[OUTLOOK]Farm trade policy needs thoughtPeople are grumbling again about the government's problems in trade policy. The latest issue is Seoul's decision not to prolong the safeguard tariff it imposed on Chinese garlic imports, but the bigger problem is that we have no good China-specific trade policies.
The Agriculture Ministry unilaterally imposed a 285-percent tariff on processed Chinese garlic in November 1999 that was to have run until the end of May 2003. The Chinese threatened to retaliate by banning the import of Korean cellular phones and polyethylene, and subsequent negotiations led to an agreement in July 2000 that Korea would change that tariff to a tariff-quota regime that would allow some garlic in without the emergency tariff and would withdraw the tariffs entirely by the end of 2002.
Comparing the amount of damage to exports of both sides, the Chinese retaliation would have cost Korea 50 times as much as the original tariffs cost China in lost exports. Such a strong retaliation measure from China seemed stunning from our perspective and in light of international trade standards. But the Chinese government insisted that they could not understand South Korea's safeguard measure on garlic in view of international trade standards.
In fact, there was no reasonable basis for the decision of the Korean government. The Korean Trade Commission reached the conclusion that the increase in garlic imports contributed substantially to the collapse of garlic prices in 1999, but the quantity of garlic imports and the growth rate of those imports were both too small to say that they were the reason for the price collapse. Domestic garlic production increased by 23 percent in 1999, but the amount of Chinese garlic imports increased by only 3.5 percent. In addition, garlic imports were only 7 percent of the total supply on the Korean market. That was why the Chinese government concluded that South Korea's measure was unfair and decided on massive retaliation.
The stark realities of life in Chinese agricultural villages was the underlying reason for the Chinese reaction. About 150 million of the 900 million people in the agricultural sector there are surplus to production needs, and the agricultural economy is in very bad condition. In addition, when China joined the World Trade Organization its agricultural markets had to be opened somewhat, and the pressure of agricultural restructuring is getting serious. It became a major threat to social and political stability. Chinese attention is now focused on finding export markets for their competitive farm products, like vegetable and fruits. For those reasons, the Chinese government threatened to take some drastic steps to protect its export market in Korea.
And Chinese negotiating power is superior to Korea's in the bilateral trade relationship. China has already become Korea's second-largest market. Because Korea's exports to China increased dramatically while its imports did not, Korea has a large trade surplus with China. We can expect that China will soon be Korea's biggest market and have a major effect on Korea's economic growth and industrial advancement. But this dependency on China also means our negotiating leverage with China is weakening; Korea would have a lot more to lose than China in a trade war, so China believes it can take daring trade measures.
We may have more crises in trade with China in the future, and the focus will be on agricultural products. Our trade surplus with China will widen, and China will try to narrow it by an aggressive posture toward opening Korea's agricultural markets. If we deal in a heavy-handed manner and after the fact to protect Korea's agricultural markets, as we did in the garlic negotiations, we will see more examples of going to buy wool and coming home shorn.
The seeds of the garlic problem were already sown in the Uruguay Round. Korea's tariff schedule had a 400-percent tariff on raw garlic but only 30 percent on frozen garlic and acid-processed garlic, which were not in demand at the time. The Chinese exploited the tariff difference to develop their exports.
The core strategy in trade with China should be to prevent trade trouble. Our trade negotiators should study the rules and the spirit of the World Trade Organization. Even more important, we have to draw up and implement a comprehensive agricultural restructuring strategy. But the problem is that such restructuring is a politically difficult issue, and politicians, government officials and private-sector experts will just sit around pointing fingers at each other.
That is what happened with the Chinese garlic matter, and as a result there was a trade dispute whose ill effects were borne only by farmers.
The writer is a visiting fellow at the Korea International Trade Association.
by Yang Soo-gil