. Free Trade Agreement aims to
develop economies of scale and comparative advantages, which
promote economic efficiency.
As an international society, the creation of Free Trade
Agreement (FTA) cannot be prevented as it is the result of trade
liberalization. FTA is one of the way to open up foreign market.
FTA is an agreement made by two or more countries or trading
blocs where the members of FTA should be willing to give
preferential market access to the other member by reducing or
eliminating barriers on their substantial trade.88
The barriers to trade can come into two forms which are
tariff barrier and nontariff barrier. Tariff is the most common of
86
Economic Integration. Retrieved on 22/5/2017 from Economics Online:
http://www.economicsonline.co.uk/Global_economics/Economic_integration.html 87
Levels of Economic Integration. Retrieved on 22/5/2017 from The Geography of
Transport System:
https://people.hofstra.edu/geotrans/eng/ch5en/conc5en/economicintegration.html 88
Republic of India Department of Commerce (2014). Frequently Asked Questions (FAQs)
on Free Trade Agreement.
38
barrier imposed on trade. A tariff is a tax imposed on the importing
or exporting goods.89
Other form of trade barrier is nontariff barriers
such as the imposed by the government to support domestic goods
over imported ones, or procedural obstacle relates to the process of
the application of nontariff barrier on the goods traded.90
In term of eliminating tariff, the FTA member will be able to
enjoy the use preferential tariff rates, and this tariff rates are lower
than the general tariff rates.91
Favorable treatment in terms of trade,
services provision, facilitation of trade, investment along with
economic and technical cooperation will be provided for each other
FTA members. Normally, an FTA can cover trade in goods and
services, but other areas such investment, competition policy,
government procurement, Intellectual Property Rights also can be
included in FTA.92
Those provisions will have their role in reducing
nontariff barriers between the FTA members.93
FTA can be created bilaterally, for example Republic of
Korea and The United States of America, and also in regionally,
such as ASEAN Free Trade Area (AFTA).94
III.1.2 Reason for Generating Free Trade Agreement
As the emerge of globalization era, industrialization is
created and being a trend in every country. Hig tariff was considered
as non productive in economic development. James Wilson, an
economist, founder of The Economist weekly newspaper explained
89
State of Japan Ministry of Economic, Trade, and Industry. Chapter 4: Tariff. 90
Nganga, T. K. (2014) Barriers to Trade: The Case of Kenya. In Connecting to Global
Markets (pp. 57-71). Geneva:WTO Publications 91
Hayakawa, K., & Kimura, F. (2014). How Do Free Trade Agreements Reduce Tariff
Rates and Non-tariff Barriers? 92
Hayakawa, K., & Kimura, F. (2014). How Do Free Trade Agreements Reduce Tariff
Rates and Non-tariff Barriers? 93
Ibid 94
Tim Kajian Pusat Kebijakan Regional dan Bilateral (2013) LAPORAN HASIL KAJIAN:
Free Trade Agreement (FTA) dan Economic Partnership (EPA), dan Pengaruhnya
Terhadap Arus Perdagangan dan Investasi Negara Mitra. Badan Kebijakan Fiskal
Kementrian Keuangan Republik Indonesia.
39
that Britain was stuck in economic depression in 1840 due to high
tariff imposed in agricultural product which was known as the Corn
Laws.
Adam Smith and David Ricardo, as the classical economist
emphasize on the desirability of import and they also believe that
export is a necessary cost to acquire import.95
Their thought induced
the trend of more liberalized trade because of high protection on
domestic market will only prevent the growth of economy. And as
the trade its self is two way exchange, increasing export is needed to
increase the import in order to boost the economic growth.96
As countries recently have been more industrialized, people
who live within have higher rate of consumption and modernization
of lifestyle. This higher rate of consumption and modernization of
lifestyle cannot be obtained by only domestic product and services
supply due to the fact that a country could not produce all of the
products or services needed and demanded.
As the demand of goods and services is increasing, and
country needs to import from other countries which produced the
demanding services or products. By the existence of free trade
agreement, the exchange of goods and services in term of export and
import can be done in lower cost with higher quality offered as the
reduction of tariff barriers and nontariff barriers.
Beside lower cost and higher quality of services and producst
obtained, the existence of FTA allows more competition in the
market. As the more competition existed, specialization in goods and
95
Johnson, M. (January 19th, 2016). A Brief History of International Trade Agreements.
Retrieved on 16/1/2017 from Investopedia:
http://www.investopedia.com/articles/investing/011916/brief-history-international-trade-
agreements.asp 96
C.R. (September 6th, 2013). Why did The Economist favour free trade?. Retrieved on
16/1/2016 from The Economist:
http://www.economist.com/blogs/freeexchange/2013/09/economic-history
40
services is generated in which the countries produce more efficient
than the other countries. This specialization will lead to innovation
which provide new technologies.
Economic growth is created, demand for goods and service is
increasing, and as the demand increases, it lead to the creation of
more business and expansion of business also. Business expansion
creates more job opportunity. And as the existence of FTA, the
opportunity to expand business to another country of FTA member
is greater which can encourage investment and foster the creation of
jobs.
III.1.3 Advantages and Disadvantages of Free Trade Agreement
Free trade occurs as there is no obstacle enforced by the
government to limit the flow of goods and services between two or
more countries which are trading partners. By there is no obstacle
put in place, free trade can give benefits and also disadvantages for
the countries which involves in.
According to the study of Drozd Miskinis, in the book titled
Economia Economics, benefits and disadvantages of FTA can be put
as the table below.
Table III.1 Possible Advantages and Disadvantages of Free Trade Agreement
Level Advantages Disadvantages
Country Open market access Aggressive market entry
policy
Trade creation Trade diversion, trade
imbalance, trade complexity
Economic growth Economic instability
Economic underdevelopment
Comparative advantage Inflexibility
Employment Structural unemployment
41
Improved investment
climate
Difficult establishment of
developing and new
industries
Monopoly prevention Corporate restructuring
Exchange of raw
materials
Environmental concerns
Intra-industry trade Exports of primary products
Organization Economies of scale Higher competition
Foreign exchange rate
gains
Dumping
Production efficiencies Export concentration
Higher collaboration Unfair competition
Consumer Rising standard of living Cultural identity
Greater variety of
products
Misrepresentation
Lower prices Lower quality
The obvious advantage of FTA is it can provide better access
for other member‟s market as the trade barriers between the
members are reduced, meanwhile for the domestic firm, they will
face aggressive import competition by the existence of foreign firm,
this lead to the dilemma of which policy used between lowering the
price or use non-price based strategy to maintain their sales.97
FTA creates trade and result to the supply that come from the
more efficient producer. The trade creation occurs as the
consumption switched from the high cost producers to low cost
producers due to the range of price offer by the existence of FTA.
Otherwise, FTA also create trade diversion as the prices between
FTA member are different with the rest of the world. And also, the
existence of FTA increases the complexity of international trade
system, for instance the rules needed to prevent the other countries
goods to enter the FTA member‟s market through another member,
different agreements need different rules and different enforcements
97
Drozdv, J., & Miškinis, A. (2011). Benefits and Threats of Free Trade. In Economia
Economics. Wroclaw:Publishing House of Wroclaw University of Economics
42
FTA also can be one of the factors contributes to economic
growth, as according to OECD, open economies grow three times
than the closed one. Open economies are open to the investment and
lead to employment. Meanwhile, in contrast, FTA also can cause an
unstable economy due to the high dependency on the global market
and also the increasing import can lead to the loss of jobs as the
barrier eliminated or reduced, the one which produced the same
goods with the imported one but have less quality or higher price
will have possibility to lose in the competition.
III.2 Free Trade Agreement between United States and
Republic of Korea (KORUS FTA)
III.2.1 Description of KORUS FTA
As known U.S. and ROK have been allied since the end of
Korean Peninsula War. Based on the respect and trust towards each
other, until now U.S. and ROK are able to maintain a long and
mutual beneficial relationship. Free Trade Agreement between
United States and the Republic of Korea or mostly known as
KORUS FTA counted as the step to strengthen the tie of alliance
between them. KORUS FTA is the second largest FTA after North
American Free Trade Agreement (FTA), and first FTA between
major trading nations in North America and Asia.98
KORUS FTA is a trade agreement between the United
States and the Republic of Korea which managed to have
negotiation regarding this trade agreement for 14 months from
February 2nd
, 2006 until April 1st, 2007 in eight rounds of official
negotiation.99
This agreement then signed on June 30th
, 2007 by U.S.
98
Yong-shik, L., Jaemin, L., Kyung, H. S. (2011) The United States - Korea Free Trade
Agreement: Path to Common Economic Prosperity or False Promise? University of
Pennsylvania East Asia Law Review, 112-162 99
Ibid
43
government which was under President George W. Bush and ROK
government which was under President Lee Myung Bak.
Sectors covered in KORUS FTA are agriculture, textiles and
apparel, pharmaceutical and medical devices, investment, financial
services, telecommunication, electronic commerce, intellectual
property rights, government procurement, labor, and etc.100
This
trade deal eliminates tariff more than 90 percent of the product
which categorized as the trading goods between U.S. and ROK.101
Within three years of KORUS FTA implementation, almost 95
percent of bilateral trade in consumer and industrial products will be
duty-free, and within ten years, the remaining tariff will be
eliminated. But for highly sensitive products, the tariff phase-out
will last up to 20 years.
III.2.2 Actors Involved in KORUS FTA
1. Republic of Korea Ministry of Foreign Affairs and Trade
(MOFAT)
Republic of Korea (ROK) Ministry of Foreign Affairs and
Trade (MOFAT) was legitimated based on the Government
Organization Act enacted by the ROK government on July 17, 1948
as “Ministry of Foreign Affairs”. This ministry is in charge within
diplomacy, policy of external economic, overseas Korean nationals,
analysis of international situation, and affairs in overseas
promotional.102
In 1998, the Ministry of Foreign Affairs was reorganized to
be Ministry of Foreign Affairs and Trade by the incorporate of new
office Ministry of Trade in order to be more comprehensive to
100
KORUS FTA Final Text 101
Sang-Hun, C. (April 2nd
, 2007). U.S. and South Korea sign free-trade agreement.
