U.S. Trade Representative Susan Schwab was clear in her statement on the protocol, “I am pleased to announce that we have reached an agreement with the South Korean government to reopen the Korean market to all U.S. beef and beef products, from cattle of all ages. The import protocol is fully consistent with OIE (World Organization for Animal Health) guidelines and other international standards.” Phrases like “all beef and beef products” and “cattle of all ages” leave little doubt that the protocol is comprehensive.
The agreement came as South Korean President Lee Myung-bak arrived in Washington for his first visit since taking office two months ago. Negotiations earlier in the week appeared to have stalled. Quick agreements just before major political meetings are often more show than substance. President Lee is a political conservative who favors economic liberalization. During his political campaign he pledged to revive Korea’s economy, and the new Minister for Food, Agriculture Forestry & Fisheries wants agricultural policy to be proactive and aggressive rather than passive and protective. According to the U.S. agriculture attaché in Seoul, the ministry has plans to modernize livestock farms and implement a domestic beef traceability system.
Before the South Korean government closed its beef market after a case of BSE in the U.S. in December of 2003 it was the third-largest export market for U.S. beef with exports of $815 million worth of beef and products in 2003. South Korea partially reopened its market to deboned beef from cattle less than 30 months old in January 2006, but has had repeated interruptions, and the market has been mostly closed since October 2007. In May 2007, the OIE classified the U.S. as a controlled risk country for BSE which confirmed that U.S. regulatory controls are effective and beef from cattle of all ages is safe.
According to information provided by the USTR’s office, the new protocol will take effect in mid-May and defines conditions for importation of U.S. beef to South Korea with appropriate Specified Risk Materials removed as defined by the OIE. Korea will first reopen its market to U.S. beef from cattle 30 months and under, and then to beef from cattle over 30 months after U.S. publication of an enhanced feed ban rule.
The protocol also establishes proportional responses to instances of non-compliance with the protocol, which has been lacking for the past two years. Non-food safety hazards should not result in plant closure or suspension. No market will be closured as a result of individual plant violations – only the plant will be impacted with no "one strike and you’re out" for individual plants. Appropriate penalties for food safety problems will range from rejection of a product lot to blocking the exports from a particular plant depending on the severity of the problem and the plant’s previous record.
Transitional confidence building measures are included. During the first 90 days that the protocol is in effect, Korea has the option to audit and/or reject U.S. decisions regarding the listing of new plants or re-listing of previously de-listed plants. During the first 180 days, exports of T-bone and Porterhouse steaks need to include a notation on the box indicating that these cuts come from cattle under 30 months. A consultative mechanism is created so that both countries will promptly resolve differences that arise in implementation. Korea also becomes the 63rd country to recognize the equivalence of the U.S. meat inspection system.
The protocol will not guarantee the market for the U.S. Korea’s full liberalization of its market in 2001, as a result of a WTO dispute decision, opened the way for significantly increased imports, even with 40 percent tariffs for beef muscle meats. Korea was the third largest market for chilled and frozen U.S. muscle meats from 2001 to 2003, and accounted for 21 percent of worldwide U.S. beef exports and a 72 percent market share. By 2006, Australia had more then doubled shipments to Korea in the absence of U.S. beef. In addition, Korea’s domestic livestock industry has reversed years of decline to take advantage of the absence of U.S. beef and increased production by about 10 percent. The Korea Rural Economic Institute projects that domestic cattle prices could decline 6-14 percent from 2007 prices depending on the level of increased U.S. imports.
The U.S.-Korea FTA would reduce the current 40 percent tariff on beef in equal installments over 15 years. The agreement includes a quantity safeguard of 270,000 tons per year for beef muscle meats, growing at a compound 2 percent annual rate to 354,000 tons in 15 years. In year 16 and beyond, safeguards will no longer apply. Tariffs on beef offal will also decline in 15 equal annual reductions from their current 18-27 percent levels with no safeguards. The U.S. International Trade Commission estimates U.S. beef exports could increase by $0.6-1.8 billion, up 58-165 percent from current levels.
The protocol is good news. Now the challenge is to turn the good intentions of the negotiators and the words in the protocol into regulatory actions that affect daily beef trade. With the whole world watching the implementation process, it is important to get the regulations right.