Protectionism and Beef Sales in South Korea

Last Friday, South Korea agreed to lift its restrictions on the importation of U.S. beef.  It's the latest gambit in the ongoing negotiations over a free trade agreement.

South Korea’s agreement with the U.S. to open its market to U.S. beef products from cattle of all ages is outstanding news for the U.S. beef industry and for South Korean consumers, said Philip M. Seng, president and chief executive officer of the U.S. Meat Export Federation.

"Our industry has lost between $3.5 billion and $4 billion in beef exports to South Korea since the end of 2003," he said. "And we know that there is a significant demand there for quality U.S. beef that has not been satisfied for more than four years."

What?  When the U.S. suffered its first case of mad cow disease, South Korea--then our third biggest beef customer--cut off imports.  Australia, which has never suffered a case of bovine spongiform encephalopathy, eagerly stepped in to fill most of the void.  It now provides nearly three-quarters of South Korea's beef imports. 

South Koreans have been pleased overall with Australian beef, while they've been unhappy with our quality control since limited imports have been resumed (previous blog here).  Demand last year for U.S. beef rebounded to only about half the previous levels.

According to the agreement, the import protocol agreed upon with the South Korean government will allow U.S. beef and beef products from cattle of all ages, which is consistent with World Animal Health Organization (OIE) guidelines and prevailing international standards.

During the last four years, the U.S. beef industry has suffered greatly from lost trade with South Korea. In 2003, the United States exported 543.6 million pounds of beef and beef variety meats to South Korea, according to U.S. Department of Agriculture statistics. However, in 2007 the U.S. exported more than 10 times less this amount ― an estimated 53.4 million pounds valued at $117.3 million, although shipments were limited to boneless beef from cattle under 30 months of age and the market was only open for an intermittent five months during the year.

"While this is momentous news for the U.S. beef industry, it also clears one of the major obstacles to the approval of a formal free-trade agreement between our two nations," said Mr. Seng.

That last point is key.  Switching links...

The agreement comes just hours before South Korean President Lee Myung-bak, in the United States on his first overseas trip since taking office in February, meets U.S. President George W. Bush at the Camp David presidential retreat.

U.S. lawmakers have said a landmark trade pact the two countries struck about a year ago would be scuttled unless South Korea opened its market fully to U.S. beef.

Analysts have estimated the trade deal, which needs approval by legislatures in both countries, could boost their two-way, $78 billion annual trade by about $20 billion.

That proposed free trade agreement (FTA) would eliminate the 40 percent tariff that South Korea assesses on U.S. beef imports.  Our beef would then enjoy a price advantage over Australian beef, which is also subject to the tariff.  Bargain shopping (excuse me, pent-up demand) would then drive increased sales of American beef in South Korea. 

However, even with South Korea compromising on beef imports, there's no guarantee that Congress will pass the proposed FTA.  As the debate over the Colombian agreement has shown, protectionism is rather popular at the moment.  If Congress backs away from the proposed FTA with South Korea, it would end up protecting the Australian beef industry at the expense of ours.

FYI, Australia is in the early stages of negotiating a free trade agreement with South Korea.