162 The products covered in this assessment represent approximately 6 percent of U.S. exports to Korea in the GTAP “vegetables, fruit, nuts” and approximately 3 percent of the “food products n.e.c.” sectors, and represent less than 1 percent of U.S. imports from Korea in the GTAP “food products n.e.c.” and “vegetable, fruits, nuts” sectors, for 2006.
163 Included here are fresh, frozen, and canned sweet corn (HTS 0709.90.45, 0710.40, and 2005.80), canned tomatoes and products (2002.10 and 2002.90), other fresh vegetables (onion sets, onions, and shallots [0703.10.20 and 0703.10.50]), lettuce (0705.11 and 0705.19), carrots (0706.10.30), other dried vegetables and mixtures of dried vegetables (0712.90.9002), dried leguminous vegetables (0713.10, 0713.20, 0713.31, 0713.32, and 0713.39), and other processed, frozen vegetables and mixtures of vegetables (2004.90.8580).
164 One industry study states that U.S. agricultural exports to Korea under an FTA would expand substantially, and that exports from California alone could more than double their current amounts within a few years. Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007, 1.
165 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007.
166 Ibid.
167 The items covered here, together with their Korean MFN applied duties, are as follows: fresh onions (135 percent; fresh garlic (360 percent), fresh lettuce (45 percent), fresh carrots (40.5 percent), other dried vegetables (27 percent), dried peas and chickpeas (27 percent each), dried mung beans (607.5 percent), dried small red beans (420.8 percent), dried kidney beans and other dried beans (27 percent each), other frozen vegetables (30 percent), and canned olives (20 percent).
168 For canned tomatoes and tomato products and other frozen or processed vegetables and mixtures of vegetables, duties are scheduled to be phased out over 3 years.
169 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007.
170 CRS, “The Proposed South Korea-U.S. Free Trade Agreement (KORUS FTA),” April 23, 2007, 6.
171 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007.
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172 APTA, written submission to the House Committee on Ways and Means, April 4, 2007.
173 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007.
174 Also, any projected increase in U.S. exports to the Korean market could be negatively affected by Korean FTAs currently being negotiated with Canada, India, Japan, and Mexico, as well as possibly with New Zealand and Australia. Lee and Sumner, “The Prospective Free Trade Agreement with Korea,”
January 2007.
175 Included here are tomatoes prepared or preserved otherwise than by vinegar or acetic acid, whole or in pieces (HTS 2002.10) and tomato paste and other tomato products including puree (2002.90); not included here are ketchup and other canned tomato-based sauces (2103.20).
176 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007.
177 Ibid.
178 Ibid.
179 Included here are fresh sweet corn (HTS 0709.90.45), frozen sweet corn (0710.40), and canned corn (2005.80).
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U.S. producers with respect to these major competitors and should enable the United States to maintain or expand its current small market share.172 In addition, the lowering of tariffs and the removal of other trade barriers may result in the lowering of Korean market prices for these products, which in turn may cause demand to rise.173 Over a longer period, however, China would be expected to increase exports of many of these same products to the Korean market and would likely gain an even greater share of the market and any growth, possibly at the expense of products from both the United States and other foreign suppliers.174
Canned tomatoes and tomato products (i.e., processed tomato products) would likely experience increased exports, especially in the near term.175 Processed tomato products have been one of the top ten U.S. agricultural exports to Korea in recent years.176 The United States is a global producer and exporter of these products, and is currently a major supplier of processed tomato products to the Korean market, accounting for 46 percent of the total Korean market for such products in 2005.177 U.S. shipments of canned tomatoes and tomato products to Korea currently face duties of 5 percent and 8 percent, respectively, and, under the FTA, these duties would be eliminated at the beginning of the third year after implementation. U.S. processed tomato products’ exports to Korea account for only 5 percent of total U.S. processed-tomato exports, leaving substantial U.S. supplies (both from increased U.S. production and from trade diversion) from which to draw for greater exports to Korea in the near future.178 In addition, U.S. exports are supported by the lack of a domestic processed-tomato-products industry in Korea. Any projected increase in trade, however, is not expected to have as great a long-term effect on the U.S. industry, in part because Korea expects to have an FTA in place in the next year or so with the EU, the other major global supplier of processed tomato products to Korea. In the event that an EU-Korea FTA were concluded, a U.S.-Korea FTA would help U.S. exporters maintain market share.
