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.
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