I. Identification

1. The Issue

South Korea's domestic apple market has been shielded from international competition due to the import regulation of the National Plant Quarantine Service and government-led agricultural market protection in general. Apple cultivation in South Korea started flourishing after the country's economic development in the 1980s and the accompanying improvement of dietary life. The increasing demand for apple as well as the subsidies from the government has benefited the Korean apple farmers. However, South Korea apple producers will have to face great challenge from foreign competitors if once WTO's DDA, which seeks trade liberalization including agricultural sector and market-oriented global economy not disturbed by tariffs and subsidies, puts into effect. The biggest threat under this circumstance will be from China which supplies about half the world's apples in the cheapest prices. In order to deal with the inevitable challenge caused by market opening, Korean apple producers must improve the quality of their fruits as well as lower the production cost. In addition, the government should facilitate research to increase the effectiveness of productivity and management of apple production.

2. Description

Understanding the Rational Behind Agricultural Market Protection in South Korea: Trade Liberalization and Apples

On February 15, 2003 South Korea signed a free trade agreement with Chile after more than three years of negotiations. On the same day, several thousand members of a national farmers' organization gathered in Seoul to protest against the government's signing of the free trade agreement and ask the National Assembly not to ratify the agreement. These farmers considered themselves as victims of globalization and asserted that easy access for competitive Chilean agricultural products would threaten the survival of Korean farmers.

The main concern of them is not the Korea-Chile Free Trade Agreement (FTA) itself, which excludes a number of Chilean leading export goods such as apples, pears and rice from the free trade list, in order to minimize damage inflicted on the Korean agrarian economy. Instead, Korean farmers have worried about the possibility that FTA will become a watershed to facilitate additional free trade agreement with other countries, which would expand liberalization into Korea's major agricultural products.

The agricultural system of Republic of Korea has been based on small, labor intensive and owner-operated farms. Therefore, Korean farmers are considered to be vulnerable to agricultural market opening to global trade led by large-scale cultivators equipped with cutting edge technology and marketing strategy as well as competitive prices for their agricultural products. The influence of the Confucian tradition on the Korean culture which views agriculture as the "most worthy human pursuit" [The Korean, p.194] has made the Korean public sympathize with the plight of farmers thus led the public to either support or passively accept the action of the farmers who enthusiastically advocate the country's agricultural market protection.

Background of ROK's Apple Farming

The Balkans are thought to be the original home of the apple tree. The excavation of charred apples, found in Switzerland's prehistoric dwelling of 20th century B.C., has led to an estimate of over 4,000 years of history of apples [JAFI]. Korea's first record about apples can be found in the history of Koryo Dynasty around 1103 A.D. However, apples were considered as rare dietary goods available mostly to the royal families and upper class Koreans called Yangban until 1906 when the Korean government started investing in apple cultivation. The Japanese colonization of the Korean Peninsular until the 1945 and the subsequent outbreak of the Korean War, lasted until 1953, impeded the development of apple farming in Korea. By the end of the Korean war, ROK suffered from the mass starvation due to the war-torn environment that devastated most of the agrarian lands thus even the production of the staple crop could not meet the country's food self-sufficency. Therefore, apples have not been widely consumed among the general public until recently.

The agricultural land for apple production has been diminished particularly since the late 1990s when the country strived to recover from the Asian economic turmoil. Consequently the economic crisis has frozen the expenditure of most South Korean households and the demand for apple consumption, which is not a must-have staple like rice, started dropping accordingly. In addition, cultivating apples generate relatively less income compare to other fruits such as pears and grapes. Therefore, many apple farm lands have been either closed or replaced by farming of other fruits or crops that generate higher profits. It is expected that the country's agricultural land for apple production will be decreased further in coming years unless the profits of apple farming increase as high as the level of income from cultivating other agricultural items. [GACA]

ROK's Efforts for International Cooperation and Its Relevance to Korean Agriculture

Due to its strategic importance (see a map of Northeast Asia), Korea has experienced a gloomy history. It was invaded by other countries about 800 times. In 1592, for example, Japanese leader Toyotomi Hideyoshi invaded Korea to make the country as a foothold of Japan's expansion of the Asian continent. The Russo-Japanese War in 1904-1905 was fought over the right to control the Korean Peninsular between the two major regional powers. Because of the country's unique history, Korea followed the close door policy and shunned foreign trade and investment at the end of 19th century and early 20th century. However, the growing global trend of economic integration and the proliferation of building regional blocs have influenced South Korea to shed its traditional isolation in order to join the mainstream of international cooperation [Korean Herald].

