Free trade message touches raw nerve

By Yoke Har Lee

Driver Kim Young-shin believes using foreign beef to cook the traditional pulgogi (barbecue) is an insult to the dish.

The South Koreans have great loyalty when it comes to hanwoo (local beef).

Imported beef is sold at about half the price of the domestic variety and the Government requires it to be displayed separately from the more expensive local meat.

Australia deemed the separate distribution channel an unfair trade practice and is bringing the issue to the World Trade Organisation (WTO). Privately, New Zealand agrees with that step.

South Korea has a quota for beef imports (and a 40 per cent tariff on beef), up to 225,000 tonnes or twice the amount consumed domestically, according to Choi Yong-kyu, the director-general (international agriculture bureau) of the Ministry of Agriculture and Forestry.

From 2001, imports of beef will be quota-free but subject to a 41 per cent tariff.

Beef is not the only food item the South Koreans are fussy about. They feel the same about their pears, apples and peaches, which they consider are the best.

New Zealand apples are not sold there because of disagreement over quarantine issues. Kiwifruit and lemons are no problem and Korean pears will be allowed into New Zealand next month.

South Korea will permit small imports of New Zealand cherries, joining the United States and Japan which also send a small quantity.

New Zealand's main exports to South Korea are forestry products, animal hides, dairy, seafood and meat.

The March quarter saw a 54 per cent rise in exports of beef against a 64 per cent drop for the same period a year ago. Forestry product exports rose 139 per cent after a sharp fall last year.

Opening South Korea's agriculture market will be one of the most thorny issues President Kim Dae-jung's administration has to grapple with.

There is a Korean saying that "farming is a divine calling". With a 5000-year history of rice farming, a painful memory of the shortage of food during the Japanese occupation and Korean wars and about 50 per cent of the nation's farming income derived from rice, that market will not be easy to pry open.

Putting agriculture on the table for free trade talks at the WTO touches many raw nerves in South Korea.

The reality is that the agriculture market is still heavily subsidised and comprises a complex web of direct subsidies, subsidised farm loans, price-support mechanisms and controlled distribution systems.

Falling rural agriculture income and the percentage of agriculture contribution to GDP indicate the decline of the sector. Agriculture had fallen to 5 per cent of GDP by 1997, from 50 per cent just after the Second World War.

Mr Choi said that in moving towards freeing up the agricultural market, South Korea was looking for progressive, not radical, measures.

While Japan agreed to place tariffs on its rice from April 1999 to open up its market, South Korea has postponed a similar decision for 10 years (1995-2004) but abides by an agreement to allow imports of between 1 per cent to 4 per cent of its total rice consumption.

South Korea has big problems with moves to have its agriculture liberalised at WTO talks.

"Since end-1997, our farmers income has dropped 13 per cent. Rural debt of farmers has risen 31 per cent. The farmers' livelihood has deteriorated," Mr Choi said.

The average South Korean farm is tiny, 1.3 to 1.4ha.

Under what it calls its Rural Basic Law, the country's agricultural policies will be reshaped to reduce market price supports, provide guidelines for environmentally friendly farming practices and preserve farmland for food security reasons.

Agriculture is not the only market largely inaccessible to foreign goods. The US has been working on breaking into the Korean car market (which has import duties and car taxes) and also opening the telecommunications and oil markets.

Of the 1148 sectors listed, some 31 have part or full limits for direct foreign investments - two examples being cattle and rice farming. South Korea has yet to open up its skies to foreign carriers.

To the rest of the world, South Korea looks like a closed market. But the Koreans say foreigners cannot bulldoze their way into the market.

They say they have made enough concessions.

"As far as agriculture is concerned, I think there is more or less equilibrium at this stage. We have a trade deficit, for instance, with New Zealand and Australia. A 100 per cent liberalisation is not possible for us," said Lee Kyun-dong, director (Southwest Asia and Oceania Division) at the Ministry of Foreign Affairs and Trade.

"Internally, we have to strive for that equilibrium [between domestic harmony and allowing imports]. When people have a sense of insecurity, and as long as jobs are at stake, people will never succumb to pressure from outside. They would rather dig in than negotiate."

For New Zealand exporters there is hope that South Korea will be lucrative in the long run, provided economic reforms progress.

* Next week, in the last of five articles, Yoke Har Lee takes a look at South Korea's race to become a knowledge-based economy.

* Yoke Har Lee visited South Korea on its Government's invitation.