85 ATAC on Trade in Fruits and Vegetables, Advisory Committee Report, April 2007.
86 Barnes, Richardson, and Colburn (counsel), written submission to the Trade Policy Staff Committee, Office of the USTR on behalf of the Florida Citrus Mutual, Florida Citrus Packers, Gulf Citrus Growers Assoc., and Indian River Citrus League, March 24, 2006.
87 The products covered in this assessment represent approximately 8 percent of U.S. exports to Korea in the GTAP “vegetables, fruit, nuts” and less than 1 percent of the “food products n.e.c.” sectors, and represent approximately 81 percent of U.S. imports from Korea in the GTAP “vegetables, fruit, nuts” sector, for 2006.
88 For additional analysis regarding SPS and other NTMs, see chap. 5 of this report.
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Views of Interested Parties
In its report, the ATAC on Trade in Fruits and Vegetables stated that it is generally supportive of the agreement and noted that it has long called for an FTA with Korea.85 The ATAC expressed its preference to either phase out, within a reasonable period of time, the
“permanent” seasonal 50 percent duty on U.S. oranges (September 1–March 1) or substantially increase the annual quota allowed by the TRQ beyond the limited 3 percent increase. The ATAC also expressed concern with the manner in which Korea has historically used SPS measures to protect its domestic producers from competition with imports, and urged that Korea commit to use sound science in the application of these measures. The ATAC added that the USDA and the USTR need to remain “vigilant regarding possible future SPS conflicts” and need to act on them as soon as they are identified.
In a submission to the USTR, Florida citrus growers, including Florida Citrus Mutual (FCM), stated that they have long been concerned that, although the Florida citrus industry does not compete directly with Korea’s specialized domestic production of Unshu mandarin oranges, Korea nevertheless “rigidly protects its domestic Unshu industry,” and thus has been a difficult market for U.S. citrus exporters to access.86 Korea, they reported, is a large and growing market for exports of fresh citrus from the United States, and U.S. citrus products enjoy strong consumer recognition and acceptance in Korea. The growers noted that Korea’s tariffs on U.S. fresh citrus remain very high, and in addition, some of Korea’s SPS measures against fresh citrus from the United States have been “unreasonable” and have severely restricted trade. FCM commented that, while it recognizes Korea’s right to safeguard the health of its population as well as its domestic mandarin industry, excessive SPS measures, in conjunction with Korea’s very high citrus tariffs, have unfairly inhibited U.S. citrus exports to that growing market. FCM stated that it would support an FTA with Korea, but only if Korea significantly reduces its citrus tariffs and refrains from imposing unfair and unscientific SPS measures on U.S. citrus products. FCM said that it has always found the Caribfly Protocol troubling, applied by Korea as an SPS measure, because there is no scientific evidence that Caribbean fruit flies are harmful in nontropical climates like Korea’s.
89 Cooper and Manyin, The Proposed South Korea-U.S. Free Trade Agreement, May 24, 2007, 17.
90 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007, 3.
91 Ibid., 41.
92 Official statistics of the U.S. Department of Commerce.
93 The safeguard trigger level would be 9,000 mt for the first 4 years following implementation of the agreement and, in year 5, would increase by 3 percent per year until the safeguard is eliminated in year 24.
The safeguard duty begins at 45 percent, and would be phased down to 22.5 percent in year 16, where it would remain until elimination in year 24.
94 UN FAO, “Core Production Data,” July 18, 2007.
95 Northwest Horticulture Council representative, interview by Commission staff, June 1, 2007.
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ad valorem, more than four times the U.S. average.89 The immediate removal and gradual reduction of tariffs on selected goods is expected to benefit U.S. exporters. Expanded U.S.
exports may in turn result in the lowering of market prices for these products, stimulating increased demand.90 Long-standing SPS issues are a major concern for U.S. fruit exporters and in some cases have effectively halted exports to Korea. The FTA has established a framework that may provide for the resolution of these issues. If these issues (described below) are resolved, U.S. exports of noncitrus fruit should grow significantly. While this increase in exports to Korea would likely be substantial, the impact on the U.S. industry is likely to be small because of the small size of the Korean market relative to total U.S.
noncitrus fruit production.
The Korean fruit market is described as a sizeable, lucrative, and expanding one where commodity prices are considered high, but as per capita income has risen, consumers have shown a willingness to pay premium prices for high-quality U.S. products.91 As the impact of the FTA on the U.S. noncitrus fruit industry will vary depending on the product, the assessment provided below focuses on selected product-specific effects (apples, peaches, pears, cherries, grapes, raisins, and strawberries).
U.S. apple exports to Korea amounted to only 29 mt in 2005 and 70 mt in 2006, valued at
$21,175 and $82,415 respectively.92 The current tariff on all varieties of apples is 45 percent.