Retrieved on 17/1/2016 from The New York Times:
http://www.nytimes.com/2007/04/02/world/asia/02iht-fta.1.5110252.html 102
History of Republic of Korea Ministry of Foreign Affairs. Retrieved on 25/1/2016 from
Republic of Korea Minstry of Foreign Affaris:
http://www.mofat.go.kr/ENG/ministry/organization/history/index.jsp?menu=m_50_60_10
44
establish and build foreign policy in the field of trade. In 2013, the
Ministry was reorganized for the second time as Ministry of Foreign
Affairs due to the reorganization plan in Park Geun-hye
administration.103
Foreign policy of the Ministry of Foreign Affairs is the
“realization of a happier Korean people, Korean Peninsula, and
global community”. According to this foreign policy, the Ministry of
Foreign Affairs will try to achieve peace and development of Korean
Peninsula and Northeast Asia, give contribution for the advancement
of humanity and make ROK as fascinating country where the
happier people exist. The Ministry of Foreign Affairs will objectify
the foreign policy by focusing on following policy tasks:104
1. Providing an impetus for resolving the North Korean nuclear
issue;
2. Developing relations with major neighboring countries of the
Korean Peninsula;
3. Promoting the Northeast Asia Peace and Cooperation Initiative
and expanding cooperation with Euasia;
4. Playing a role as a responsible middle power contributing to
world peace and progress;
5. Protecting the safety and rights of Korean nationals residing
abroad and expanding both public diplomacy and jobs
diplomacy;
6. Strengthening the capacity for economic cooperation;
As MOFAT has the objective to strengthening the capacity
for economic cooperation, negotiating KORUS FTA was one of the
way taken by MOFAT to strengthen the economic cooperation of
ROK, moreover with one of the advanced market in the world,
which is U.S. In KORUS FTA, MOFAT had its role as the
representative of ROK to negotiate the agreement with U.S.
MOFAT is the key agency of ROK to manage the foreign affairs and
103
Ibid 104
Republic of Korea Ministry of Foreign Affairs. Key Diplomatic Tasks. Retrieved on
25/1/2017 from Republic of Korea Ministry of Foreign Affairs :
http://www.mofat.go.kr/ENG/ministry/tasks/index.jsp?menu=m_50_40
45
trade, and MOFAT also worked with FTA-related divisions such as
Ministry of Agriculture and Forestry, Ministry of Finance and
Economy, and Ministry of Commerce, Industry and Energy and also
national policy research organizations and selected civil
organizations.
To be specific the negotiation of KORUS FTA by Ministry
of Foreign Affairs and Trade was done under the lead of Director of
the Ministry of Foreign Affairs and Trade, Kim Jong-hoon. They
created International Trade Policy Bureau which is now the Korea
Institute of International Economic Policy which has function on
negotiating multilateral or bilateral trade.105
2. The Office of United States Trade Representative (USTR)
Until the early of 1960s, responsibility to conduct U.S. trade
and investment diplomacy also trade agreement belong to
Department of State. And according to Trade Expansion Act of
1962, U.S. congress asked for Special Representative for conducting
U.S. trade negotiations, then provided Special Trade Representative
to serve as chair of interagency trade organization in order to make
recommendation on trade agreement program.106
In 1963, new office of Special Trade Representative (STR)
created in the Executive Office of President. In 1974 STR was
provided a legislative charter for being part of Executive Office of
President with expanded responsibility and elevated to cabinet level.
In 1979 STR reorganized as Office of United States Trade
Representative (USTR), central U.S. policy and negotiator for
international trade. The Office of USTR has more than 200
105
Young Bae, P., & Sang Bok, M. (2006). Korea‟s FTA Policy Structure. 106
History of United States Trade Representative. Retrieved on 25/1/2016 from Office of
the United States Trade Representative https://ustr.gov/about-us
46
committed professionals in it and they are specialized experienced in
trade issues and regions.107
The Office of USTR negotiates directly with the foreign
government to create trade agreement, settle trade dispute, and
associate in the organization of global trade policy. The Office of
USTR also gather with the business groups, legislators, and public
interest groups in order to congregate the input of trade issues and
discuss the position of President‟s trade policy.108
Responsibilities of The Office of USTR are to coordinate and
develop U.S. international trade, policy of direct investment, and
commodity, also negotiate with another countries. U.S. Trade
Representative is the head of USTR, it is a cabinet with function to
serve as spokesperson, negotiator, and trade advisor for president‟s
principal when it comes to trade issues.109
As known that USTR has its responsibility to develop U.S.
international trade, one of the international trade arrange by USTR is
the trade with ROK. The international trade engage with ROK had
been created in the form of Free Trade Agreement which is Free
Trade Agreement between United States and Republic of Korea, or
simply called KORUS FTA. USTR role in KORUS FTA was to be
representative of the stakeholder of KORUS FTA which was based
in U.S.–such U.S. government and businesses which include in it –
to negotiate the agreement with ROK which were represented by the
Ministry of Foreign Affairs and Trade on that time.
To be specific, from the Office of USTR, the one which
handled KORUS FTA negotiation was USTR‟s Office of Japan,
107
Mission of the USTR. Representative.Retrieved on 25/1/2016 from Office of the United
States Trade Representative: https://ustr.gov/about-us 108
Mission of the USTR. Representative.Retrieved on 25/1/2016 from Office of the United
States Trade Representative: https://ustr.gov/about-us 109
Ibid
47
Korea and APEC (Asia Pacific Economic Cooperation) Affairs. This
part of USTR is the one in charge for developing and implementing
trade and trade policies towards Japan, Korea, and APEC. And for
Korea, this part of USTR coordinated 20 committees and working
groups in order to arrange the implementation of KORUS FTA in
specific issues and areas.110
KORUS FTA negotiation by USTR‟s
Office of Japan, Korea and APEC was lead under Assistant of
USTR, Wendy Cutler.111
III.2.3 Concern of ROK Agriculture Sector in KORUS FTA
ROK has been much more industrialized, this is the contrast
of its agriculture, agriculture sector of ROK has been increasingly
losing its competitiveness. ROK has little arable land, this
contributes to only 3% of ROK gross domestic product, and only 7%
of total population which in fact they are aging and keep decreasing
in number.112
Previous facts are the reason why agriculture sector
has been a very sensitive sector for ROK.113
Furthermore, this sector
is the main objective of U.S. in KORUS FTA since U.S. have been
one of the major agricultural products exporter for ROK.
“[This] (Korea-U.S. Free Trade) Agreement will over a
period of time eliminate most, if not all, of those tariffs,
which will create enormous opportunity for us. It could
increase access to American products in Korea by $1.8
billion…. Every billion dollars of ag trade generates 8- to
9,000 jobs, and when we do $135 billion worth of trade,
that translates into hundreds of thousands of people
who were employed off the farm, creating a more
revived economy.” – Tom Vilsack, U.S. Secretary of
Agriculture February 24, 2011
110
Countries and Regions: Japan, Korea & APEC. Retrieved on 1/3/2017 from Office of
the United State Trade Representative: https://ustr.gov/countries-regions/japan-korea-apec 111
USTR – Wendy Cutler. Retrieved on 1/3/2017 from . Office of the United States Trade
Representatives: https://ustr.gov/archive/Who_We_Are/Bios/Wendy_Cutler.html 112
Hyunok, L., & Summer, D. A. (2009). The Prospective Free Trade Agreement with
Korea: Background, Analysis, and Perspectives For California Agriculture. Regents
University of California 113
Song, Y. (2011). KORUS FTA vs Korea-EU FTA: Why the Differences? On Korea:
Academic Paper Series
48
Agriculture products that will have tariff elimination under
KORUS FTA are meat products, dairy products, fruits, vegetables,
nuts, grains, and whine.114
Unfortunately, as the discovery of mad
cow disease on U.S. beef in 2003, the negotiators for KORUS FTA
still could not find the solution for U.S. beef access towards ROK‟s
beef market and the talks regarding U.S. beef access towards ROK‟s
market was accompanied by the public protest in ROK in July
2008.115
U.S. insisted ROK to lift the ban on U.S. beef import during
the KORUS FTA negotiation, but it was refused by President Roh
Moo Hyun due to food safety of ROK citizen is more important.
Meanwhile, in term of President Lee Myung Bak, the ban over U.S.
beef was lifted on April 2008 as the removing of block for KORUS
FTA.116
U.S. ROK only allow the U.S. beef import in term of
boneless meat from cattle under 30 months in believe to decrease the
risk of mad cow disease.117
The decision to lift U.S. beef ban taken by President Lee
Myung Bak led to the protest of ROK society. At first the protest
only drew hundreds of demonstrants, but it kept increasing as one of
ROK‟s television channel broadcast a documentary film “PD
Notebook” regarding how U.S. farm contributes to mad cow disease
and the statement that ROK‟s people are susceptible to mad cow
disease which was not supported by any scientific proofs.118
114
The Facts About The Korea-U.S. Free Trade Agreement. (2008) Washington,
DC:Embassy of the Republic of Korea 115
Ibid 116
Sang-Hun, C. (April 19th
, 2008). South Korea lifts U.S. beef ban. Retrieved on
17/1/2016 from The New York Times:
http://www.nytimes.com/2008/04/19/world/asia/19korea.html 117
Miyoung, K. (June 27th
, 2008). New protests as South Korea checks U.S. beef for
import. Retrieved on 17/1/2016 from REUTERS: http://www.reuters.com/article/us-korea-
usa-beef-idUSSEO24740320080627 118
Myo-Ja, S. (June 27th
, 2008). Prosecutors expanding probe into TV report. Retrieved
on 17/1/2016 from Korea Joongang Daily:
http://mengnews.joins.com/view.aspx?aId=2891646
49
Demonstration regarding anti U.S. beef were organized as
cultural event at first, participated by student, mothers, fathers with
their children lighting candles, with many speeches and sad song.
And then it turned out to be more violent on May 27, there were
evening demonstration above 7 pm in Seoul and created big clash,
many injured people from police side and the demonstrants, and also
the damage of the vehicles, and building around.119
Around 100,000
of ROK people were against the U.S. beef import.120
President Lee Myung Bak apologized for his controversial
decision without considering the opinion and concern regarding
health risk of ROK people in term of resuming the import of U.S.
beef.121
AP news agency reported that President Lee and the
government are really sorry for heeding public concern, and stated
that he was in hurry to have better changes and reformation after one
year inauguration. President Lee also said that he would make sure
that there is no U.S. beef which come from cattle with more than 30
month ages to decrease the risk of mad cow disease.122
Beside beef, U.S. access towards rice and orange market of
ROK was negotiated. Rice is the staple food of ROK, so that ROK
put high protection on its rice. To decrease negative impact on
agriculture sector, ROK did a preparation. ROK imported 400
thousand tons of U.S. rice on April 5th
, 2006, to measure the interest
of ROK people towards U.S. rice. If the rice was sold out by April
16th
, U.S. rice will be fully imported. The result was U.S. rice was
119
Rahn, K. (June 8th
, 2008). Anti-US Beef Rallies Have Two Faces. Retrieved on
17/2/2016 from The Korea Times:
http://www.koreatimes.co.kr/www/news/nation/2016/09/117_25498.html 120
Xuequan, M. (June 10th
, 2008). About 100,000 South Koreans protest U.S. beef imports.
