A proposed free trade agreement (FTA) between the U.S. and South Korea has been stalled for three years by the Democratic leadership in the House and Senate and the last 18 months by a reluctant Obama White House.  Trade in manufactured products, particularly autos, are the major impediments, while U.S. agriculture would see a large gain in trade from approval of the FTA. 

 
At the recent World Pork Expo in Des Moines, Iowa, Jong-hyun Choi, Minister
for Economic Affairs for the South Korean embassy in Washington, DC told U.S. pork producers, "The U.S. runs the risk of losing the Korean market within a decade if we can’t get a free-trade agreement ratified."  The FTA would reduce the 22.5 percent tariff to zero over five years for frozen and processed pork and over ten years for chilled pork.  Usually in talks about FTAs, agricultural importers resist opening markets rather than raising concerns about the U.S. losing market share.
 
Major agricultural importing countries have had to rethink FTAs in light of the market actions in 2008 when commodity prices increased sharply and real concerns developed about food shortages.  While those higher prices were driven more by U.S. monetary policies than market supply and demand factors, it was a shock for food importers.  For the first time in over 30 years buyers had to respond to broad increases in market prices.  It led to reconsideration of supply chains, including companies buying or renting large tracks of land in Africa to produce food to send to their home country to ensure adequate supplies.
 
The U.S. has FTAs with Canada, Mexico, the Dominican Republic, five Central American countries, Singapore and other pork importing countries.  When supplies are short, it would be more profitable for U.S. suppliers to sell to those countries without tariffs than to sell to South Korea with a 22.5 percent tariff.  An agreement would create a preferred buyer position for Korean consumers rather than just being another buyer at the end of the line.  If the Koreans cannot have preferred buyer status with the U.S., they will seek that with other suppliers.
 
Rugged mountains cover much of South Korea, with about 19 percent of its land considered cropland. Rice remains the staple food and dominates crop production. Vegetable, fruit, and livestock production has grown over the last three decades as the economy has developed rapidly, but food imports expanded to satisfy demands for greater food variety and lower prices.  Agriculture’s portion of GDP has declined from 40 percent in the early 1960s to less than 5 percent today, with agricultural employment declining to under 10 percent of the work force.  U.S. exports provide Korean consumers low prices, high quality, and convenience. 
 
In 2009, U.S. agricultural exports to South Korea were $3.92 billion with the top five categories being coarse grains at $1.11 billion, soybeans and products at $448 million, red meat at $420 million, wheat at $271 million and hide and skins at $254 million.  The coarse grains and soybeans are used to feed domestic livestock and poultry.  In recent years the U.S. has supplied about 30 percent of South Korea’s agricultural imports.  China and ASEAN countries each supply about 12 percent of the market, with Australia and the EU each supplying about 10 percent.
 
The U.S. provides about 48 percent of the coarse grains entering world markets, 45 percent of the soybeans, 19 percent of the wheat, 33 percent of the pork and 12 percent of the beef.  Economists can argue that all of these products are fungible; meaning if South Korea buys more products from the U.S. than other countries those other countries have higher supplies to fill the needs of third country buyers.  That works if all sales go the highest bidder without regard for traditional relationships, tariffs do not permanently skew the market, supplies are available somewhere at competitive prices and market transaction costs are low.  South Korea has market reasons for wanting to be a preferred buyer in the U.S. market.
 
The discovery of BSE in beef in the U.S. in December 2003 showed how trade can shift radically in response to market demands.  According to an analysis by the Economic Research Service of USDA, in calendar year 2003 U.S. beef shipments to South Korea were 224,000 metric tons (MT), 69 percent of total South Korean imports of 326,000 MT.  Australia was the second largest exporter at 69,000 MT.  In 2006, U.S. shipments were zero while Australia exports increased to 163,000 MT and total imports were 213,000 MT.  In 2008, U.S. shipments recovered to 32,000 MT while Australian shipments declined to 136,000 MT and total imports about unchanged at 211,000 MT.  The U.S. agricultural attaché in South Korea estimates 2009 total beef imports at 224,000 MT with 59,000 MT from the U.S.
 
The decline in beef imports led to more pork imports.  Data from the Foreign Agricultural Service of USDA showed U.S. pork exports to South Korea at an average of 11,800 MT in 2000 and 2001.  Pork exports increased to 94,900 MT in 2008 before declining to 83,900 MT in 2009 when U.S. exports were 21.6 percent of South Korea’s imports of 390,000 MT and 5.7 percent of total pork consumption.  South Korean pork imports under a FTA with Chile were 43,000 MT in 2009.  
 
Total pork exports from major countries were 5.66 million metric tons (MMT) in 2009 with U.S. exports at 1.87 MMT, 33 percent of the total. South Korea’s pork imports from the U.S. in 2009 were about 1.5 percent of world trade and 4.5 percent of U.S. trade.  Other major pork exporters in 2009 included the EU at 1.42 MMT, Canada at 1.12 MMT and Brazil at 707,000 MT.  South Korea is implementing an FTA with the EU and working on one with Canada.
 
As noted earlier, South Korea is a buyer of a wide range of agricultural and food products from the U.S. and other countries.  With heightened concerns about supply chain reliability, South Korea naturally seeks to strengthen current business relationships with the U.S.  If that cannot be accomplished it has no choice but to seek closer relationships with other suppliers.  The U.S. should solidify its relationships in the South Korean market by approving the FTA and then seek similar FTAs with other major agricultural and food importers.