U.S. apple exports would likely benefit from the phaseout of tariffs that would begin upon the implementation of the FTA. The FTA would phase out the 45 percent tariff for the Fuji variety over 20 years and all other varieties over 10 years. If U.S. apples are given access to the Korean market and the SPS issues described below are resolved, U.S. apple exports would also be subject to potential safeguard duties (table 3.9).93 Although Korea has a large apple-producing industry, with 380,000 mt produced in 2005,94 U.S. apples are considered to be of higher quality and very competitive in terms of price compared to the high apple prices in the Korean market. Industry representatives have expressed hope that the U.S.- Korea FTA would bolster the long-term growth of U.S. apple exports to Korea by allowing exporters to increase their competitiveness.95 Although apples, as well as fresh peaches and pears, should benefit from the elimination of tariffs as a result of the FTA (table 3.9), the cost advantages provided by the tariff reductions will likely have minimal impact on U.S. exports in the short term until SPS issues are effectively resolved.
Table 3.9 U.S.-Korea trade and tariff liberalization for selected fruit, 2006
U.S. Exports
HTS Item description
U.S. exports to Korea (1,000 dollars)
Total U.S. exports (1,000 dollars)
Korean share in total U.S. exports
(Percent)
MFN applied duty
(Percent) Tariff liberalization schedule
080920 Cherries, sweet or tart, fresh 10,217 216,417 4.7 24 • Immediate elimination
080620 Grapes, dried (including raisins) 5,201 211,085 2.5 21 • Immediate elimination
080610 Grapes, fresh 3,240 664,500 0.5 45 • May 1–Oct. 15:17-year linear
• Oct. 16–April 30: Reduced immediately to 24 percent and then removed in 4 equal annual stages beginning in year 2
081110 Strawberries, frozen, uncooked, or cooked by steaming or boiling in water, whether or not sweetened
223 25,892 0.9 30 • 5-year linear
080810 Apples, fresh 82 560,781 0.0 45 • Fuji variety: 20-year linear
• All other fresh varieties: 10 year linear
• Also subject to safeguards.
080820 Pears and quinces, fresh 58 132,970 0.0 45 • Asian variety: 20-year linear
• Other fresh varieties: 10-year linear
080930 Peaches, including nectarines, fresh 0 132,260 0.0 45 • 10-year linear
081010 Strawberries, fresh 0 280,736 0.0 45 • 9-year linear
U.S. Imports
HTS Item description
Imports from Korea (1,000 dollars)
Total U.S. imports (1,000 dollars)
Korean share in total U.S. exports
(Percent)
MFN applied duty
(Percent) Tariff liberalization schedule 808204000 Pears and quinces, FRESH, entered during the
period from July 1 to March 31 of the following year
20,833 66,445 31.4 0.3 cents per
kg
• Immediate elimination
Sources: Official statistics of the U.S. Department of Commerce; and USTR, “Final - United States - Korea FTA Texts,” 2007, U.S. Tariff Schedule and Korea Tariff Schedule.
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96 According to official statistics of the U.S. Department of Commerce, exports of fresh apples, pears, or peaches to Korea have not exceeded $100,000 over the past 5 years.
97 Hansen, “Korean Agreement Reduce Fruit Tree Tariffs,” May 15, 2007.
98 Northwest Horticulture Council representative, interview by Commission staff, June 1, 2007.
99 Industry representative, interview by Commission staff, June 11, 2007.
100 Industry representative, interview by Commission staff, June 6, 2007.
101 USDA, FAS, “Korea Product Brief, Fresh Stone Fruit 2005,” February 1, 2005.
102 USDA, FAS, “Republic of Korea Product Brief, Produce Market Brief Update 2005,” October 5, 2005.
103 Powers, written submission to the Trade Policy Staff Committee, Office of the USTR, March 14, 2006.
104 Northwest Horticulture Council representative, interview by Commission staff, June 1, 2007.
105 USDA, FAS, “Republic of Korea Product Brief, Produce Market Brief Update 2005,” October 5, 2005.
106 UN FAO, “Core Production Data,” July 18, 2007.
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Market access in Korea for several U.S. noncitrus fruit products has been hampered by SPS issues as well.96 SPS issues, including alleged pests and diseases, such as codling moth and fire blight, have effectively halted U.S. apple exports to Korea.97 Exports of fresh peaches have been halted as a result of specific SPS concerns, primarily fumigation protocols. U.S.
exports of fresh pears have also been prohibited from entering the Korean market because of SPS issues that are naturally endemic to the Northwest pear growing industry. The proposed FTA would establish a Committee on Sanitary and Phytosanitary Matters in order to resolve SPS issues through science and risk-based assessments. If these SPS issues are resolved, then the industry predicts that the market has tremendous potential for U.S.
