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January 5, 2018

Korea: Despite Agriculture Surplus, Trade Deficit Remains

 |  By: Anna-Lisa Laca

On Friday, the U.S. and Korea entered into discussions to renegotiate the United States-Korea Free Trade Agreement (KORUS).

The Trump Administration has long-voiced their desire to take another look at the agreement, which was first signed on March 15, 2012.  This trade agreement between the U.S. and South Korea has resulted in gains of market share for U.S. agriculture products in the Asian Pacific region due largely in part to the reduced tariffs for U.S. exporters to send goods to South Korea. Despite the gains in agriculture products, a trade deficit exists. Trade deficits are a well-known target of the Trump Administration.

Fortunately, ProFarmer’s Washington policy analyst, Jim Wiesemeyer, thinks these discussions will involve tweeks and not an overhaul.

“That's [likely] why [Trump] has not notified Congress of negotiating goals relative to the TPA fast track,” he explains.

Wiesemeyer says that’s an indication that the trade agreement is likely to remain intact. That’s good news, considering what’s at stake for U.S. agriculture.



“This agreement is incredibly valuable for U.S. agriculture,” says Darci Vetter former chief ag negotiator for the U.S. Trade Representative. “Korea is one of those countries where average ag tariffs are well into the double digits. You’re looking at 50-60% on some of our products.”

Since the agreement took effect in 2012, beef exports to South Korea increased 60% and cheese exports increased 250%. Several other fruit and vegetable products have also seen significant gains.

“Some of the tariffs haven’t even phased out to zero yet, and already we’re seeing big results,” Vetter says. “A broad range of U.S. products are seeing huge market penetration into Korea.”

According to Shawna Morris of the U.S. Dairy Export Council (USDEC), South Korea is America’s No. 2 cheese export market after Mexico. In 2016, U.S. cheese shipments to South Korea totaled nearly 94 million pounds, roughly 15% of total U.S. cheese exports. Because of KORUS, USDEC estimates total South Korean cheese trade will increase by another 27% from 2015-2021.

The National Cattlemen’s Beef Association (NCBA) also would like to see KORUS stay intact, says Kent Bacus director of international trade and market access at NCBA. 

“NCBA has been a strong supporter of the Korea-US FTA because it will eliminate Korea’s 40% tariff on U.S. beef imports. Korea is our second largest export market, totaling $1 billion annually, and U.S. beef has become the leading source of beef imports in Korea due in part to the competitive advantage KORUS gives U.S. beef over other competitors,” he says.

Similarly, hog prices could struggle without the agreement intact. According to Dermot Hayes, an economist at Iowa State University, if KORUS were terminated, live hog prices would fall by 3.8%, or $4.71 per animal.

Because the U.S. pulled out of the Trans-Pacific Partnership agreements in February, Korea is really our only foothold in the Asian Pacific region, Vetter says, a region that has been critically important to the export growth of U.S. dairy.

While South Korea has said they will not accept the zero tariff terms the U.S. has requested in the past, Wiesemeyer says they need energy and that could change their mind, and fix the deficit issue.

“They need energy,” Wiesemeyer says. “We have liquefied natural gas- LNG -that comes at a price. You could narrow that trade gap significantly in the next few years if we start really increasing our LNG exports to South Korea. So, that's an optimistic viewpoint but I think it could happen.”

Given the current geopolitical climate, he says tension between the U.S. and North Korea could temper President Trump’s typically more aggressive strategy relative to going after countries he thinks are not playing fair with the U.S. in the trade arena.