U.S. exports of sweet corn (fresh, frozen, and canned corn) would also likely increase with an FTA.179 Korean import duties on fresh or frozen corn and canned corn are high at 27 percent and 17 percent, respectively. The United States has been a global producer and exporter of this product for many years. Korea, with little or no domestic production but with a stable consumer preference for U.S. product, has relied on imports from the United States to satisfy market demand; this is especially true for canned corn because of its ease in shipping and relatively long shelf life. Increased U.S. exports of fresh and frozen corn, however, may be hampered by the need for greater care in handling and the attendant higher shipping costs relative to exports of canned products.
180 Included here are onion sets and other onions (HTS 0703.10.20 and 0703.10.50), lettuce (0705.11 and 0705.19), carrots (0706.10.30), dried leguminous vegetables (0713.10-0713.39), other dried vegetables (0712.90.9002), other processed frozen vegetables (2004.90.85780), and canned olives (2005.70).
181 USDA, FAS, “Republic of Korea Product Brief, Produce Market Brief Update 2005,” October 5, 2005, 2.
182 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007.
183 USDA, FAS, “Republic of Korea Product Brief, Produce Market Brief Update 2005,” October 5, 2005, 2.
184 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007.
185 USDA, FAS, “Korea Product Brief, Condiments, Sauces, and Salad Dressings 2005,”
November 1, 2005, 2.
186 Lee and Sumner, “The Prospective Free Trade Agreement with Korea,” January 2007.
187For additional analysis regarding SPS, TBTs, and other NTMs, see chap. 5 of this report.
188 USDA, FAS, “Korea Product Brief, Produce Market Brief Update 2005,” October 5, 2005.
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U.S. exports of other fresh and processed vegetables would likely increase as a result of tariff elimination and trade-barrier removal under the FTA. Gains would be tempered, however, by small duty-free in-quota TRQ quantity increases that would be phased in over 10 or more years and be accompanied by very large over-quota duties.180 In the Korean fresh-vegetable market sector, the United States has maintained a 5-percent market share in recent years.181 Driven by increasing demand, U.S. exports of lettuce have been rising in recent years despite the high 45 percent tariff, mainly because U.S. lettuce exports enter during the Korean off- season for field-grown lettuce, when Korean-produced lettuce is a high-priced, greenhouse- grown product.182
Other U.S. products are believed to be price competitive in the Korean market with other imports and with vegetables produced locally. In some cases, little or no competition exists for some U.S. vegetables.183 Korean consumers may be more likely to purchase certain fresh vegetables such as artichokes and asparagus not customarily consumed in Korea because of their appeal as healthy foods and their falling prices as duties are eliminated.184 Demand for other foods, such as canned pickles or pickled relish, has fallen in recent years as consumers look to new and different foods.185 Also, for items such as canned olives, where Spain and Italy recently accounted for 76 percent and 14 percent, respectively, of Korean consumption, the FTA would not be likely to boost U.S. exports.186
Even with the elimination of duties and other barriers under the FTA, U.S. products would face a number of obstacles to gaining greater share of the Korean market. Some of the fresh vegetables covered here are perishable (i.e., fresh sweet corn, onions, lettuce, and carrots), and success in exporting these products to Korea may be limited by the costs and logistics involved in keeping the products refrigerated during transport to Korea. In addition, increased U.S. exports of fresh and processed vegetables may continue to be subject to TBTs, quotas, licensing requirements, and SPS measures.187
The FTA would unlikely significantly affect U.S. vegetable imports from Korea. Korean vegetable exports have little potential for expansion in light of the large number of small farms and the shrinking share of the Korean economy held by agriculture.188 Consequently, the elimination of high U.S. duties on a number of products (e.g., fresh garlic, certain fresh root crops, and other miscellaneous fresh vegetables) may create incentive for Korean exporters, but is unlikely to result in greatly increased U.S. imports. Canned mushrooms, however, could increase if Korean producers were to modernize mushroom-growing and canning facilities, although Korean sales in the U.S. market would have to compete with
189 U.S. industry official, telephone interview by Commission staff, May 24, 2007.
190 California Tomato Growers Assoc., written submission to the USITC, June 25, 2007.
191 Ibid., 1–4.
192 Ringwood (counsel), “Submission to the USITC regarding the U.S.-Republic of Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects,” written submission to the USITC on behalf of the American Dehydrated Onion and Garlic Assoc., June 19, 2007.