Retrieved on 17/1/2016 from XINHUANET: http://news.xinhuanet.com/english/2008-
06/10/content_8342700.htm 121
Fifield, Anna (June 20th
, 2008). S Korea‟s Lee says „sorry‟ over beef row. Retrieved on
17/1/2016 from Financial Times: https://www.ft.com/content/b80347a0-3dd6-11dd-b16d-
0000779fd2ac 122
S Korean leader in beef apology (June 19th, 2008)Retrieved on 17/1/2016 from BBC
News: http://news.bbc.co.uk/2/hi/7462776.stm
50
not sold out, and government came with conclusion that ROK
people‟s interest towards U.S. rice is still low.123
Citrus products are also sensitive and still remain unresolved
until the last day of negotiations. U.S. asked ROK to eliminate the
whole tariff and quota for imported citrus, but ROK wanted to keep
the tariff due to its importance for the economy of Jeju island. And
finally, the two governments agreed that ROK will maintain the
tariff on navel orange more than 2,500 MT for the shipment in
growing season, and per year the quota will increase by 3%. And in
non-growing season shipment, the tariff will be eliminated from
50% to 30% and phased out within seven years.124
III.2.4 Negotiation Process of KORUS FTA
1st Round: Washington DC. June 5
th – 9
th, 2006
Exchange the draft of agreement, and proposal review.
Reached an agreement in 11 sectors out of 15 sectors. The remaining
were agriculture, sanitary and phytosanitary (SPS), textiles, and
trade remedy due to the consideration of those sector are the most
controversial.125
Lee Choi, the Deputy Director of Policy
Department of the Federation of Korea Trade Union said that this
first round was a failure and the result was full of problems, different
with government‟s expectations.
2nd
Round: Seoul. July 10th
– 14th
, 2006
Negotiation on pharmaceutical was suspended by U.S. lead
negotiator. Wendy Cutler, assistant of USTR due to inconsistent
123
Policy Brief On The Proposed U.S.-Republic Of Korea Free Trade Agreement.
Retrieved on 17/1/2016 from Korea Policy Institute:
http://kpolicy.org/070131thomaskimusskfta/ 124
Policy Brief On The Proposed U.S.-Republic Of Korea Free Trade Agreement.
Retrieved on 17/1/2016 from Korea Policy Institute:
http://kpolicy.org/070131thomaskimusskfta/ 125
The Korea Alliance Against the KorUS FTA (2006) The REAL Understanding of the
KorUS FTA.
51
decision taken by ROK government which was against the
enthusiasm of opening market for KORUS FTA.126
Despite the
suspended negotiation on pharmaceutical, the two governments
agreed on exchanging tariff offer in the agriculture products,
industrial goods, and textiles.127
Stated by Alexander R. Vershbow,
U.S. Ambassador for ROK, this round also illustrated the challenges
poses in for successful completion of the FTA which were to
reconcile the need of citizen involvement in the talk with negotiator,
and maintain momentum in the talk through the increasing effort of
promoting FTA.
3rd
Round: Seattle. September 6th
– 9th
, 2006
The two governments put emphasize on the offered tariff and
reservation of service or investment exchanged. ROK requested U.S.
to improve the tariff offered and it was proceeded by U.S. but failed
to meet the agreement, meanwhile for U.S., its request was the
improvement of tariff offered by ROK in agricultural products.128
According to the observation of Senior Research Fellow on
Northeast Asia, Bruce Klingner, this third round gave no
improvement on increasing the market access.129
4th
Round: Jeju. October 23rd
– 27th
, 2006
Kim Jong-hoon, chief delegate of ROK said that the two
governments made “practical progress” during this time but the
agriculture and sensitive areas remain being the major obstacle.130
In
126
The Korea Alliance Against the KorUS FTA (2006) The REAL Understanding of the
KorUS FTA. 127
Ibid 128
Republic of Korea Ministry of Foreign Affairs and Trade. (September 9th, 2006)
Outcome of the Third Rounds of KORUS FTA Negotiations 129
Republic of Korea Ministry of Foreign Affairs and Trade. (September 9th, 2006)
Outcome of the Third Rounds of KORUS FTA Negotiations 130
Xinhua (October 28th
, 2006). S.Korea says progress made in FTA talks with U.S..
Retrieved on 15/12/2016 from People‟s Daily Online :
http://en.people.cn/200610/28/eng20061028_315940.html
52
this session, U.S. offered to remove tariffs on 1,000 industrial goods
which include toys, shoes, television, mobile phone, and high-tech
materials. From this offer, it was expected benefit US$ 1.5 billion
dollars for ROK.131
A massive protest conducted by ROK‟s farmers
and anti-FTA also accompanied this fourth round of official
negotiation in Jeju Island.
5th
Round: Montana. December 4th
– 8th
, 2006
Montana is the place which produce large amount of beef. The fifth
round was held there in order to ease the anxiety of ROK regarding
mad cow disease in U.S. beef.132
In this round, ROK ruled out the
talk regarding patent protection on U.S. pharmaceutical company
and U.S. anti-dumping law.133
U.S. take down these requests of
ROK and delay the negotiation of trade remedies, autos, and
pharmaceutical. But in this round, they made progress in less-
sensitive areas such in intellectual property right.134
6th
Round: Seoul. January 15th
– 19th
, 2007
Trade remedies, pharmaceutical and autos were not making any
progress. For agricultural sector, the preparatory works were
requested for the next discussion. In term of services and market
access, there was some progress made.135
Investor state-dispute
settlement was the focus in investment sector. The two governments
131
Xinhua (October 28th
, 2006). S.Korea says progress made in FTA talks with U.S..
Retrieved on 15/12/2016 from People‟s Daily Online :
http://en.people.cn/200610/28/eng20061028_315940.html 132
5th round of S.K.-U.S. trade talks begins. Retrieved on 15/12/2016 from The
Hankyoreh: http://english.hani.co.kr/arti/english_edition/e_business/175978.html 133
Mann, W. C. (December 8th
, 2006). U.S.-South Korea Trade Talks Go On. Retrieved on
15/12/2016 from The Washington Post: http://www.washingtonpost.com/wp-
dyn/content/article/2006/12/08/AR2006120801207.html 134
Ibid 135
Outcomes of the 6th Round of Official KORUS FTA Negotiations. Retrieved on
15/12/2016 from Republic of Korea Ministry of Foreign Affairs:
http://www.mofat.go.kr/ENG/press/pressreleases/index.jsp?menu=m_10_20&sp=/webmod
ule/htsboard/template/read/engreadboard.jsp%3FtypeID=12%26boardid=302%26seqno=29
6222
53
agreed to supplement their respective ta (Xinhua, 2006)riff offers
and services and investment reservation lists before the seventh
round of negotiations.136
7th
Round: Washington DC. February 11th
-14th
, 2007
The negotiators were racing to reach the agreement before the
expired of TPA presidential on that time. U.S. kept demanding the
fully opened of market access for U.S. beef to conclude the FTA. 137
Many areas have been resolved such electronics commerce and
sensitive issues such trade remedies of U.S. laws have been
discussed during this session. And also this session not detached by
demonstration of anti-FTA joined by Korean Americans and U.S.-
based immigrants‟, workers‟, and civil society organizations who
were against the KORUS FTA.138
8th
Round: Seoul. March 8th
-12th
, 2007
Custom administration, competition had closed in this round along
with market access, services, sanitary and phytosanitary measures,
pharmaceutical, rules of origin and others. But the perspectives in
key issues such agriculture, textiles, auto, trade remedy and Gaesong
Industrial Complex remain in significant difference between the two
governments. These two governments will seek a compromise on
the remaining unresolved issues through chief negotiator level
discussions on March 19th
, 2007, continued in Trade Minister
meeting in Seoul on March 26th
to April 2nd
, 2007 and finally
concluded on April 1st 2007.
136
Len, Sam (January 15th
, 2007). Korea and US Launch 6th Round of FTA Talks. Retrieved on
16/12/2016 from The World on Arirang :
http://arirangtv.com/News/News_Print.asp?type=news&nseq=68078
137 Korean Alliance Against Korus FTA (February 10
th, 2007). No FTA Newsletter (KoA).
Retrieved on 16/12/2016 from Bilaterals.org: http://www.bilaterals.org/?no-fta-newsletter-
koa&lang=es 138
Korean Alliance Against KORUS FTA (February 16th
, 2007). KoA No FTA newsletter
#3. Retrieved on 16/12/2016 from Bilaterals.org: http://www.bilaterals.org/?koa-no-fta-
newsletter-3&lang=es
54
III.2.5 Delayed Ratification of KORUS FTA
Indeed, that KORUS FTA was controversial for U.S. and
ROK. But in ROK, this FTA has gained support due to the approval
of U.S. to exclude rice from this FTA139
. Beside the exclude of rice,
announcement from Vice Finance and Economy Minister, Kim
Seokdong, that the assistance package will be given by government
to its farmers and other industries which were going to be affected
adversely by the FTA raised the support for the FTA also.140
Although the negotiation was done in 2007 and already
signed by both governments, this trade agreement was not ratified
yet. At the end of the eight round, some sensitive issues were still
unresolved, intensive discussion between the most senior level of the
two governments conducted. ROK was represented by Ambassador
Kim Jong-Hoon, meanwhile U.S. was represented by Deputy U.S.
Trade Representative, Karan Bhatia.141
U.S. side under the administration of President Barack
Obama said that KORUS FTA is unfair. USTR Ron Kirk told the
Senate Finance Committee in 2009 that KORUS FTA is not fair and
unacceptable. And during his campaign, Obama sent a letter to
President Bush said that the trade agreement would give great access
for ROK to U.S. market meanwhile eliminating the opportunity to
get reciprocal market access towards ROK market. Obama‟s concern
was in the automobile sector, since the ROK was not fully
eliminated barrier in this sector.142
Obama‟s administration also was
139
US and South Korea Conclude Free Trade Agreement. (April 4th
, 2007). Retrieved on
17/12/2016 from International Centre for Trade and Sustainable Development:
http://www.ictsd.org/bridges-news/bridges/news/us-and-south-korea-conclude-free-trade-
agreement 140
Duyeon, K. (April 3rd
, 2007). Govt. Announces Aid Package to Cushion FTA's Effects.
