hankyoreh

A free trade pact with the United States is expected to cause South Korean agricultural output to fall by 1-2 trillion won (US$1.03-$2.07 billion), a report by a state-run think tank said Friday.

The Korea Rural Economic Institute (KREI) and the Ministry of Agriculture and Forestry said at a discussion session with local farmers' groups in Seoul that production losses and lower prices were inevitable for many local products if tariffs come down. The total output of South Korea's agricultural sector stands at 35-36 trillion won a year.

The loss in production does not take into account rice and 17 rice-based products that South Korean officials said should not be included in current free trade agreement (FTA) talks. Including rice, production losses could extend to around 7 trillion won.

Seoul and Washington plan to exchange an initial proposal on the level and timetable for tariff cuts that will be implemented if the two sides agree to an FTA. The exchange is expected to be made in mid-August, ahead of the third round of talks planned for early September in the United States.

"The initial offer is not definitive and should be viewed as a starting point for future talks," said Bae Jong-ha, the head of the ministry's international agriculture bureau. The director general said that in addition to rice, Seoul will try to exclude sensitive items like beef and beans from future tariff-reduction plans.

He stressed that while details cannot be disclosed, South Korea will do its utmost to draw out lowering tariffs on most agricultural goods to protect local farmers.

"Such factors as competitiveness, the negative impact and level of value-added gains provided to farmers are going to be key for putting a product on the tariff reduction exclusion list," Bae said.

In the July talks held in Seoul, the two sides agreed on a four-tiered tariff reduction timetable, with exceptions granted for very sensitive produce.

Seoul said the market some fruits and vegetables that pose no threat to local farmers can be opened immediately, but it favors a long waiting period for other produce.

Officials said a grace period of five years may be required for introducing produce in the short run, 10 years for the mid-term and 15 years for products South Korea wants to introduce very slowly. These are far longer than the immediate, three year, five-year and 10-year liberalization timetable that Seoul and Washington agreed on for manufactured goods.

For key products, Choi Sei-kyun, a KREI senior director, said if the 40 percent import duties on beef are scrapped, prices will fall 8.7 percent on average and production will drop 4.2 percent, resulting in beef production losses of around 360 billion won ($373 million) a year.

"In 2003, just before Seoul implemented a ban following the discovery of a case of mad cow disease, American beef imports accounted for 68 percent of the 294,000 tons imported," the expert said. The South Korean-raised Hanwoo beef market stands at 3 trillion won at present.

On pork and chicken, Choi said production cuts may amount to 230 billion won and 120 billion won, respectively, with prices falling 4.8 percent on average for pork and 9.9 percent for chicken. South Korea maintains import duties of up to 25 percent for both chicken and pork.

The report showed that apples, pears, grapes and tangerines are also expected to post production losses.

"As imports of apples and pears are prohibited, processed goods and any possibility of the bans being lifted could cause production for apples and pears to fall by an average 126 billion won and 43 billion won, respectively," Choi said.

He said production losses for grapes could amount to 79 billion won, and for tangerines, 22 billion won.

Production losses for fruit and vegetables, including onions, chilli peppers, garlic, tomatoes, strawberries and ginseng, ranged from a low of 8 billion won for strawberries to a high of 68.6 billion won for chilli peppers. Bean output could fall by roughly 300 billion won, and barley and potatoes an estimated 130 billion won and 25 billion won, respectively, as U.S. products gain a stronger market share.

The KREI report, however, said that due to certain characteristics, fruits such as peaches, and vegetables like sweet potatoes and mung beans will not be affected by the change.

The already very low tariffs levied on wheat will not be affected by an FTA with the U.S., it added.

Other experts said that while roughly 90 percent of all agricultural products, or up to 33 individual items, may initially be placed on the "sensitive" list, such numbers are unattainable.

"Insisting on so many exceptions will negate any positive impacts of an FTA that aims to promote trade by cutting or scrapping import duties," said an expert who did not want to be identified.

Seoul, Aug. 4 (Yonhap News)