exporters. An industry representative also stated that the resolution of these issues, along with the phasing out of tariffs, could lead to potential apple exports of between $500,000 and
$1 million in the first year following the resolution of these issues.98 The industry notes, however, that the effect on U.S. peach exports will likely be small if the protocol requires fumigation using methyl bromide, because U.S. industry is concerned that methyl bromide detracts from the product’s quality.99 An industry representative also estimates that if a science-based protocol is established and can resolve the naturally endemic SPS issues without exorbitant costs to the fresh pear industry, exports to Korea would increase to between $500,000 and $680,000 in the first year.100
Exports of cherries to Korea have grown significantly, averaging year-over-year growth of over 40 percent per year since 2003. This growth was initially spurred by the fact that, in 2004, all varieties of cherries were permitted for import into Korea. Prior to that only Bing variety cherries were permitted into the market.101 In recent years, U.S. cherries have had an 85-percent market share in Korea.102 U.S. fresh cherry exports would likely benefit from the immediate elimination of Korea’s 24 percent tariff upon the implementation of the FTA.
According to industry representatives, the immediate elimination of the tariff would equate to a cost decrease of approximately $0.75 to $0.90 per lb.103 In total, U.S. cherry exports would be expected to increase by 30–40 percent or approximately $3.5 million the first year following the implementation of the FTA.104
Upon implementation of the FTA, both out-of-season (October 16–April 30) and in-season (May 1–October 15) fresh grape exports would likely benefit from tariff reductions. Out-of- season grapes would benefit from a more accelerated schedule (table 3.9). The majority of U.S. fresh grapes are imported from October through January105 and would therefore benefit from the out-of-season tariff reduction. Korean domestic fresh-grape production is the primary source of competition for U.S. grapes in Korea. The Korean domestic industry is significant in size, producing 360,000 mt in 2005.106 Korean growers generally harvest in late summer and early fall, similar to when American growers harvest. The California growing season, however, is slightly longer and extends through the late fall which, along with the tariff reductions, would allow U.S. grapes to gain market share during the months when
107 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007, 24.
108 California Table Grape Commission representative, interview by Commission staff, June 6, 2007. In 2004, Korea and Chile implemented an FTA.
109 California Table Grape Commission, written submission to the USITC, June 25, 2007.
110 Global Trade Information Services, World Trade Atlas Database.
111 According to industry sources, the decline from the peak of business was brought on by two factors.
First, the industry closed its industry representatives office and as a result the industry withdrew from actively promoting the product in the market. Second, the increased promotional efforts of competing groups, such as other dried fruit and nut groups, caused California raisins to not be the product of choice within the baking and confectionary communities.
112 U.S. industry official, interview by Commission staff, May 31, 2007.
113 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007, 26.
114 Ready-to-eat type frozen strawberries refer to those that are one processing step away from being in the desired final form. Generally, U.S. exports of frozen strawberries are the high-quality strawberries used for products such as ice cream, smoothies, and baked goods.
115 U.S. industry official, interview by Commission staff, June 11, 2007.
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Korean grapes are much more costly and the counterseasonal Chilean product is not yet in the market.107 It is expected that the tariff reduction would allow U.S. exporters to be more price competitive compared to the Korean industry and other suppliers, such as Chile, and as a result expand their market share and increase the volume of exports to Korea.108 For example, the California Table Grape Commission states that the FTA “provides improved access for California table grapes to the emerging South Korean market”; and that
“California table grapes will be more competitive with Chilean grapes.”109
Raisin exports would likely benefit from the immediate elimination of Korea’s 21 percent tariff upon implementation of the agreement. The United States is the primary supplier to Korea and supplied approximately 94 percent of all Korean raisin imports in 2006.110 According to industry sources, in recent years U.S. raisin producers have been exporting approximately one-half of the peak volumes of raisins that were exported to Korea in the early 1990s.111 According to one industry source, the tariff elimination and resulting higher margins would allow industry associations to increase their in-country promotional efforts, which, combined with lower prices for the consumers, could increase raisin exports to approximately 12 million pounds from the 7.17 million pounds that were exported in 2006.112 Frozen strawberry exports would likely benefit from a 5-year linear reduction of the current 30 percent tariff upon the implementation of the FTA. U.S. frozen strawberries have a small foothold in the Korean market despite the 30 percent tariff, strong competition from China, and a large, but high-cost, domestic industry.113 As a result of China’s significant cost advantage, even with the tariff elimination, U.S. exports are not expected to gain market share for those purchasing based on cost. U.S. frozen strawberry exports, however, serve the high-quality, ready-to-eat market.114 Consequently, as the price for the consumer decreases for high-quality frozen strawberries from the United States as a result of the tariff elimination, demand and exports would be expected to increase slightly.115
Upon the implementation of the FTA, fresh strawberries would benefit from a 9-year linear reduction of the current 45 percent tariff. Despite the large Korean domestic industry, the United States (primarily California) strawberry season complements the Korean season. The Korean harvest season ends in June, while the U.S. season peaks in June and continues into the fall; this results in exports throughout the late summer and fall when Korean domestic production is essentially inactive. Fresh strawberry exports to Korea, however, have traditionally been limited because of high transport costs. Fresh strawberries require air freight shipping in order to maintain freshness. The decreasing FTA tariff rates are expected
116 U.S. industry officials, interviews by Commission staff, June 11, 2007.
117 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007, 1.