Retrieved on 17/12/2016 from The World on Arirang:
http://www.arirangtv.com/news/News_View.asp?nseq=70008&sys_lang=Kor 141
Heiber, J. (2011, May 25) U.S.-REPUBLIC OF KOREA ECONOMIC RELATIONS:
A WASHINGTON PERSPECTIVE.In Korea‟s Economy Vol.25, pp. 64-66. 142
Heo, U., & Roehrig, T. (2010). South Korea since 1980. Cambridge:Cambridge
University Press
55
coping domestic pressure to limit the competition with foreign firms,
and this was based on the argument of Labor Union which said FTA
only increase unemployment and create stagnate wage.143
In ROK‟s side, the ratification was also stopped, although
trade agreement earned high support from ROK‟s people. Based on
the poll of Hankok Ilboo, 31.6% of 1,000 respondents said the
ratification should be done immediately, and 35.1% support the
approval of KORUS FTA by ROK‟s National Assembly with the
condition of U.S. Congress will do the same.144
Democratic Party,
opposition of Lee Myung Bak‟s ruling party GNP, refused the
immediate ratification of KORUS FTA with argument regarding the
needs of further studies of the effect of KORUS FTA and
preparation for the industries that might in damage by KORUS
FTA.145
February 25th
, 2009, the judicial subcommittee of National
Assembly propose the bill of KORUS FTA without the approval of
subcommittee from trade, foreign affairs and unification.146
Additional negotiation conducted in early November, mostly talk
about U.S. automobile access towards ROK‟s market and it was
concluded in December 3rd
, 2010.147
Since the negotiation of KORUS FTA started, opposition
from ROK conducted campaign anti-FTA organized by Korea
Alliance in order to oppose the trade deal between these two
countries. According to them, this FTA will make the ROK‟s market
full of U.S. products which are cheaper than ROK products, it will
143
Heo, U., & Roehrig, T. (2010). South Korea since 1980. Cambridge:Cambridge
University Press 144
Sue-Young, K. (2008, June 8). Two-Thirds of Koreans Back FTA With U.S. Retrieved
on 18/1/2016 from The Korea Times:
http://www.koreatimes.co.kr/www/news/nation/2016/10/116_25487.html 145
Ibid 146
Sue-Young, K. (2008, June 8). Two-Thirds of Koreans Back FTA With U.S. Retrieved
on 18/1/2016 from The Korea Times:
http://www.koreatimes.co.kr/www/news/nation/2016/10/116_25487.html 147
Ibid
56
increase unemployment due to the inability to compete for ROK‟s
industries. Especially in agriculture sector, this will lead to the loss
of ROK‟s farmers.
But after a lot of negotiations conducted, finally National
Assembly of ROK ratified KORUS FTA on November 22nd
, 2011
with polling 151 votes support the FTA, 7 votes refuse FTA, and 12
votes abstain.148
U.S. and ROK exchanged diplomatic notes on
February 21st, 2012 and agreed to take the agreement into force on
March 15th
, 2012.149
III.3 Result of KORUS FTA negotiations on Specific Sectors
After having eight round official negotiation which take around
eleven months from June 2006 to March 2007, ratification delayed and
additional negotiation until being ratificated by both U.S. Congress and
ROK National Assembly on 2011, the negotiations in 2006-2007 until
additional in 2010-2011 was giving result with general provisions on trade
remedies, Intellectual Property Rights, Environment, Kaesong Industrial
Complex, Government Procurements, Foreign Investment, Transparency,
Worker Rights, Dispute Settlement and Institutional Provisions, and other
technical provisions. For specific sectors, table below gives brief picture
regarding specific sectors provisions which will be implemented by ROK
and U.S. as the KORUS FTA went into force.
Table III.0.2 Negotiation result on specific sectors
Automobiles ROK tariff on U.S. cars will be reduced by 8%, 10%
for trucks, meanwhile for motorbikes will be phased
out completely 2016.
148
Myo-ja, S. (2011, November 23). Korus FTA Ratified in Surprise Vote. Retrieved on
18/1/2016 from Korea Joong Ang Daily:
http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=2944540 149
Ibid
57
U.S. tariffs on ROK‟s electric and fuel cell vehicles
will be eliminated annually with complete phased out
in 2016, meanwhile 25% tariff on trucks will be duty-
free on 2022.
ROK agreed to improve the transparency regarding
automotive regulations by developing post-
implementation review after two years the FTA takes
effect to ensure that implementation of existing
regulation.
Self-certification for U.S. federal safety standard was
raised to be 25,000 U.S. exported vehicles per
automaker per year
Establishment of “Automotive Working Group” to
adress about all the regulatory issues.
Textiles and
Apparel
U.S. tariffs on ROK textiles and apparel will be 52%
as the FTA implemented, by 2016 will be phased out
on 19%, and on 21% will phased out in the end 2021.
ROK tariffs on U.S. textiles and apparel on 77% in
2012 will be phased out on 13% in 2015 and the
remaining 10% in 2016.
Machinery
Equipment
Most machinary tariffs of ROK on U.S. machinery
were phased out before KORUS FTA, and will be
eliminated on entire machinary equipment as the
implementation of KORUS FTA started.
Electronic
components and
products
Most electronic components and products of U.S.
were already duty free due to Information
Technology Agreement, and the remaining will be
duty-free as KORUS FTA implemented.
Pharmaceutical and
medical devices
ROK agreed to publish its national regulations
regarding pharmaceutical and receive the comments
or review towards it.
Based on safety and efficacy, reimbursement level of
U.S. pharmaceutical level is allowed to increase
Agriculture Two third U.S. agricultural export to ROK
58
immediately granted duty-free as KORUS FTA
implemented, and the other protected by tariffs and
tariff-rates quota (TRQ) will be phased out within 23
years.
Rice is excluded from the agreement.
All ROK agricultural export to U.S. will be phased
out entirely both quota and tariff within seven phase
out periods with maximum time 15 years after
implementation.
Imported U.S. beef should come from cattle less than
30 months old.
Source: “The U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions
and Implementation”, by Brock R. Williams, 2014.
Tariff schedule of ROK is described in on the basis of Harmonized
System of ROK (HSK).150
HSK is Harmonized Commodity Description and
Coding System (HS) of tariff nomenclature, an international standard
system of names and number to classify trade products maintained by
World Customs Organization, but in Korean version. To be specific, in
agriculture sector contains the categories of animal products, vegetable
products, and foodstuff. Beside tariff and TRQ, Agriculture Safeguard
Measures (ASG) is also used in order to protect the ROK agricultural
market.151
Table following is the ROK‟s tariff reduction schedules in
agriculture sector based on KORUS FTA.
Table III.0.3 ROK’s Tariff Reduction on Agricultural Sector in KORUS FTA
Product Tariff Reduction
Rice Excluded
Barley 15 year + ASG + TRQ
Maize Popcorn 7 year + ASG
150
Song, Y. (2011). KORUS FTA vs Korea-EU FTA: Why the Differences? On Korea:
Academic Paper Series 151
Ibid
59
For feeding Immediate
Beans 15 year + ASG + TRQ
Beef 15 year + ASG
Pork Fresh or chilled pork 10 year + ASG
Frozen pork 2016.1.1
Milk
products
Milk powder and evaporated milk and
buttermilk Tariff remains + TRQ
Food whey 10 year +TRQ
Cheese Cheddar 10 year + TRQ
Others 15 year + TRQ
Butter 10 year + TRQ
Natural honey Tariff remains + TRQ
Orange Seasonal tariff + TRQ
Grape Seasonal tariff
Pepper Fresh, chilled, or dried 15 year + ASG
Frozen 15 year
Garlic Fresh, chilled, or dried 15 year + ASG
Frozen 15 year
Onion Fresh, chilled, or dried 15 year + ASG
Frozen 12 year
Starch (maize starch, potato starch, manioc starch,
sweet potato starch) 16 year
Cereal, groats, worked grains 16 years
flour, meal, powder, flakes, granule, pellet
potatoes 11 years
ground nuts, sesame seeds, sesame seeds oil, 19 years
Alcohol 16 years
Dextrins 11 years
Source: Korean Tariff Schedule in KORUS FTA152
Before the implementation of KORUS FTA, duty for the beef
imposed by ROK was 40%. And as the implementation started in March
15th
, 2012, this duty for beef will be phased out within 15 years and the
ASG will protect ROK‟s beef from imported U.S. beef with starting quotas
152
KORUS FTA Final Text.
60
for imported beef larger than the other FTAs of ROK. For pork, the duty
was 22.5% for the chilled and fresh one, meanwhile for the frozen pork was
25%. This duty will be phased out within 10 years in KORUS FTA with
protection of ASG within the phase-out period, exception for the belly part
from frozen pork, this duty will be eliminated by January 2014.
For dairy products such as milk, which were highly protected by
high duty by ROK, subject to the TRQ. By first year implementation of
KORUS, these products imported from U.S. will be duty free for 5,000
metric tons (MT) of its quota and it will keep increasing almost 3% per year
for the first five years then turn to be 3% per year after that. For butter, the
duty imposed was 89% will be eliminated completely in the early of 10
years of KORUS FTA implementation. For the starter quota of butter
imported from U.S. is 200 MT with 3% increase in every year, and within
nine years unlimited quota will be duty free.153
Cheese products are subject
to the TRQ. 7,000 MT is the quota in the first year and will be 10,284 MT
in 14 years, and unlimited after that. Exception for cheddar cheese, this will
be free from the TRQ in the year of 10.
Natural honey is another highly sensitive product in ROK with tariff
rate 243%. And as the KORUS FTA implemented, the first quota given for
U.S. natural honey reaches 200 MT, will be 225 MT in the fifth year, and
after that increase by 3% in each year. The most sensitive products are
vegetables products which include categories of edible fruits, vegetables,
coffee, cereal, nuts, flour, and tea. The tariffs are really high from more
than 25 until more than 100%. By implementation of KORUS FTA, these
products subject to the TRQ and ASG. Categories subject to the TRQ such
as potatoes, starch, and soybean. Orange as the most sensitive fruit, will be
given first in-quota quantity 2500 MT and will be 2814 MT in the year of
five, with an increase by 3% after that in each year.
153
KORUS FTA Final Text.
61
CHAPTER IV
THE IMPACT OF KORUS FTA TOWARDS
AGRICULTURE REPUBLIC OF KOREA
IV.1 Agriculture Export and Import Before and After
KORUS FTA
As a country which involved within a FTA, ROK is being affected
by negative impact such as the import of goods from U.S. to domestic
market that affect the inability of domestic product to compete, especially in
agriculture. Moreover, before the KORUS FTA went into force, ROK had
been one of U.S. largest agricultural importer such as meat, fruits, dairy
products that easily found in ROK domestic market.
Due to the tariff reduction, U.S. agricultural products will be easier
to enter ROK‟s market where the consumers more likely to prefer their
products instead of domestic products by U.S. products cheaper price and
higher quality. This is becoming threat for the domestic agricultural
products later on.
KORUS FTA gives great impacts to ROK‟s agriculture sector, it
affects to the stability of agriculture sector its self in ROK. In order to
explore the stability of agriculture sector, the researcher will study and
define the agricultural products which are most sensitive and by KORUS
FTA, those are livestock (meat), cereals, fruits, and dairy products.
Data given for this research for both export and import of livestock,
grains, fruits, and dairy products is done for three years which can be seen
within implementation of KORUS FTA since 2012 to 2014.
62
Table IV.1 Livestock Export-Import 2012-2014 (thousand USD)
Year Export Import
2012 30 997,725
2013 273 954,091
2014 25 1,252,091
Source: trademap.org
During three years can be seen that the export of U.S. to ROK in
term of livestock was going up and down. In the 2013, ROK‟s livestock
import from U.S. was declining to the substitution of livestock from another
livestock importer such Australia. But in 2014, the livestock import was
back increasing due to the preference of ROK‟s people to U.S. livestock.
