South Korea, a major food-importing country, has tried for more
than three decades to strengthen its own agricultural production
and avoid imports. The Government's trade policies imposed strong
barriers to imports, and government policies strongly supported
farm prices and production of certain commodities within closed
borders. Korea's import barriers to agricultural products began to
be reduced, first through negotiations required under the General
Agreement on Tariffs and Trade (GATT) in the late 1980s, and then
under the terms of the Uruguay Round Agreement on Agriculture
(URAA), which took effect in 1995.
The two major goals of South Korean agricultural policy are
self-sufficiency and parity between farm and urban household
incomes. The Government uses strong producer price incentives and
import barriers to achieve these dual goals. Domestic production of
rice, barley, corn, soybeans, and tobacco is subsidized to varying
degrees. High import barriers protect rice, barley, vegetable,
fruit, and livestock farming. Imported inputs such as wheat, feed
grains, oilseeds, hides, and cotton, however, are allowed easy
access.
As in Japan and Taiwan, rice is central to South Korea's
agricultural policy. The Government affected prices and producer
income by purchasing a substantial amount-an average of 26 percent
between 1990-97-of total rice production, at a high cost to the
budget and taxpayers. Since 1995, however, Korea's Aggregate
Measure of Support commitment to the World Trade Organization (WTO)
has limited these subsidies, and government purchases dropped to 14
percent of year 2004 production. Since 2005, the Government has
purchased rice for stocks under the Public Storage System for
Emergencies. Purchases under this system ranged between 7 and 15
percent of production in 2005-10. The Government controls imports
and segregates them from the domestic rice market. The combined
policies of production support and import restrictions lead to
retail prices for rice well above international levels.
The Organisation for Economic Co-operation and Development
(OECD) calculates producer support estimates (PSEs) that measure
the proportion of farm output value attributable to government
support. For South Korea, the aggregate PSE for major farm
commodities is higher than in most OECD countries. The consumer
support estimate (CSE) is always negative, representing an implicit
tax on consumers caused by government programs that support
producers. As a percentage, it represents the size of this implicit
tax relative to consumer expenditures on foods. The aggregate CSE
for South Korea is large, suggesting that the implicit tax is
equivalent to large share of consumers' expenditures on major
foods. Both the percentage PSE and CSE dropped in 2008, as rising
world prices moved closer to internal Korean prices, reducing the
degree to which Korea's policies boosted internal prices above
world price levels.
Bilateral and multilateral negotiations have gradually reduced
South Korea's trade barriers. In particular, in negotiations under
the auspices of the GATT ending in 1989, South Korea agreed not to
invoke Article XVIII:B of GATT for all tariff-line restrictions
after July 1, 1997. Until 1989, a long list of commodities required
approval from various government or quasi-government agencies
before issuance of an import license. South Korea justified this
under the Article that allowed developing countries with balance of
payments (BOP) deficits to control imports. After the BOP agreement
in 1989, South Korea announced a series of liberalization moves for
many tariff lines. The end of import licensing for all remaining
tariff lines that were restricted was spelled out in the 1995
agreement of the multilateral trade negotiations in the URAA.
South Korea's high protection levels left its agricultural
sector ill-prepared for the market access required under the URAA.
As a result, concurrent with the URAA, the Government implemented a
comprehensive 5-year agricultural restructuring program in excess
of $50 billion in 1994. In contrast to the former policy of
concentrating heavily on rice production, the new policy was more
forward-looking, with resources gradually shifted from rice to
other areas including production of cash crops, marketing
facilities, and rural infrastructure. In 1996, as the country's
rice stocks fell to low levels, these forward-looking policies were
modified in favor of renewed emphasis on rice production to
minimize rice imports.
In addition to the 5-year development plan, South Korea's
National Assembly passed a special tax to raise $2 billion annually
over 10 years, beginning July 1994, to help the rural sector cope
with the impact of the URAA. The combination of the two
programs-the 5-year development plan and the 10-year special
tax-meant the Government budgeted $60 billion for the rural sector
over 5 years. Despite the 1997-98 financial crisis and a change of
political administrations, South Korea continued to spend large
amounts on the rural sector.