193 Ringwood (counsel), “Submission to the USITC regarding the U.S.-Republic of Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects,” written submission to the USITC on behalf of the American Dehydrated Onion and Garlic Assoc., June 19, 2007.
194 U.S. industry official, telephone interview by Commission staff, May 24, 2007.
195 U.S. industry official, telephone interview by Commission staff, May 24, 2007.
196 ATAC on Trade in Fruits and Vegetables, Advisory Committee Report, April 2007, 2.
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product from China, a global mushroom producer currently commanding the greatest share of the U.S. market.189
Views of Interested Parties
The California Tomato Growers Association, Inc., made up of growers of tomatoes for processing, states that the FTA could result in California processed-tomato industry sales to Korea of $15 million annually as compared with sales of $11.2 million in 2004.190 The association states that, although it has been successful in the past at exporting processed tomato products to Korea, it identified three major issues that will affect future success at export sales: (1) Korean tariffs, (2) Korean import and inspection procedures, and (3) Korean government enforcement actions.191
The American Dehydrated Onion and Garlic Association expressed opposition to the FTA in a written submission to the Commission. The association cited potential harm to the industry from rising imports of dehy onions and garlic.192 It points out that the industry continues to struggle with rising levels of lower-priced imports from China and other countries, and that the FTA is unlikely to provide any opportunity for U.S. exports of dehy onions or garlic to Korea, a market already supplied by products from China. The association stated that U.S. imports of dehy onions and garlic are subject to high U.S. duties and, although there have not been any appreciable import volumes recorded in recent years, members of the industry are concerned with the possibility that imports from China transshipped through Korea could rise dramatically.193
The American Mushroom Institute (AMI),194 which represents U.S. growers and processors of cultivated mushrooms, expressed concern about the potential for Korea, historically a global producer and exporter of canned mushrooms and already well established in the growing, canning, and exporting of mushrooms, to ship large amounts of canned mushrooms into the U.S. market in both the near term and well into the future. AMI also expressed concern about the effectiveness of regulations preventing transshipments of canned mushrooms from China through Korea.195
In its report on the FTA, the ATAC for Trade in Fruits and Vegetables stated that the negotiated agreement would generally be positive for the U.S. vegetable sector.196 The report noted that Korea is already a net food importer and likely will grow even more dependent on food products imported from the United States in the future. The report also said that the FTA should place U.S. vegetable producers in a better position to benefit from agreed-upon
197 Ibid., 2-3.
198 Ibid., 4.
199 ATAC for Trade in Processed Foods, Advisory Committee Report, April 27, 2007, 3.
200 Ibid., 4.
201 Ibid., 5.
202 APAC for Trade, Agricultural Policy Advisory Committee for Trade Report, April 27, 2007, 2.
203 Ibid., 3.
204 Chestnuts are not included in this assessment as U.S. production is only a cottage industry and the MFN rate is free. The products covered in this assessment represent approximately 30 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 less than 1 percent of U.S. imports from Korea in the GTAP “food products n.e.c.”
sector, for 2006.
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tariff concessions that could accrue additional benefits to many vegetable export interests.197 The report, however, expressed concern about how Korea has used SPS measures in the past to protect certain industries from import competition; it further noted that preferential FTA tariff treatment would do little for improved bilateral trade if Korea imposes SPS barriers in the future.198
In its report on the FTA, the ATAC for Trade in Processed Foods took no position on the agreement, but said that it strongly endorses overall trade goals of opening foreign markets, promoting tourism, trade, and investment, expanding economic opportunities, and strengthening political stability and national security for all nations.199 The report also noted concern about the creation of special rules of origin and about the importance of resolving existing SPS and TBTs.200 The report stated that members are particularly concerned that benefits that would otherwise be gained by processed food exporters would be lost because of continuing technical trade barriers not addressed in the FTA. The report noted that a number of U.S. FDA-approved food additives commonly used in the U.S. food- manufacturing process are not permitted for use in Korea, and said that this would result in the denial of entry into the Korean market of foods containing such additives.201
In its report, the APAC for Trade said that the U.S.-Korea FTA will benefit U.S. farmers (including vegetable farmers) by increasing their export opportunities following the elimination of tariff and nontariff barriers. The report also said that priority must be given to comprehensive agricultural trade reform.202 It called for the elimination of barriers to trade in agricultural products for the purpose of improving market opportunities for U.S.
agriculture through fairer and more open trade conditions.203