Meanwhile for export, it increased in 2013 as the U.S. agricultural market
was giving bigger chance for ROK‟s agricultural products due to FTA, but
this export decreased in 2014 as lack of interest of U.S. people to ROK‟s
livestock.
Table IV.2 Cereals Export-Import 2012-2014 (thousand USD)
Year Export Import
2012 332 1,749,418
2013 302 651,137
2014 364 1,864,570
Source: trademap.org
Within 2012 to 2014, the export and import of ROK and U.S. in
cereals was going up and down. Import from U.S. in 2013 decreased as
ROK government limit the import from U.S. and substitute it from another
importer country, but the import increase again in 2014 due to the
preference of ROK‟s people and modernization of ROK people. For the
cereals export to U.S., the amount is quite stable.
63
Table IV.3 Fruits Export-Import 2012-2014 (thousand USD)
Year Export Import
2012 31,573 636,208
2013 31,324 682,254
2014 34,334 761,834
Source: trademap.org
The import of fruits from U.S. had been increasing due to preference of
ROK people and seasonal tariff offered in KORUS FTA, meanwhile for the
export to U.S. has been increasing due to increasing of interest of U.S.
people to consume ROK‟s fruit especially Jeju mandarin.
Table IV.4 Dairy Products Export-Import 2012-2014 (thousand USD)
Year Export Import
2012 5,017 185,735
2013 4,911 250,566
2014 5,341 368,819
Source: trademap.org
For dairy products, this product applied the same situation as livestock
products. Eliminated barrier make the price of U.S. dairy products cheaper
as the quality for sure will be higher than ROK dairy products, this factor
contributes to the increasing of consumer for U.S. dairy products.
Meanwhile for ROK dairy products, it went quite stable with little bit
increase.
IV.2 The Impact of KORUS FTA towards Agriculture Sector
of Republic of Korea: Positive and Negative Impacts
At previous chapter, the details regarding trade between ROK and
U.S., Free Trade Agreement between U.S. and ROK (KORUS FTA) and the
concern of agricultural sector of ROK regarding this FTA. The anxiety
64
regarding the run of KORUS FTA mostly came from local farmers, and the
protest regarding the eliminating tariff on two third agricultural products by
ROK gave fear to the farmers. Agriculture sector had been through many
obstacles in negotiating this FTA. This was caused by the existence of
agriculture sector of ROK was the main purpose of U.S. in the FTA due to
ROK was one of the favorite agricultural export destination meanwhile
ROK also imposed high protection in its agriculture sector.
According to Suh Jin-kyo, Director for Trade and Investment Policy
in Korea Institute for International Economic, prospect of agriculture sector
of ROK in KORUS FTA need to be drawn from the details of agreement.
Since the agreement does not include rice, the most important agriculture
products in ROK, there is no expected impact for rice in the age of KORUS
FTA and the fact that rice is not included will reduce the negative impact in
agriculture sector along with the other grains such as wheat, soybean and
corn would not face the impact of the FTA since those grains are already
imported under duty free arrangements before the FTA.154
Livestock products of ROK were expected to adversely impacted.
Since the high 40 percent tariff imposed to U.S. beef imported to ROK will
be eliminated within 15 years by reducing around 3 percent tariff in each
years. This also implies to another livestock such pork and chicken, those
two kinds of livestock will be increasingly imported from U.S. as the
KORUS FTA implemented. But, ROK will make the amount of imported
pork and chicken will remain the same as before the implementation of FTA
with U.S by doing substitute import from another importer such European
Union (EU) and Thailand.155
For the fruits such as apple and pears, the amount of import from
U.S. will increase modestly as the ROK people prefer to choose oriental
154
Jin-Kyo, S. (2007, May 11). Korean Agriculture in the Age of KORUS FTA.. Retrieved
on 11/2/2017 from The Korea Times:
http://www.koreatimes.co.kr/www/news/biz/2015/11/127_2712.html 155
Ibid
65
fruit than U.S. fruits. Meanwhile for the orange, which mostly cultivated
from Cheju island, the production will decline as the import of U.S. orange
rise after the implementation of KORUS FTA due to the tariff elimination
in seven years. Basically, Suh Jin Kyo predicted the production of
agriculture sector will shrink in term of quantity and value in the age of
KORUS FTA.156
As KORUS FTA has been implemented since March 15th
, 2012, and
it is known that every FTA has impacts for every sector especially sectors
included in the FTA. Those impact can be a positive impact and negative
impact, as positive impact can be taken as the advantage meanwhile the
negative impact can be taken as the disadvantage. The advantages of the
implementation of FTA are vary such market expansion due to the greater
access given towards partner market and monopoly prevention by the
existence of another competitor from FTA partner which lead to the
increasing of competition. Meanwhile the disadvantage can result into the
loss of local business in competing with foreign competitor and be the threat
for domestic products.
For the impact of KORUS FTA towards agriculture sector of ROK
in general can affect towards below indicators:
a. Tariff reduction; as the KORUS FTA implemented, according to the
agreement that has been negotiated, there are greater access obtained
towards ROK market for U.S. agriculture. These greater access given
in form of tariff reduction on U.S. agricultural products which will be
exported to ROK and enter the local agricultural market of ROK, but
this greater access still limited due to the other provisions required for
U.S. agricultural products in order to enter the ROK agricultural
market.
156
Jin-Kyo, S. (2007, May 11). Korean Agriculture in the Age of KORUS FTA.. Retrieved
on 11/2/2017 from The Korea Times:
http://www.koreatimes.co.kr/www/news/biz/2015/11/127_2712.html
66
b. Trade creation; as the implementation of KORUS FTA began, it
created the trade that would not have existed as the implementation
had not started. The amount and value of import and export have been
changing before the KORUS FTA, but there would be change
happened to the value and amount of traded goods as the KORUS
FTA went into force, and it would not likely happen before the FTA
began take place.
c. Competition; as the U.S. agricultural products enter ROK agricultural
market, the competition between U.S. agricultural products and ROK
agricultural products automatically created. This competition between
two agricultural products from different country is seeking for the
preference of consumption of ROK people based on range of price and
quality offered.
d. Policy; entrance of U.S. agricultural products towards ROK
agricultural market lead to the needs of ROK agricultural products to
face the competition with imported products from U.S. This
competition is giving a question on how the local agricultural products
retains their sale as the imported agricultural products. The question is
also asked to the government as the government also need to give an
efforts to maintain the sales of local agricultural products, one of the
effort offered by government is adjustment policy delivered to protect
the sales of local agricultural products.
As have been mentioned above regarding the general impact indicator,
below is given the list of impacts of KORUS FTA during two years of
implementation, in positive and negative ways.
Table IV.5 Positive and Negative Impacts of KORUS FTA
Positive Impact Negative Impact
Increasing government budget for
agriculture sector of ROK
Higher and unfair competition
between U.S. and ROK agricultural
products, due to 1) Technology, 2)
67
Human Resources, 3) Arable Land
Increasing competitiveness of
ROK‟s local farmers and domestic
agriculture products; 1) Promoting
environmental friendly agriculture
and organic agricultural products,
2) Promoting “Smart-Farms”, 3)
Small But Strong Farm Industry
Declining of food self-sufficiency
level
Increasing agricultural export of
ROK to U.S.
IV.2.1 Positive Impact of KORUS FTA towards ROK’s
Agriculture Sector
The positive impacts of KORUS FTA feels in the sector of
agriculture of ROK for two years of KORUS FTA implementation
started by the increasing of competitiveness of local farmers and
domestic agricultural products which is obtained by the increasing
budget of government for the development of ROK agriculture
sector and its products, and those effort result to the increasing of
ROK agricultural export to the U.S. during two years of FTA
implementation. The details are given above.
1. Increasing government budget for agriculture sector of ROK
The first impact came from the implementation of KORUS
FTA is the increasing of agriculture budget, investment, and loans.
The budget of government breaks down into subsidies and loans in
term of supporting the scheme of projects. Budgets for MAFRA will
be given for the project expenditure which in agriculture and rural
areas include the enhancement soundness of agriculture,
management and stabilization of farm income, rural welfare
promotion, rural development, grain management and agricultural
68
product trade, along with the creation of agricultural production
infrastructure.157
And as the ROK pursues FTAs, include the one with U.S.
which is KORUS FTA, in administration of Roh Moohyun, the plan
for investments and loans for rural and agriculture development
created along with the strategy of FTAs promotion. The government
created “The Master Plan for Agriculture and Rural Areas”,
invested 119 trillion won for 10 years start from 2004 until 2013
with the focus to maintain the rural population. This investment
aimed to improve the life quality within rural areas, and also provide
the compensation for the loss of income because of the FTAs
implementations and investment expansion for competitiveness
enhancement. This Master Plan has been aiming to improve the rural
life quality in ROK, and also to expand the Direct Payment
Program.158
This Direct Payment Program introduced by the ROK
government for damage compensation for farm income loss as the
agriculture sector expected to be the one which suffer the most
damage due to market liberalization.159
Direct Payment Program launched since the first FTA with
Chili implemented, it is given as the agricultural import from the
partner of FTA increases and its price falls. Previous FTAs were not
drawing strong resistence from the agricultural sector due to the
previous FTAs were not engaged with big exporters, but it was
different for KORUS FTA. U.S. is one of the biggest exporter for
ROK and in the KORUS FTA the market of agriculture of ROK is
opened except for rice.
157
Korea Rural Economic Institute (2015). Agriculture in Korea. Naju:Choi Sei-Kyun 158
Korea Rural Economic Institute (2015). Agriculture in Korea. Naju:Choi Sei-Kyun 159
Song, J., & Moon, H. (2013). The Effects of FTAs and Compensation Measures in
Korean Agriculture.
69
Before KORUS FTA went into force, the commodities
eligible for direct payment only grape and kiwifruit since the Chile
FTA only involved fruits and the most sensitive fruits are those two.
But as the KORUS FTA went into force, direct payment has been
expanding for all agricultural products included in the KORUS FTA
which are beef, pork, onion, garlic, peppers, beans, sweet potatoes,
roots and tubers nesoi, apple, green tea, ginger, malt and malting
barley, barley, popcorn, maize, buckwheat, cereal, oats, worked
grains, flour, meal, powder, flakes, granule, pellet potatoes, maize
starch, potato starch, manioc starch, sweet potato starch, ground
nuts, sesame seeds, sesame seeds oil, sugar, alcohol, and dextrin.