Beginning in the early 1960s, South Korea pursued an economic plan that would soon generate extraordinarily rapid industrialization. The government's export-oriented growth strategy facilitated the development of manufacturing industry which saved the country from being one of the poorest countries in the world. By the mid-1990s, South Korea joined Hong Kong, Singapore and Taiwan as the most promising industrial powers in the region and became one of the "Asian Four Tigers." South Korea has entered GATT in 1967 and became one of the countries benefited the most under the system of liberal trade. For example, South Korean light industries as well as heavy industries have rapidly developed since the late 1960s as the country started strengthening its capitalist system and stepped into the global market. The economic development during this time has been an engine for the South Korean Economic Miracle. Since then, South Korea has been actively participating in the liberalization efforts led by GATT/WTO. However, the country has faced the domestic challenges especially against agricultural market liberalization after WTO's Uruguay Round (UR) negotiations, which have included negotiations on agriculture for the first time. The country has continued to join WTO's 9th Round, Doha Development Agenda (DDA) that covers trade liberalization of every sector including agriculture, industrial products, and service.

However, DDA as well as Uruguay Round has created considerable concerns and resistance among Korean farmers over the issue of opening agricultural market that is the most sensitive industrial sector in the country. Traditionally, Koreans have considered agriculture not just a mere industry but "the root" of all industries within which the country hold on to its sovereignty [Free Trade Agreement: Chile and Korea]. Koreans have long believed that once the country loses a capacity for self-sufficiency of food, its sovereignty would be more easily controlled by others that could make influence on Korea with their leverage of food supply. For this reason, Korean government has protected the country's agriculture and the public has supported this action. Korean farmers have been protected under the dual price system also known as producer subsidies with which the government buys agricultural products from farmers at higher prices and sells these at lower prices to consumers.

Despite these efforts, the country's increasing urbanization and rapid industrialization have gradually reduced the number of families engaged in agriculture and resulted in the distortion of the structure of the rural population. For example, South Korea's agriculture occupied 40% of the country's GDP and 40% of employment in 1965 but the numbers dramatically dropped to 3.7% of GDP and 8.3% of total South Korean employment in 2001. Another problem is the aging population of Korean farmers; in 1999, 33% of rural population was over 60 years old while 14.8% of the country's total population was over 60 years old. In addition, more than 50% of families dependent on agriculture do not have successors who are willing to continue farming business [Ministry of Foreign Affairs and Trade, ROK]. These phenomena have been fueled by income disparity between the relatively less profitable agricultural sector and other industrial sectors such as service, manufacturing, and finance, etc. The number of South Korean farmers are expected to decline further if South Korea, as a member of WTO, reduces the producer subsidies as well as tariffs on agricultural goods by 2004 under the UR agreement.

Impact on Korean Apple

Based on the Doha Declaration, WTO member countries were supposed to conclude modalities of agricultural tariffs and subsidies by the end of March 2003. The General Council Chairman Stuart Harbinson has recently suggested that the WTO member countries have failed to reach an agreement on modalities at the conference held in Geneva during late March 2003. However, the purpose of the Doha Declaration, which is the substantial reduction of tariffs and subsidies on agricultural goods, remains the same although there may be differences on the degree. It thus appears that South Korea as a WTO member, won't be exempted from the obligation to further reduce tariffs and subsidies on agricultural products once WTO members reach an agreement on modalities at any time soon.

Therefore, even if Korean apple markets have been saved from the fierce competition of Chile's high quality apples thanks to the Korean government's decision to exclude apples from the FTA with Chile, Korean apple producers won't be able to avoid a challenge imposed by WTO's Doha agreement which will mandate not only to open South Korean apple market but also reduce producer subsidies for apple farming. Once this happens, China will be emerged as the greatest threat to South Korean apple producers. China is the largest apple producer in the world (see Table 2).

China's apple boom was initiated by the Beijing government in the 1980s as the country started opening its agriculture to the external market. The Chinese government has tried to improve the productivity as well as the quality of apples for the last two decades and the country is now producing about half the world's supply of apples [New York Times].Korean apples are superior to Chinese apples in terms of quality including fruit size, shape, and saccharinity. However, newly export-minded Chinese apple producers with the help of the Beijing government have put efforts to develop new techniques to further improve the quality of Chinese apples which have been listed as one of the 11 government-designated commodities that would receive aggressive development support for the next five years. In addition, thanks to China's low labor and land cost, the Chinese domestic apple price is 1/4 to 1/5 of Korean domestic apple price and the export price of Chinese apples are expected to be less than half the price of South Korea's domestic apple price [GACA].

Chinese apples are currently banned by South Korea's National Quarantine Service. However, Korea will have to allow market access to Chinese apple producers sooner of later under WTO conditions. Therefore, the best way for South Korean apple producers to compete against cheap Chinese apple is to further develop agricultural technology to increase the quality of Korean apples while reducing the cost of apple production. In addition, Korean apple farmers may increase the demand of domestic apple consumption by introducing new foods made of apples (see the VI section #25, Culture).

4. Author and Date: Jihyun Kim (April 2003)

II. Legal Clusters

5. Discourse and Status: Agreement and Incomplete

Under WTO's Doha Round, the negotiations to establish modalities for the reductions of agricultural tariffs and subsidies have been in process since March 2002. The modalities were scheduled to be completed by the end of March 2003. However, the disputes between exporters and importers of agricultural products have prevented the negotiation to be signed by the scheduled time. While countries that export agricultural goods ask for radical reforms of reductions on tariffs and subsidies, agricultural importers including South Korea advocate the necessity of gradual and flexible reforms on which each country's agricultural condition is reflected.

