Last
week's signing of a free-trade agreement (FTA)
between South Korea and the United States marked a
new strand in the global spaghetti bowl of trade
agreements, [1] marking the demise of the World
Trade Organization (WTO) as much as the success of
bilateral arrangements. The Korean agreement has a
strategic perspective, in that it makes it easy
for the country to benefit from a direct
reunification with North Korea, thereby
capitalizing on the 20 million or so impoverished
but educated workers that the frozen North is
supposed to possess.
Indeed, it makes it
easier for South Korean companies to expand
production of sub-assemblies in
the special economic zones next to the border, in
turn gainfully employing more North Koreans. The
timing of the agreement, which came quickly after
the multilateral agreement over North Korea's
nuclear-weapons and missile program, suggests that
coincidence is not a distinct possibility,
especially given the scale of compromises between
the two sides.
Away from
all the accolades surrounding the agreement, it is
interesting to note that the United States has
gained the right to sell South Korea primary
products, in the main. A bulk of Korean
concessions revolve around US agricultural
products, including soybeans and corn feed, while
the Korean side gained the right to sell
automobiles free of duty to the US. The contrast
between the concessions - one focused on the
farming lobby and the other on the manufacturing
side - would have been unthinkable a few years
back, but they better represent the future of
today's Group of Seven as agricultural economies.
The battle over rice Rather than
the beleaguered US Secretary of State Condoleezza
Rice, my reference here is to the food staple that
was not included in the FTA, but kept on the
standby for a later date. The inclusion of rice
was attempted at many stages by the US government,
if only because of the powerful Texas farming
lobby. Still, the Korean side proved most
obdurate.
This is of course no simple
matter, as Asian economies ranging from Japan to
China and Vietnam are fully aware. With vast
acreage, better seeds and excellent fertilizers,
the US commands a strong competitive advantage in
rice cultivation, even allowing for the temperate
weather pattern over much of the country. The
reason then for Asians to reject the import of
rice from the United States starts becoming
apparent here, especially given the large amounts
of farm labor in Japan and South Korea that depend
on this crop.
Even so, a strategic
assessment by richer or bigger Asian countries is
necessary for their own survival in future. At the
heart of this matter is the gap between yields in
these countries versus those such as Thailand,
Cambodia and Vietnam. On average, Japanese and
South Korean farmers secure about 7 tonnes per
hectare of rice cultivation, compared with 3
tonnes or less in South and Southeast Asia. [2] In
comparison, the US achieves more than 7.5 tonnes.
China has made impressive leaps in rice
cultivation, matching and then beating India's
surging yields in wheat cultivation over the 1960s
and 1970s. The country has embraced modern
cultivation techniques quicker than most others,
and has been an enthusiastic proponent of
genetically modified crops. China has noted that
such crops provided 10% increases in yields.
Pork barrels full of rice It is
perhaps well accepted by now that Americans cannot
produce cars or any other mass-market item with
sufficient compromises among design, quality and
price to entice Asian buyers. Their record on
agricultural production is, however, much better,
thanks to the frequent munificence bestowed by the
US Congress.
In both South Korea and
Japan, farmers occupy the most powerful lobbies in
the halls of government, singularly responsible
for the maintenance of political parties in power.
They are virtually untouched by reform initiatives
and political parties remain in their thrall, as
typified by the habitual kowtowing of the Liberal
Democratic Party in every Japanese election. One
of the key tenets of nihonjinron is that
the Japanese cannot digest rice produced in any
other country, as their enzymes are incompatible.
[3] Similar echoes of jingoism resonate through
the farmers' lobbies of other Asian countries,
albeit much toned down in a creative sense at
least.
Still, behind all the theatrics lie
some grim truths, namely that Japan's rice farmers
are increasingly old, and therefore unlikely to
continue as a major lobby in 20 years' time. Their
children have been urbanized, and moved to the
main cities a generation ago. Much the same truism
can be put at the doors of the Americans and
Europeans, except that the demographics of city
dwellers are usually worse than rural folks' in
those cases.
The policies developed in
Japan after World War II were designed to prevent
shortages, and yet ironically may help to deliver
the next round of such events. Food production in
Japan will likely decline in coming years, even as
its city-dwelling population remains steady. That
dichotomy will inevitably increase Japan's
dependence on imports. Much the same phenomenon is
at work in South Korea, and increasingly, parts of
China where farm labor has been sent to work in
the cities.
Making a
choice Rather than letting a powerful farm
lobby dictate the terms of an FTA, the governments
of China, Japan and South Korea must work together
to ensure food security in the context of both
changing demographics and the rapid urbanization.
Over the next 20 years, this suggests vast
increases in food prices that may help to push the
quality of life down across the region. In
contrast, their ability to continue producing
goods of a higher value addition - ie,
manufactured items including cars and consumer
electronics - is likely to remain undiminished for
a while.
The first order of business for
these large rice consumers is then to enter food
FTAs with Asian countries, particularly the poorer
ones in Southeast Asia. In return for full trade
and technology access, Southeast Asian countries
can be encouraged to provide capital access for
large buyers from Japan, South Korea and China.
Eventually, all these countries will find
themselves forced to import from all surplus
producers in any event. These countries will find
it advantageous to negotiate better terms now
rather than in a few years when they are forced
to.
Notes 1. "Spaghetti
bowl" is a term first coined by Jagdish Bhagwati
in The Dangerous Drift to Preferential Trade
Agreements, AEI Press, 1995. 2.
International Rice Research Institute
(www.irri.org). 3. Nihonjinron roughly
means "about the Japanese", but is often used as
shorthand to explain how they are different
fundamentally from other peoples.
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