A comprehensive 10-year plan for agriculture and rural areas was
begun in 2004, which committed spending of about $104 billion on
various programs in the period 2004-13. Funding is from a special
tax, primarily on nonfood consumer items. An additional $1 billion
was committed for the period 2004-10, primarily to assist
horticultural producers after the implementation of the Korea-Chile
Free Trade Agreement (FTA) in 2004. After the negotiations for the
proposed U.S.-Korea FTA concluded in 2007, the Korean government
added spending of another $21.8 billion to help farmers adjust over
the period 2008-17.
South Korea began implementation of the Korea-EU Free Trade
Agreement with the European Union on July 1, 2011, and
implementation of the Korea-U.S. Free Trade Agreement on March 15,
2012.
Top of page
Rice Self-Sufficiency
Except for some lean years, since the late 1970s, South Korea
has achieved its stated policy of self-sufficiency in rice through
heavy government intervention. Rice production rose throughout the
1960s and 1970s and then gradually declined after the late 1980s.
Rice consumption per person grew until the 1980s, when it began to
fall, and it has declined almost every year since 1987.
In the 1970s, the South Korean Government embarked on a
concerted drive to attain rice self-sufficiency. It used two main
methods: increasing production and limiting consumption. Production
of rice in South Korea rose sharply in the 1970s, after the
introduction of tongil rice, crossbred from indica and japonica
rices. Tongil yields were higher than japonica yields, and farmers
shifted most of their paddies into the new variety. Domestic prices
were allowed to rise to give farmers a higher income. A cold snap
in June 1980, however, devastated the tongil rice, badly shaking
farmers' confidence in the new variety and creating a large deficit
in rice supplies. The Government was forced to make emergency rice
imports of more than 1 million tons. Thereafter, farmers
increasingly switched from tongil to japonica varieties, which,
although lower yielding, were less susceptible to cold weather
damage.
The Government interfered with rice consumption in several ways.
Retail rice prices rose because the Government refused to import
any rice (the authority to import and export rice is reserved
exclusively to the Government), except after the 1980 harvest. The
Government mandated that barley and wheat be mixed with rice, to
conserve rice use. Most processing uses of rice were forbidden.
Consumers did not like the taste and cooking characteristics of
tongil rice, and the Government was forced to pay high prices to
farmers to induce them to plant tongil, especially after 1980,
while offering it to consumers at lower prices to get them to buy
it. The Government's budgetary deficit from its rice transactions
ballooned, requiring tax-paid subsidies.
During the 1980s, restrictions on the use of rice were gradually
lifted. By 1991, the Government had ended its purchases of tongil
rice. With no other market for the unwanted rice, planting of
tongil ceased. Although rice consumption per person has steadily
declined, the yield drop that occurred after tongil was abandoned
meant that production dropped below consumption in several years,
and South Korea's rice stocks fell to perilously low levels in
1994-96. Rising labor costs in rural Korea made rice farming less
and less attractive on the small farms that are still common. As a
result, area planted to rice decreased each year during 1987-96.
While yields of the japonica rice varieties have risen, production
generally decreased because area planted to rice dropped.
Government interventions raised the rice planted area in 1996-2001,
but area again fell each year after 2001.
In the Uruguay Round of the WTO, South Korea agreed to a minimum
access import regime beginning in 1995 (see Market Access and Domestic Policies for
Rice). With the aid of imports, South Korea has been able to
rebuild stocks in the years since 1997. The Government's present
policy of using imported rice for processing uses keeps the main
table rice market in South Korea isolated from the high-quality
japonica market outside Korea. South Korea has one of the most
quality-conscious rice markets in the world, and consumers now pay
more for domestic rice than they would for high-quality foreign
rice. Thus, this market is very tempting to exporting areas like
California, Australia, and northern China.
Uruguay Round
Commitments
Like other signatories of the WTO, South Korea committed to
policy reforms under the URAA. In general, the agreement has
resulted in improved market access (in the
form of tariff reductions, quota growth, and elimination of import
bans), restrictions on export subsidies and
trade-distorting
domestic support, and provision of some recourse against the
use of safety and health standards as disguised barriers. South
Korea notified the WTO that it does not provide export subsidies
for agriculture. As for
sanitary and phytosanitary (SPS) measures, South Korea has
agreed that all health-related measures restricting imports be
based on science. South Korea has also made concrete commitments in
the areas of market access and the
Aggregate Measure of Support.