6. Forum and Scope: WTO and Multilateral

7. Decision Breadth: 146 member states of WTO (April 2003)

8. Legal Standing: Treaty

The trade barrier of agricultural products has been relatively high compare to industrial goods, which have been subjects to tariffs reduction since the beginning of the General Agreement on Tariffs and Trade (GATT). WTO has started negotiations on agriculture for the first time at the Uruguay Round (UR). Based on the agreement, members of WTO including South Korea are supposed to reduce tariffs and subsidies on agricultural products by 2004.

In addition to the UR negotiation on agriculture, the Doha Ministerial Conference, held in November 2001, has introduced Doha Development Agenda (DDA). The Doha "declaration reconfirm[ed] the long-term objective already agreed in the present WTO Agreement: to establish a fair and market-oriented trading system through a program of fundamental reform" and presented a timetable of "the single undertaking in which virtually all the linked negotiations are to end by 1 January 2005" [WTO].

III. Geographic Clusters

12. Type of Measure: Import Ban [IMBAN]

13. Direct v. Indirect Impacts: Direct

The successful implementation of DDA will bring trade liberalization that would affect the process of import-export, domestic production and consumption through lowering prices. In addition, trade liberalization would improve the effectiveness of the distribution of domestic resources in the long run. For example, if a country finds more interest in auto industry compare to aviation, it would invest more in auto industry by distributing its resources such as capital and human resources to further develop this industrial sector. However, liberalization would also intensify competition that may result in the dismissal of less competitive producers thus increase unemployment. The degree of these phenomena may very depending on member countries' economic scale, and the strength of different economic sectors.

In the case of South Korea, the impact of trade liberalization will be considerable because of its high dependency on international trade: 70% of its GNP is based on transaction from exportation and importation compare to other countries. It is expected that DDA will bring relatively positive impact to South Korea in general by increasing substantial GDP and the overall import-export transaction. Unfortunately, however, South Korea's agricultural sector that has relatively low international competitiveness is expected to suffer if DDA alleviates agricultural tariffs as well as non-tariff barrier. The inflow of cheap foreign agricultural products including Chinese apples in this case will lead Korean farmers to reduce their production and consequently curtail their income.

14. Relation of Trade Measure to Environmental Impact

a. Directly Related to Product: Yes [Apple]

b. Indirectly Related to Product: No

c. Not Related to Product: No

d. Related to Process: Yes [Habitat Loss]

15. Trade Product Identification: Apple

source: GACA

source: GACA

17. Impact of Trade Restriction: High

source: GACA

18. Industry Sector: Food

19. Exporters and Importers: Many and South Korea

V. Environment Clusters

20. Environmental Problem Type: Habitat Loss

In order "to protect Korean agriculture, forestry and natural environment from exotic plant pests", the National Plant Quarantine Service has regulated import of various foreign plants and plant products such as "seedlings, bulbs, grains, fruits, vegetables, woods, oil seeds, spices, cut flowers, rice straw products, mushrooms, etc" [NPQS]. Apple fruit fly, also known as Rhagoletis pomonella or apple maggot, has been the the major concern that leads this government agency to prohibit apple importation in Korea. Apple maggot would cause serious damage on early-maturing kinds of apples. Eggs of the female fly laid in apple may make the fruit distorted or dimpled. White or yellowish worms from the eggs would emerge in the developing apples, leaving brown trails through the fruits. In addition, small pits would be found on the surface and mature larvae would emerge from these holes [Missouri Botanical Garden].

source: Chungju Apple Research Institute

21. Name, Type, and Diversity of Species

Name: Apple

Type: Deciduous Plant

Diversity: Crab apple, Jonathan apple, and Fuji apple are widely cultivated in South Korea

22. Resource Impact and Effect: Low and Product

23. Urgency and Lifetime: Low and 10 Years

24. Substitutes: Like Products

The production costs of pears and grapes are relatively cheap compared to apples. Therefore, these fruits can be supplied in cheaper prices to consumers. In addition, the variety of fruits are not listed on the import ban regulated by the country's National Plant Quarantine Service: Kiwi fruit, grapefruit and melon from USA; citron, cherry, tomato and strawberry from Japan; blueberry from Nepal and Indonesia; pomegranate from Iran and Uzbekistan, etc.

VI. Other Factors

25. Culture: Yes

Unlike many Western countries, apples have not been consumed in variety of ways in Korea. Traditionally, Koreans have eaten raw apples most of the time. However, many apple producers have started introducing a menu with the fusion of Korean traditional foods and apples (apple kimchi, apple rice cake, apple dumplings, and apple punch, etc) or Western style apple menu (apple salad, apple spaghetti, apple pie, and apple cub cake, etc) in order to increase the domestic demands for apples[ILOVEAPPLE].

source: ILOVEAPPLE

26. Trans-Boundary Issues: Yes

27. Rights: No