Agriculture reforms go against Korea’s grain
Asia Times
8 December 2004
Agriculture reforms go against Korea’s grain
By Jeffrey Robertson
It does not take expert analysis to realize that Seoul’s recent foray into bilateral free trade agreements (FTAs) is an attempt to jump on a bandwagon that has all but passed on. With key trading partners China and the United States rapidly placing themselves at the center of an FTA web and large economies such as Australia and Singapore reaching double figures in the number of FTAs either under negotiation or completed, it is no wonder that Seoul felt the need to jump - perhaps without looking carefully first.
At the recent Association of Southeast Asian Nations (ASEAN) summit in Vientiane, Laos, South Korea finalized a free trade agreement with Singapore and agreed to begin FTA negotiations with ASEAN. Seoul has set in motion more FTAs that will exacerbate a problem that is already a burden on the Korean economy - agricultural reform. It seems Seoul learned nothing from the slow and arduous negotiations, and the even slower and more arduous implementation of the Republic of Korea-Chile FTA, during which the intransigence of Seoul’s agricultural sector came close to scuttling the entire agreement.
South Koreans continue to pay on average more than three times as much for rice than the rest of the world - a powerful price to pay for the average household that consumes about 300 kilograms a year. Similarly, the average price of fruit and vegetables remains more than twice the average of other OECD (Organization of Economic Cooperation and Development) member states.
The South Korean government maintains high levels of agricultural protection in the name of food security and urban-rural equality, both derived from historical periods when the country remained under economic and security threat at the height of the Cold War. A key aim of the government in those times was self-sufficiency. This led to an absurd economic situation in the 1970s. Given the low rice crop yields, the only way the government could achieve self-sufficiency was by choking demand. Accordingly, the government sought to encourage the population to eat less rice through a mass propaganda campaign extolling the virtues of alternative grains such as barley, and deriding the nutritional value of rice.
Today, protection is administered through market price supports and trade barriers, made more difficult by the fact that state trading enterprises and producer associations administer certain tariff quotas, reducing market transparency. However, the real issue is the exorbitant cost of agricultural protection, which slows the entire economy. Higher prices for agricultural products undermine economic efficiency, effectively penalizing efficient and highly competitive sectors such as manufacturing and information technology.
An FTA that includes agriculture would allow South Korea to commence opening the inefficient sector to competition and eventually increase labor cost competitiveness. In simple terms, if the average kimchi-eating South Korean worker pays more for his cabbage and rice, he needs higher wages. Those higher wages are borne by the employer, making it more difficult for the employer to compete internationally.
One of the key benefits of negotiating bilateral FTAs is the ability of such agreements to "whittle away" domestic opposition to trade liberalization. FTAs can prepare inefficient sectors for international competition through allowing gradual and limited international competition, thus providing an impetus for increased productivity. In these circumstances, FTAs become a stepping stone on the path to greater trade liberalization.
However, South Korea’s FTA efforts to date have come close to excluding its most inefficient sector - agriculture. In the Korea-Chile deal, tariff reductions on the majority of agricultural products were deferred until after the current multilateral round, and rice, apples and pears were permanently excluded. The more recent South Korea-Singapore FTA excludes agriculture by the nature of the negotiating partner, and the Korea-Japan FTA, due to be completed by 2005, will exclude agriculture through mutual agreement (that agricultural reform is impossible).
However, in excluding agriculture from FTA negotiations, the South Korean government is setting itself up for even greater domestic backlash when multilateral negotiations pry open a sector insulated from any form of competition, as occurred after the Uruguay Round Agreement on Agriculture in 1995, when limited agricultural liberalization forced the government to reluctantly budget excessive financial commitments to maintain and reform the rural sector. FTAs that exclude inefficient sectors are not stepping stones on the path toward trade liberalization, they are potholes.
In developing its FTA policy, South Korea has chosen the easy way out. A more logical and economically efficient choice would be to commence comprehensive negotiations that include agriculture, with complementary economies of similar size such as Australia or Canada. But agricultural reform is no simple process in South Korea. Popular sentiment strongly supports the rural sector as a matter of national pride. When 55-year-old South Korean protester Lee Kyong-Hae stabbed himself at a demonstration outside the World Trade Organization ministerial meeting in Cancun, Mexico, the national media portrayed him not as an extremist, but as a national hero.
In the same light, national broadcasters screen television variety programs that consist of teams of young pop stars selling rice at exorbitant prices to raise money for farmer groups - as if paying three times as much as anywhere else in the world wasn’t enough. The national sentiment is firmly behind the rural sector as it squirms in anticipation of competitive imports.
Indeed, there exists a sense of connectedness to rural life that saturates Korean society. In line with the Confucian tradition that even pervades Christian elements of this society, Koreans having lived in a major city for more than a generation will still name some non-descript, tiny rural village where generations of their ancestors were buried and distant relatives still toil on paddy fields as their hometown.
This does not augur well for the Roh administration’s stated economic policy to position South Korea as the "dynamic hub of Asia" - an aim that in all its boldness will require it to be at the forefront of global trade, maximizing its comparative advantage, and most importantly not squandering valuable government resources on maintaining an inefficient economic sector. But for the heaviest of economic anchors - agriculture - South Korea would be steaming toward becoming the dynamic hub of Asia.
Jeffrey Robertson is a political affairs analyst focusing on Australian relations with Northeast Asia, currently residing in Canberra, Australia.