The compensation rate also increases from 80% to 90% along with
the expand of operation period for direct payment to be 10 years
from the start of FTA from 7 years operation period.160
Most investment for agriculture along with food sector is
carried out by three organizations which are Ministry of Agriculture,
Foods, and Rural Affairs (MAFRA) , Rural Development
Administrative (RDA), and Korea Forest Service (KFS). The budget
for R&D investment keep increasing in every year. This increasing
of investment budget is caused by the greater importance of R&D in
agri-food policies. From the year of KORUS FTA implementation in
2012, the investment budget for R&D increased 11.9%.161
Table IV.0.6 Share of R&D Budget of Ministry of Agriculture, Food
and Rural Affairs, Rural Development Administration, and Korea
Forest Service (in unit 100 million won)
Classification 2011 2012 2013 2014
160
Song, J., & Moon, H. (2013). The Effects of FTAs and Compensation Measures in
Korean Agriculture. 161
Korea Rural Economic Institute (2015). Agriculture in Korea. Naju:Choi Sei-Kyun
70
R&D budget of MAFRA, RDA, and KFS (A)
7,463
7,983
8,439
8,934
National R&D budget (B)
148,902
160,244
171,471
177,428
Total expense of MAFRA, RDA,
and KFS (C)
159,584
163,454
164,443
167,256
Source: Ministry of Agriculture, Food and Rural Affairs (2013). National Science & Technology
Information Service (www.ntis.go.kr).
ROK encourage new young farmers under 35 years by
providing loans maximum KRW 300 million from MAFRA which
will be paid back within the next 15 years. Those young farmers
guided by the experts in agricultural studies, and also given
financing consultation and educational expenses by the government.
The loans also provided for the promotion of specialized farmers
along with the new machines purchased and facilities renovation.162
2. Increasing competitiveness of ROK’s local farmers and
domestic agriculture products
Starting from the end of Korean Wars in 1950s, an alliance
established between U.S. and ROK. This alliance was built based on
shared principle and interest between the two countries. True
partnership between U.S. and ROK was became due to the growth of
ROK to be Asia economic powerhouse and a mature democracy.
Moreover, the KORUS FTA has been a reasonable step to
strengthen the relation between U.S. and ROK in term of politically
and economically.163
According to Trade Minister of ROK, Park
Taeho, during his discussion regarding ROK‟s FTA Policy in
Peterson Institute for International Economic on May 16th
, 2016, the
162
Jeongbin, I., & Iljeong, J. (2014). The Frame of Agricultural Policy and Recent Major
Agricultural Policy in Korea. 163
Klingner, Bruce, Daniella, Markheim (2009). KORUS FTA Strengthen the U.S.
Economy and Alliance with Korea. The Heritage Foundation
71
FTA with U.S. was needed in order to gain trade performance
improvement of ROK in advanced market, competitive edge
maintenance.164
Implementation of KORUS FTA included as one of
challenges faced by agriculture of ROK and this led to important
changes in agriculture sector in the way to be more competitive
against U.S. products. Implementation of FTA give means to the
exposure of agriculture ROK towards international competition
which requires increasing competitiveness and adjustment policies
for the sector to survive in the FTA.
Promoting “Environmental Friendly Agriculture” and
Organic Agricultural Product
In order to increase the competitiveness of local agricultural
products and local farmers, ROK government has been actively
promoting “environmental friendly agriculture” since 2010. The
term of “environmental friendly agriculture” is agriculture sector
which produces safe agricultural, stockbreeding, and agriculture
products without using or at least minimizing the use of chemical
material like chemical fertilizer, synthetic agricultural chemical, and
others, along with preserving and maintaining agricultural
ecosystem and environment through recycling products of
agriculture and stockbreeding.165
In 2012, Act. No 11141 “Special Act on Promotion of
Saemangeum Project” delivered by Minister of Agriculture, Food
and Rural Affairs (MAFRA) went into force. This act aimed to
enhance national competitiveness by using, developing, and
164
Peterson Institute for International Economic (2012, May 17). Trade Minister of Korea
Bark on KORUS FTA. Retrieved on 13/2/2016 from YouTube:
https://www.youtube.com/watch?v=GJW3wJqBhOI 165
Republic of Korea Ministry of Government Legislation (2010). Environmentally-
Friendly Agriculture Fosterage Act.
72
preserving the area of Saemangeum Project as site for environmental
friendly agriculture.166
This Saemangeum Project is a reclamation
project by ROK government to build the biggest seawall in the
world on the southwest coast of Korean Peninsula. Around 30% area
of Saemangeum Project will be developed for agricultural use by the
plan of government to build U-agricultural city, integrating
agriculture, distribution, bio and tourism.167
Based on Act No. 11459 in 2012 amended with Act No.
11705 in 2013, “Act on Promotion of Environmental Friendly
Agriculture and Fisheries and Management of and Support for
Organic Food, etc.” created in 2013. This act set the promotion
procedure of environmental friendly agriculture along with fisheries
and its management. According to the Act, MAFRA or Minister of
Ocean and Fisheries (MOF) should formulate a plan to promotion
environmental friendly agriculture or fisheries for the development
of environmental friendly agriculture or fisheries its
self.168
According to Hand Doo Bong, Professor of Food and
Resource Economic at Korea University, this act also seeked to
balance between the trade liberalization and the public value of
agriculture.169
And in the end 2014 “Enforcement Decree of the Pesticide
Control Act” promoted to improve quality of pesticide, with the
establishment of safe distribution of pesticide which contributes to
166
Republic of Korea Ministry of Agriculture, Food and Rural Affairs (2011, December
31). SPECIAL ACT ON PROMOTION OF THE SAEMANGEUM PROJECT 167
Kwang-su, Park. (2012, April 27). Saemangeum: A model for future agriculture
projects. Retrieved on 21/5/2017 from The Korea Herald
http://www.koreaherald.com/view.php?ud=20100427000377
. (2016, October 27). Can South Korea Agriculture Survive Free Trade? Retrieved on
15/2/2017 from Asia Sentinel: http://www.asiasentinel.com/econ-business/south-korea-
agriculture-free-trade/2/ 168
Republic of Korea Ministry of Government Legislation (2013) Act on Promotion of
Environmental Friendly Agriculture and Fisheries and Management of and Support for
Organic Food, etc. 169
Maierbrugger, A.(2013). South Korean Agriculture Takes The Organic Route.
73
production, and environment conservation by concerning to the use of
pesticide. This act result to the organic farming where the ROK‟s
small farmers resorted to ecologically sustainable farming.170
Organic farms popped up in the rural communities of ROK
promoting environmental friendly agriculture which produce organic
foods, the largest one is Hansalim with 2,000 farmers and 380,000
consumers, producing organic food and focus to avoid
environmental impact on shipping.171
Table IV.7 The Variety Products of Hansalim
Farm
Products
Livestock/
Marine
Products
Processed
Products
Living
Supplies
Nuts Livestock Kimchi Detergent
Multigrain Meat
processed
food
Meal
substitution
food
Lacquered
living
supplies
Vegetables Dairy
Products
Seasonings Cosmetics
Fruits Seafood Health food Book
Dried Fish Snacks Natural dyes
Sea
processed
food
All kind of
processed
food
Pottery, iron
items
Source: Hansalim (eng.hansalim.or.kr)
Promoting “Smart-Farms”, the use of technological science
in agriculture sector.
According to Seung Kyu Min, former director of RDA,
competitiveness also depends on the capital, technology
development, management capability of people employed in
170
Ibid 171
Maierbrugger, A.(2013). South Korean Agriculture Takes The Organic Route
74
agriculture sector not only from the condition of the nature.
Promoting smart-farms which are based on the technology and
science to replace the agriculture sector which was centered in the
labor is the way to make agriculture sector of ROK to be more
competitive.172
Technology and science will influence the
production method and management of agricultural products along
with the processing method, distribution and its trade.
One of the technology developed was an initial pilot
program, Telit‟s remote M2M wireless control system launched by
Telit Wireless Solution, U.S. based mobile technology, cooperated
with Dysis, ROK designer of mobile application under SK Telecom.
This program enables the farmers to maintain the temperature of
their crops in greenhouses during night or cold weather from home.
Temperature and humidity sensors in this program encourage the
growth and the health of crops, reducing water and energy required,
and give visual check of the greenhouse for the farmers.173
This
program applied for greenhouse corps such watermelon,
strawberries and tomatoes.
This system was installed into greenhouse corps in Seoungju
County in 2012. As the system installed, the work of the farmers
became more efficient as manual cultivation, closing or opening
vinyl of greenhouse can be done immediately and remoted from
home without requiring the farmer to come to the greenhouse. This
result to the increasing of tomatoes production by 75% in the first
year of the installment. And in 2013, ROK government conducted
“The Advanced Agricultural Technology Expo (AATE)” in Ilsan
which invite farm industry experts, government official, and
scientist to introduce technologies and information related to
172
Min, S. K. (2016, October 27). Can South Korea Agriculture Survive Free Trade?
Retrieved on 15/2/2017 from Asia Sentinel: http://www.asiasentinel.com/econ-
business/south-korea-agriculture-free-trade/2/ 173
Telit Wireless completes Smart Farm in South Korea (2012, January 19). Retrieved on
15/2/2017 from http://www.telecomengine.com/article/telit-wireless-completes-smart-
farm-south-korea
75
agricultures products and developments.174
And in 2014, ROK
government cooperated with SK Telecom push agricultural business
through its Smart Farm mobile app equipped by Smart Farm system.
This is very similar with the Telit‟s remote M2M wireless control
system collaboration Telit Wireles Solution and SK Telecom. But
this time SK Telecom collaborated with ROK governments such
Ministry of Science, ICT and Future Planning, and government
agencies. This app was firstly encouraged in Sejong City for
greenhouse corps such tomato and strawberry.175
This program gave
result of 22.7% increase in productivity, 38.3% of labor needed
decreasing with operation cost also decreasing by 27.2% compared
to the previous year.176
Emergence of “Small but Strong Farm Industry”
In the open market era, agriculture sector of ROK needs to
keep up the hope of the farmers in order to be able to compete. It is
fortunate that ROK‟s farmer still have the perception that
“agriculture is also a business”. The entrepreneurship spirit of “small
but strong farm industry” is emerging. New agricultural business
idea refers to small-scale business that keep achieving its managerial
purposes by new values promotion which are based on the creative
ideas, self-development that has no end, along with differentiation in
competitive level. The traditional manufacturing businesses employ
and introduce information technology and run after e-transformation
due to the intention to be digital company. Those businesses actively
174
Business Korea (2013). Korea Hosts First Agricultural Convergence and Integration
Show. Retrieved on11/4/2017 from Business Korea:
http://www.businesskorea.co.kr/english/mice/2388-2013-advanced-agricultural-
technology-expo-korea-hosts-first-agricultural-convergence-and 175
Kenterin (2014, December 15). Modern Farming. Retrieved on 5/4/2017 from Kenterin:
http://m.kenterin.net/article/1536aeyangorldourwillbeheldinakartae 176
Smart Farm In Village (2014). SK telecom.
