Korea-U.S. FTA is coming of age

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Korea-U.S. FTA is coming of age

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Trade Minister Bark Tae-ho, right, and U.S. Trade Representative Ron Kirk, left, go over FTA procedures on May 17, 2012, in Washington. [YONHAP]

Today marks the first anniversary of the Korea-U.S. free trade agreement. But many consumers question whether their lives have changed much because of the touted trade pact.

On the one hand, there is a greater variety of U.S.-made goods at stores; on the other, not many Koreans can afford them.

“I can see that more confectionery items, beverages and fruits from the United States are available at discount stores,” said Park Hee-young, a 32-year-old housewife living in Nokbeon-dong, northern Seoul. “But imported products still seem pricey to me.”

One reason is that it takes several years for tariff cuts to have an effect on retail prices.

The FTA, for example, will not impact U.S. pork and beef prices until 2016 at the earliest, while cheese, flour, beer, walnuts and grapefruit will see tariff rates lowered gradually. The 36 percent on tariff on cheese will be reduced over 10 years, and the 144 percent tariff on grapefruit from Florida will be applied over 15 years.

The tariff for beef, which prompted a wave of candlelight vigils in protest when the FTA was signed, dropped from 40 percent to 37.3 percent last year and is 34.6 percent this year.

“I prefer buying expensive hanwoo [homegrown beef] over the cheaper U.S. beef because of quality and taste,” said Moon Jung-yoon, a 29-year-old housewife in Incheon. “I don’t feel any positive effects of the Korea-U.S. free trade agreement since I still buy local agricultural products, even though they are expensive.”

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Shoppers inspect packages of cherries from the United States in June 2012 at the Seoul Station branch of Lotte Mart in central Seoul. The U.S.-Korea free trade agreement has reduced tariffs for cherries and other American fruit. [JoongAng Ilbo]

The 22.5 percent tariff on U.S. pork belly is down to 20.2 percent and will go to 18 percent this year. Chicken breasts went from 18.3 percent tariff to 16.6 percent.

Korean consumers, however, are more interested in lower prices for homegrown beef, pork and chicken.

According to the Ministry for Food, Agriculture, Forestry and Fisheries, domestic production of cattle has exceeded demand by about 20 percent.

Consumers do admit that they enjoy eating American fruits, and according to the retail industry, cherry, avocado and lemon sales jumped significantly last year.

Lotte Mart, the nation’s third-largest discount store, said sales of U.S. fruit rose 8.1 percent year-on-year, while homegrown fruit sales were off 6.9 percent.

For example, the price of cherries was 12,800 won ($11.60) for 300 grams before the FTA eliminated the 24 percent tariff. Since then, sales of U.S. cherries have skyrocketed 128 percent, said Lotte Mart.

However, any benefits from the Korea-U.S. free trade agreement have been mitigated by problems with the local distribution system.

“The real beneficiaries of the Korea-U.S. FTA are not consumers, but middlemen,” said a beverage importer surnamed Lee. “Consumers don’t know how much tariff is imposed on each product, while middlemen are very keen on it because it’s a source of their income.”

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The government trumpeted an expected 10,000 won price reduction for Calvin Klein jeans and Tommy Hilfiger shirts after the 13 percent tariff on imported clothes ended when the FTA took effect. It said U.S.-
made cosmetics would also be more affordable with their 8 percent tariff ending.

But according to managers at Lotte Department Store, retail prices of those products haven’t changed yet.

“Most U.S. apparel is manufactured in China and Vietnam, so it is not an area affected much by the FTA,” said a PR employee for the U.S. brands. Retail prices of imported consumer goods are determined by several factors, including currency exchange rates, logistics and promotion costs, and manufacturers’ overseas policies.

“There are at least two intermediary businesses involved in the current distribution system, and they negotiate transaction prices based on tariff cuts,” said Lee, the importer. “That is why, despite tariff cuts, the benefits don’t reach consumers because middlemen take profits from the cuts.”

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Last week, the Fair Trade Commission found that despite tariff cuts, imported contact lenses are 64 percent more expensive in Korea than they are abroad due to distributor practices.

“Consumers can feel price cuts only with oranges and wine,” said an economics researcher who declined to be identified.

The government is well aware of the problems in distribution, and the FTC and Ministry of Strategy and Finance plan to reform the structure as part of anti-inflation efforts.

The FTC also said it will closely monitor nine FTA items to find products whose prices don’t change.

Experts say it isn’t surprising that ordinary people have seen few benefits from the FTA, because it is a policy that favors exporters.

“First of all, consumers shop without considering which products are from the United States and which are not,” said Yoo Byung-gyu of Hyundai Research Institute. “For working-class people, it is even harder to feel any differences because they are less likely to buy wine, imported fruit or American automobiles.”

Yoo pointed out that the original purpose of the Korea-U.S. FTA was to boost the country’s exports, while protecting the local agricultural industry.

“The policy itself doesn’t really take benefits for consumers into account,” he added.


were off 6.9 percent.

For example, the price of cherries was 12,800 won ($11.60) for 300 grams before the FTA eliminated the 24 percent tariff. Since then, sales of U.S. cherries have skyrocketed 128 percent, said Lotte Mart.

However, any benefits from the Korea-U.S. free trade agreement have been mitigated by problems with the local distribution system.

“The real beneficiaries of the Korea-U.S. FTA are not consumers, but middlemen,” said a beverage importer surnamed Lee. “Consumers don’t know how much tariff is imposed on each product, while middlemen are very keen on it because it’s a source of their income.”

The government trumpeted an expected 10,000 won price reduction for Calvin Klein jeans and Tommy Hilfiger shirts after the 13 percent tariff on imported clothes ended when the FTA took effect. It said U.S.-made cosmetics would also be more affordable with their 8 percent tariff ending.

But according to managers at Lotte Department Store, retail prices of those products haven’t changed yet.

“Most U.S. apparel is manufactured in China and Vietnam, so it is not an area affected much by the FTA,” said a PR employee for the U.S. brands. Retail prices of imported consumer goods are determined by several factors, including currency exchange rates, logistics and promotion costs, and manufacturers’ overseas policies.

“There are at least two intermediary businesses involved in the current distribution system, and they negotiate transaction prices based on tariff cuts,” said Lee, the importer. “That is why, despite tariff cuts, the benefits don’t reach consumers because middlemen take profits from the cuts.”

Last week, the Fair Trade Commission found that despite tariff cuts, imported contact lenses are 64 percent more expensive in Korea than they are abroad due to distributor practices.

“Consumers can feel price cuts only with oranges and wine,” said an economics researcher who declined to be identified.

The government is well aware of the problems in distribution, and the FTC and Ministry of Strategy and Finance plan to reform the structure as part of anti-inflation efforts.

The FTC also said it will closely monitor nine FTA items to find products whose prices don’t change.

Experts say it isn’t surprising that ordinary people have seen few benefits from the FTA, because it is a policy that favors exporters.

“First of all, consumers shop without considering which products are from the United States and which are not,” said Yoo Byung-gyu of Hyundai Research Institute. “For working-class people, it is even harder to feel any differences because they are less likely to buy wine, imported fruit or American automobiles.”

Yoo pointed out that the original purpose of the Korea-U.S. FTA was to boost the country’s exports, while protecting the local agricultural industry.

“The policy itself doesn’t really take benefits for consumers into account,” he added.


By Song Su-hyun [ssh@joongang.co.kr]

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