118 Impact relative to an estimated 2008 base. See chap. 2 of this report for additional information regarding the economy-wide analysis.
119 U.S. industry officials, interviews by Commission staff, June 6, 2007.
120 ATAC on Trade in Fruits and Vegetables, Advisory Committee Report, April 2007.
121 Industry representatives (from the Washington Apple Commission, the Northwest Horticulture Council, the California Cherry Advisory Board, the Northwest Pear Bureau, California Table Grape Commission, the California Raisin Marketing Board, the California Strawberry Commission, and the California Tree Fruit Agreement) interviews by Commission staff, June 2007.
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to offset some of these transport costs. As a result, U.S. exports of fresh strawberries are expected to increase.116
In general, Korea’s noncitrus fruit exports are limited and U.S. imports from Korea have been negligible, as Korea’s position as a net importer of agricultural products has become more pronounced. Imports of noncitrus fruits from Korea generally have very little impact on the domestic industry and Korea is considered to have limited potential to expand its already small fruit exports to the United States.117 The Commission’s economy-wide analysis of the long-term effects of tariff and TRQ liberalization indicate U.S. imports of vegetables, fruits, and nuts (of which the products included here represent a large component) could increase by $2–4 million (4–10 percent).118 Although Korea exports a large quantity of fresh pears to the United States, which would benefit from the immediately elimination of the 0.3 cents per kilogram tariff, the majority of pear imports from Korea are of the Asian variety, which compete only to a limited extent with domestic production. Consequently, Korean exports of Asian-variety pears may gain a slight advantage in their market niche as a result of the tariff elimination at the expense of other U.S. import sources, primarily China.119
Views of Interested Parties
The report of the ATAC on Trade in Fruits and Vegetables stated that members were pleased with the agreement and, on the whole, see it as a positive agreement for the fresh fruit industry. The report notes that many of the tariff concessions were difficult to obtain and states that it will result in benefits for many fruit producers. The report expressed concern with Korea’s past record of using SPS measures to protect its domestic producers and recommended that negotiators continue to identify and resolve existing and future SPS conflicts.120
Despite concerns regarding the lack of explicit resolutions for various SPS issues, several industry associations expressed support for the FTA.121 The associations stated that they see the SPS agreement as a framework that may provide an avenue to resolve SPS issues in the future. They added that the potential to resolve these SPS issues, along with the accelerated tariff elimination schedules, will provide for further access into the Korean market for U.S.
exports of noncitrus fruit.
122 The products covered in this assessment represent approximately 4 percent of U.S. exports to Korea in the GTAP “food products n.e.c.” and less than 1 percent of the “vegetables, fruit, nuts” sectors, and represent less than 1 percent of U.S. imports from Korea in the GTAP “food products n.e.c.” sector, for 2006.
123 Included here are potato seed and fresh potatoes (HS 0710), frozen potatoes (HS 0710.10), dehydrated potato products (HS 1105), frozen potato products including french fries and other frozen potato products (HS 2004.10), and other prepared or preserved potato products including chips, granules, and other products (HS 2005.20).
124 Chipping potatoes are fresh potatoes grown specifically for processing into potato chips.
125 ATAC for Trade in Processed Foods, Advisory Committee Report, April 27, 2007, 4. For additional analysis regarding TBTs and other NTMs, see chap. 5 of this report.
126 ATAC on Trade in Fruits and Vegetables, Advisory Committee Report, April 2007, 4.
127 APTA, written submission to the House Committee on Ways and Means, April 4, 2007.
128 NPC, “National Potato Council Applauds Completion of U.S.-Korea Free Trade Agreement (April 3, 2007).”
129 APTA, written submission to the House Committee on Ways and Means, April 4, 2007.
130 Ibid.
131 Also, there may not be much of an additional positive long-term impact on the U.S. industry, as several competitor countries with frozen potato-product sales in Korea, especially Canada and Australia, are currently negotiating free-trade agreements with Korea. APTA, written submission to the Trade Policy Staff Committee, Office of the USTR, March 20, 2006.
132 APTA, written submission to the House Committee on Ways and Means, April 4, 2007.
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