76
use biotechnology or digital technology and emphasize on its
marketing and networking. 177
This “small but strong farm industry” lead to the change in
number of agriculture corporation which was 9,692 corporations in
2011 to 15,043 in 2014. The increasing of number of corporation
reached 5351 corporations or 55.2% within 2011 to 2014. Those
corporations consist of corporations which lying under agricultural
production to non-agricultural production which are in the field of
agricultural processing, distribution, agricultural services and other.
Table IV.0.8 Number of agriculture corporation by business
Classification
2011 2012 2013 2014
Number of
corporations
9,692 11,747 13,333 15,043
Agricultural
production
3,400 3,808 4,123 4,461
Non-agricultural
production
6,292 7,939 9,210 10,582
Processing 1,795 2,180 2,762 3,154
Distribution 2,384 3,011 3,655 4,100
Agricultural
services
636 846 851 942
Others 1,477 1,902 1,942 2,386
Source: Preliminary Result of Agriculture and Fishery Corporation
Survey, Korean Statistics (kostat.go.kr)
177
Min, S. K. (2016, October 27). Can South Korea Agriculture Survive Free Trade?
Retrieved on 15/2/2017 from Asia Sentinel: http://www.asiasentinel.com/econ-
business/south-korea-agriculture-free-trade/2/
77
As KORUS FTA implemented in 2012, explanation above
are one of the impact of KORUS FTA in positive way. ROK has
been increasing the competitiveness of agriculture sector, so the
agricultural products of ROK can compete with U.S. agricultural
products imported to ROK and also those agricultural products in
global market. Some ways of increasing the competitiveness include
the promotion of environmental friendly agriculture in order to
produce safe breeding and agricultural products, along with
introducing the use of science and technology to create smart farms
in order to replace the labor-centered agricultural sector, and also the
creation of new agricultural business by developing the structure of
the agriculture industry and farmer encouragement and
specialization.
3. Increasing ROK agricultural products and foods exports the
U.S.
Agriculture sector is expected to suffer a great damage from
FTAs engaged by ROK government. The ROK agricultural products
were predicted to loss within the competition brought by KORUS
FTA. Fortunately, during the implementation of KORUS FTA, it
seems like the agricultural products of ROK be more competitive. In
the first half of year of KORUS FTA implementation, the
agricultural export to U.S. increased by 5.8% compared to the same
period in the previous year.178
and it is shown through the
agricultural export of ROK to U.S.
Table IV.0.9 Agricultural Export of Korea by Country (in million
dollars)
178
Seung-Kwan, K. (2012). Analysis and Implications of Successful Cases of Agricultural
Product Exports Benefitted from FTAs. Korea International Trade Association.
Japan China US Hong Kong Vietnam Others
78
Note: Figures in brackets refer to percentages of the total.
Source: Ministry of Agriculture and Forestry, Major
Statistics on Agriculture and Forestry, 2001, 2003, 2007 and
2010. Korea Agro-Fisheries & Food Trade Corp., kati.
Table IV.9 above showed the agricultural export of ROK.
Although U.S. is not the biggest importer of ROK‟s agricultural
product, U.S. was the third largest importer of ROK‟s agricultural
product after Japan and China. Agricultural export of ROK to U.S.
accounted 7.8% in 2011, and 8.4% in the year of KORUS FTA
implementation. The agricultural export to U.S. has been increasing
its share for the ROK‟s total agricultural export in each year. The
values of the agricultural export to U.S. is also increasing, it
increased 25.5% from 2012 to 2014. The biggest increase is in 2014,
it rose by 13.5% within 71 million dollars in value.
The agricultural exports of ROK to U.S. are mainly noodles,
fermented paste, confectionary and pears, with additional fresh
2000 697
(45.5)
118
(7.7)
145
(9.5)
134
(8.7)
8
(0.6)
406
(26.9)
2005 713
(32.1)
231
(10.4)
280
(12.6)
124
(5.6)
17
(0.8)
856
(38.5)
2007 646
(25.5)
295
(11.7)
302
(11.9)
183
(7.2)
41
(1.6)
1,105
(43.7)
2008 752
(24.7)
349
(11.5)
335
(11.0)
163
(5.3)
56
(1.8)
1,393
(45.7)
2009 846
(25.7)
420
(12.7)
338
(10.2)
142
(4.3)
87
(2.6)
1,423
(43.2)
2010 1,023
(25.1)
556
(13.6)
377
(9.2)
216
(5.3)
121
(3.0)
1,789
(43.8)
2011 1,381
(25.6)
915
(17.0)
419
(7.8)
274
(5.1)
214
(4.0)
2,180
(40.5)
2012 1,408
(24.9)
906
(16.1)
473
(8.4)
269
(4.8)
283
(5.0)
2,305
(40.8)
2013 1,287
(22.5)
948
(16.6)
523
(9.1)
346
(6.0)
354
(6.2)
2,268
(39.6)
2014 1,316
(21.3)
987
(16.0)
594
(9.6)
368
(6.0)
358
(5.8)
2,559
(41.4)
79
produce accounts for small portion.179
The rise of export of
agriculture happens in goods such livestock products, forest
products, and vegetable. In fact, the export of processed food such
tobacco rise 80.1%, for ramen rose 27.6%, red pepper paste rose by
48.4%, other beverages rose by 46.2%, and bread rose by 80.2%.
Those steady increases started showing since the ratification of
KORUS FTA.180
Table IV.10 ROK Agricultural Export to U.S. (2011-2014) (US
Thousand Dollar)
Product 2011 2012 2013 2014
Potato 0 1 0 58
Potato starch 1 3 21 74
Cereal (grains) 26 36 28 208
Flour, meal and
powder 16 10 18 19
Soya beans 0 14 75 393
Sesame oil seeds 29 58 75 95
Tapioca in form of
starch 0 0 0 55
Ethyl alcohol (80%
vol) 8,656 9,087 9,727 10,338
Whiskies 80 99 136 134
Pasta 50,609 56,352 60,576 60,364
Bread, pastry,
cakes, biscuits and
other bakers' wares
30,383 30,988 39,648 45,348
Source: TRADE MAP (www.trademap.org)
The existence of KORUS FTA helps the trade of ROK
agricultural product. Positive results obtained by the competitive
price offered by the FTA contributes to the finding of international
buyers in U.S., not only anxiety towards farmers and domestic
agricultural products. This implies that FTA is helpful to trigger the
efforts of ROK government to increase competitiveness of
179
Korea Rural Economic Institute (2015). Agriculture in Korea. Naju:Choi Sei-Kyun 180
Republic of Korea Ministry of Trade, Industry, and Energy (2014) Evaluation of the
Korea-US FTA after Two Years
80
agricultural products to be able to compete with U.S. agricultural
products and also increase the agricultural product export to U.S.
IV.2.2 Negative Impacts of KORUS FTA towards Agriculture
Sector of ROK
1. Higher and Unfair Competition between U.S. and ROK
agricultural products
FTA with KORUS FTA have been giving positive impact
towards ROK agriculture sector starting from the increasing of
competitiveness, greater budget given for agriculture sector by the
ROK government which resulting to the increasing agricultural
export to the Uncle Sam‟s country which the partner of ROK in this
KORUS FTA. Despite all those positive impacts, as known as FTA
also brings disadvantage or negative impacts, agriculture sector of
ROK is not excluded from the negative impacts of the KORUS
FTA.
Since KORUS FTA bring a higher competition between U.S.
agricultural products and ROK agricultural products. The
agricultural products of U.S. will enter the market of agricultural
products of ROK and granted duty free for two third agricultural
export of U.S. agricultural products to ROK.
Although this FTA works on increasing the competitiveness
of ROK domestic agricultural products and farmers, but not of all
farmers can survive and compete against cheap and higher quality
agricultural products offered by U.S. in ROK agricultural market.
Those farmers and agricultural products that cannot compete within
the greater competition brought by KORUS FTA in ROK
agricultural market were facing damage and suffer from the loss.
The factors for higher and competition for agricultural products
between ROK and U.S. are below
81
Agricultural Technology
Despite the increasing budget given for agricultural sector in
order to be more competitive, protection given for the farmers is still
not enough for the farmers who have low capability in cultivating
the agricultural crops. The farm industries are increasing but this
cannot compete compare to the more advance agriculture sector
from U.S. Beside the quality of farmers, in term of agricultural land
and production, ROK is still far away to compete with U.S.
ROK has adopt technology to put in its agricultural sector,
one of them is Telit Wireless, but this technology only cover the half
of greenhouse corps in Seoujong County. The distribution of the use
of technology is not even, some agricultural areas are still doing
manual cultivating and other manual farming methods. Agricultural
products offered by U.S. are also have higher quality and cheaper
price than ROK.
Advanced technology used by U.S. government in its
agriculture sector divided into three which are bioenergy,
biotechnology, and nanotechnology.181
Bioenergy addressed to
reduce the dependence on limited non-renewable energy sources.
One of programs launched by U.S. Department of Agriculture in
using bioenergy are produce advanced biofuels that suitable for
agricultural system.182
In biotechnology, biological processes are
used to develop technologies and products which address challenge
in farming. Two of the programs launched are improving the
effectiveness of animal vaccine and preventing the loss of crops due
to pests and diseases.183
For nanotechnology, it requires the
181
Advanced Technologies. Retrieved on 4/3/2017 from National Institute of Food and
Agriculture: https://nifa.usda.gov/topic/advanced-technologies 182
Bioenergy. Retrieved on 4/3/2017 from National Institute of Food and Agriculture:
https://nifa.usda.gov/topic/bioenergy 183
Biotechnology. Retrieved on 4/3/2017 from National Institute of Food and Agriculture:
https://nifa.usda.gov/topic/biotechnology
82
exploration and engineering in atomic and molecular level, with
program launched are devices to detect pesticides in food, and
nanosensors to detect constaminants.184
Human Resources
U.S. rural population is 59,166,890 and ROK 8,894,786
people, which means U.S. has more farmers than ROK which lead to
the bigger amount of production from U.S. compare to ROK.185
Moreover the agricultural population of ROK are characterized by
aging population, in 2013, around 40% of agricultural population
were above 60 years old.186
According to Korean Statistical
Information Service, aging farmhouse population is increasing in
every year. In 2012, the aging farmhouse population whose age 60
years old above are 1,343,610 people. In 2013, their number
increasing to be 1,361,441. And in 2014, they reached 1,386,403
people.
And as known that ROK‟s government have been giving
loan to the young farmers under 35 years old, this loans will be paid
within 15 years, and also there are some rented farm given to be
cultivated for the farmers. Payment of loans and rented farm by
farmer will be debt for the farmers who cannot paid it, then farms
are abandoned due to the unpaid debt.187
The debt in agriculture sector has grown to be more than
1,600 times within 40 years. Rapid disintegration of agriculture
184
Nanotechnology. Retrieved on 4/3/2017 from National Institute of Food and
Agriculture: https://nifa.usda.gov/topic/nanotechnology 185
Rural Population (2014). Retrieved on 16/2/2017 from The World Bank:
http://data.worldbank.org/indicator/SP.RUR.TOTL 186
Ahn, C. (2013, March 19). Korean Food, Land, and Democracy: A Conversation With
Anders Riel Muller. Retrieved on 17/2/2017 from Korea Policy Institute:
http://kpolicy.org/interview130319andersrielmuller/ 187
Ahn, C. (2013, March 19). Korean Food, Land, and Democracy: A Conversation With
Anders Riel Muller. Retrieved on 17/2/2017 from Korea Policy Institute:
http://kpolicy.org/interview130319andersrielmuller/
83
sector has been caused by industrialization and globalization,
specifically, by the global agri-food system. The descendant of the
farmers dissatisfies with the lifestyle or there is no one left to be
given the farm. They moved to city and transform into industry
labor. 188
Arable land
The arable land of ROK and U.S., U.S. has more plenty
arable land compare to ROK. U.S. arable land is 154,604,690
hectares meanwhile ROK is only 1,476,000 hectares.189
ROK‟s
arable land is only 0,95% of U.S. arable land.
Although the government gives increasing budget for the
agricultural development, the government also ran a controversial
Four River Restoration project where it required the decimation of
fertile farm along the four rivers which were Han river, Nakong
river, Yeongan river, and Geum river.190
Farms around those four
rivers were destroy due to the finish of the project in 2012 which
lead to decreasing farmland which 15,6% of ROK land area.
Aside that, ROK government also bought 900,000 acres of
farmland overseas in developing countries in order to be
compensation for the lack of domestic food production.191
As ROK
farmers are struggling for farmland and the threat of imported food,
the government support the purchase of overseas farmland to grow
where it means the imported food to ROK will increase. And as the
ROK‟s economy and urbanization developed really well, the arable
188
Byeong-Seon, Y. Won-Kyu, S., & Hae-Jin, L. (2013, May). The Struggle for Food
Sovereignty in South Korea. Monthly Review Vol. 65
189 Arable land (hectares). (2014). Retrieved on 16/2/2017 from The World Bank
http://data.worldbank.org/indicator/AG.LND.ARBL.HA 190
Muller, A. R. (2012, April 4). The Fight For Real Food in Korea. Retrieved on
17/2/2016 from Korea Policy Institute:
http://kpolicy.org/120404andersmullerfightforrealfoodinkorea/ 191
Ibid
84
land was sacrificed for the city development which lead the
decreasing of farmland which according to World Bank, it was
15,3% of the land area in 2012, and remain 15.1% in 2014.
In short, ROK government try to increase the
competitiveness of ROK agricultural product against foreign
agricultural products. But in the other hand, the phased-out system
given for foreign agricultural product is high and keep increase the
competition between domestic and foreign agricultural product
where it leads to the unfair competition of agricultural products,
moreover the government keep decreasing the farmland.
2. Declining of food self-sufficiency level
According to Anders Riel Muller, a researcher from Korea
Policy Institute, ROK has been declining its food self-sufficiency for
the past two decades. And this declining of food self-sufficiency has
been worse as ROK government engage the free trade agreement
with U.S. and European Union.192
Food self-sufficiency extents to
the ability of a nation to supply its own food. He found out that
mostly food sold in Seoul and served are imported, for example,
restaurant in Seoul serve imported kimchi from China.
ROK is dependent with its food import. To fulfill the needs
for beef, ROK imported from U.S. and Australia. For chicken, ROK
depends from the imported chicken from Brazil. For the pork, ROK
mostly import it from Cambodia. The farmers of ROK has been
protesting regarding the agricultural market liberalization, but still
the government pursue FTA with the nations which are known as
large food exporting nation, like U.S., Chile, Australia and European
Union.
192
Ahn, C. (2013, March 19). Korean Food, Land, and Democracy: A Conversation With
Anders Riel Muller. Retrieved on 17/2/2017 from Korea Policy Institute:
http://kpolicy.org/interview130319andersrielmuller/
85
The agricultural market liberalization in ROK has been
resulting to the declining of food self-sufficiency to the lowest level
in the history of ROK its self. To the reason that process from the
seed until sold in the supermarket are managed and controlled by the
corporate food system, the self-sufficiency for grain in ROK decline,
which was over 70% in the middle of 1970s, to be around 20% in
2013 for grains.193
Moreover, the effort of government to increase
the self-sufficiency of grain in ROK was to develop grain production
base and secure channel for imported grains, instead of increasing
the domestic agricultural production by giving protection for the
small farmers.194
The more unfortunate condition of declining of food self-
sufficiency is even for the rice which is the staple food for ROK
people, the level of self-sufficiency has declined.195
ROK is included as the member of economically powerful
organization which is Organization for Economic Cooperation and
Development (OECD). And between the nations which are also the
member of OECD, ROK is ranked as one of the lowest self-
sufficiency rate. In 2012, the rate for overall self-sufficiency is only
50%. And this rate will be worse for the grains category, like rice,
barley, and wheat. The general self-sufficiency for grains is only
26%, and it becomes worse as the rice is taken, the rate will be
dropped by 6%.196
And in 2013 it became 45.3% for food self-
sufficiency in general, meanwhile for grains due to import
193
Byeong-Seon, Y. Won-Kyu, S., & Hae-Jin, L. (2013, May). The Struggle for Food
Sovereignty in South Korea. Monthly Review Vol. 65 194
Byeong-Seon, Y. Won-Kyu, S., & Hae-Jin, L. (2013, May). The Struggle for Food
Sovereignty in South Korea. Monthly Review Vol. 65 195
Muller, A. R. (2013, May 16). A Look at Food and Farming Today in South Korea.
Retrieved on 14/2/2016 from Global Exchange:
http://www.globalexchange.org/blogs/realitytours/2013/05/16/a-look-at-food-and-farming-
today-in-south-korea/ 196
Muller, A. R. (2012, April 4). The Fight For Real Food in Korea. Retrieved on
17/2/2016 from Korea Policy Institute:
http://kpolicy.org/120404andersmullerfightforrealfoodinkorea/
86
dependent as diet pattern changed from rice to wheat, bean, and
maize, it decreased to 23.6%. Taking a lesson from the changed diet
pattern, the farmers who were inclined to cultivate rice, converted to
cultivate wheat and etc. which lead to the increase of self-sufficiency
of grain to be 24.0% and general food self-sufficiency to be 49.8%
in 2014.197
Low rate of food self-sufficiency is not seemed as a problem
as long as there is food to be imported, but this low rate of food self-
sufficiency will lead to heavy dependence towards imported food
due to vulnerable food supply and this low food self-sufficiency will
expose ROK to many challenges, especially for the society and its
economy.198
197
Ministry of Agriculture, Food, and Rural Affairs (2015, October 12). Food Security
Policies in Korea. 198
Muller, A. R. (2012, April 4). The Fight For Real Food in Korea. Retrieved on
17/2/2016 from Korea Policy Institute:
http://kpolicy.org/120404andersmullerfightforrealfoodinkorea/
87
CHAPTER V
CONCLUSION
As ROK become industrialized, agriculture sector is being
neglected. Agriculture sector keep decreasing by year - its contribution to
GDP, the rural population, arable land – as the sector is sacrificed due to the
industrialization. And as ROK government pursue export orientation and
engage in FTAs, the agriculture sector was being more sacrificed. Sacrifice
of agriculture sector leads ROK to be one of the largest agricultural
importer.
One of the FTA engaged by ROK is Free Trade Agreement Between
United States of America and Republic of Korea which is simply called
KORUS FTA. This FTA was initiated since 2006 and negotiated in eight
round of official negotiations until 2007 with additional negotiation in 2010.
And finally this FTA was ratified in 2011 with implementation started in
March 15th, 2012.
One of the agreed sector to be involved in the FTA between U.S.
and ROK is agriculture sector. ROK agriculture sector granted duty free
immediately for two third agricultural products from U.S. and others tariff
will be eliminated within 23 years of implementation, and U.S. also will be
eliminated tariff for imported ROK agricultural product within seven phased
out period in 15 years implementation.
After two years of implementation of KORUS FTA until 2014, there
were changes happened in ROK agriculture sector. The main change is
tariff reduction in the agricultural products, followed by the values of trade
which lead to trade creation, then competition between agricultural products
of ROK and U.S. in the market, completed by the policies given by ROK
government facing the KORUS FTA especially in agricultural sector.
88
To be specific the changes experienced by agricultural sector
divided into positive impacts and negative impacts of KORUS FTA.
For the positive impact, the first one is the increasing of budget
given by ROK government for its agriculture sector. This budget given with
purpose of enhancement of agriculture, the stabilization of farm income,
rural welfare and development which organized by MAFRA, RDA, KFS.
And also, ROK government encourage new farmers by recruiting young
farmer under 35 and give them loan which will be paid over 15 years.
Second positive impact is the increasing of competitiveness of ROK
agriculture. ROK started to increase the competitiveness by promoting
“Environmental Friendly Agriculture” and organic agricultural products,
followed by the promoting of “Smart Farm”, the use of technology in
agriculture. ROK started to use technology in the agriculture sector, and the
encourage of creation “Small But Strong Farm Industry”.
The export of ROK agricultural product is increasing within 2012 to
2014, and this is the third positive impact given by KORUS FTA towards
ROK agriculture sector. Increasing budget given by ROK government and
the effort of ROK government to increase the competitiveness of ROK
agricultural products did help to increase the interest of U.S. to import more
agricultural products of ROK. This increasing export marked that ROK
agriculture sector can survive within the KORUS FTA.
But, despite the positive impact given, there also will be negative
impacts created by the KORUS FTA.
First negative impact is higher and unfair competition between U.S.
and ROK agricultural products. Reduction of tariff agreed in KORUS FTA
bring down the price of U.S. agricultural products in ROK agricultural
market. Compared to ROK agricultural market, U.S. agricultural products
are cheaper and better in term of quality. Those price and quality given by
the factor technology, human resources, and arable land in U.S. agriculture
89
sector which are much better and higher in ROK its self. The fact that U.S.
agricultural products are higher in quality and offered in cheaper price due
to KORUS FTA lead to the higher and unfair competition between U.S. and
ROK agricultural products in ROK market.
Declining of food self-sufficiency of ROK government is the second
negative impacts given by KORUS FTA. As the KORUS FTA implemented
in 2012, the ability of ROK government to supply its own food decreasing
as ROK increase its dependency on agricultural import, especially from
U.S. in term of beef and grains. ROK self-sufficiency on grains decrease as
the KORUS FTA implemented due to high dependence of U.S. imported
grains.
By those impacts given above, it can be concluded that KORUS
FTA give positive and negative impacts towards the most sensitive sector in
ROK which is agricultural sector. Those positive sectors can be seen
through two years implementation of KORUS FTA, meanwhile the negative
impacts can be seen immediately since the implementation as it is has been
predicted before. But despite the negative impacts given, ROK government
still able to survive the its agriculture sector in the KORUS FTA.
90
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