Top of page
Market Access and
Domestic Policies for Rice
Rice imports, a highly controversial
issue in South Korea, were essentially banned for more than a
decade before the URAA. In the URAA, South Korea agreed to a
progressively increased minimum market access (MMA) import regime.
The URAA required that in 1995 South Korea import the equivalent of
1 percent of average consumption for the years 1988-90, increasing
that amount to 4 percent by 2004. In addition, there was a
5-percent tariff on permitted imports, and rice trade remained
strictly under government control during the 10-year grace period.
The MMA import requirement in metric tons, milled basis for
1995-2004 was:
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Korea: Minimum access import commitment on milled rice,
1995-2004
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Year
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1995
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2000
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1996
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2001
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1997
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2002
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1998
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2003
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1999
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2004
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According to the URAA, the replacement of the MMA was to be
negotiated with Korea's trading partners before December 31, 2004.
Negotiations continued through much of 2004 and culminated in an
agreement just before the deadline that set the rules for Korean
rice imports for 2005-14. Under the agreement, the minimum-access
import quota will almost double in size by 2014, but there is no
provision for imports above the quota. The tariff within the quota
will remain at 5 percent. The South Korean Government is committed
to resell a portion of the imported rice into the Korean market
with an allowed markup on the price. The minimum import quota for
2005-14 is divided into two sections. One section, consisting of
the 205,228-ton quota size reached in 2004, is to be divided each
year among four exporting countries:
- China, 116,159 tons
- United States, 50,076 tons
- Thailand, 29,963 tons
- Australia, 9,030 tons
All the quantities are metric tons and on a milled basis.
A second section, consisting of the increments added to the
quota each year, 2005-14, is open to exporters on a
most-favored-nation (MFN) basis, so that exporters in any country
that has MFN standing with South Korea can try to sell rice within
the quota. The initial MFN section of the quota in 2005 was 20,347
tons, and the quota increases by 20,347 tons each year thereafter,
until the total quota size is 408,700 tons, with the MFN section
equal to 203,472 tons in 2014.
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Korea: Minimum access import
commitment on milled rice, 2005-14
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In side agreements, South Korea agreed to purchase an average of
9,121 tons of rice annually from India and to make a one-time
purchase of 20,000 tons of Egyptian rice in 2006 or after. More
detail is available in the USDA Foreign Agricultural Service GAIN
report, Quarterly Grain and Feed Trade Report 
(KS5022, May 2, 2005).
South Korea reserves the right to terminate the minimum access
quota and move to a tariff-rate quota (TRQ) system at the beginning
of any year, 2005-14. If a TRQ system is adopted, the size of the
quota remains at the level of the minimum access quota when the
switch to a TRQ system is made, with no further increases in later
years. A TRQ allows for imports outside the quota, and the
over-quota tariff would be calculated according to URAA guidelines.
If agreement is reached in the global
Doha Development Agenda (DDA) of negotiations, the over-quota
tariff and the size of the TRQ would be changed to reflect rules of
the DDA agreement. In the event of a switch to a TRQ system,
country-specific quotas would end and the entire quota amount would
be open to imports on an MFN basis.
The agreement made at the end of 2004 to allow more rice imports
exacerbated a problem that South Korea has faced in recent years:
consumption has been declining faster than production in most
years. If imports are to be used in South Korea, they will replace
domestic production. In response to this problem, South Korea has
been revising its domestic rice policies to provide aid to farm
income in ways that it believes are in accordance with WTO rules,
and to encourage some farmers to reduce the area planted to
rice.
The Government revised its Grain Management Act in March 2005 to
end annual procurement of rice by the Government at a favorable
price. Instead, the Government will buy rice for food security
stocks at the prevailing market farm price, at harvest time, and
sell older stocks after harvest at market prices.
The Rice Income Compensation Act was also revised in March 2005.
It establishes two kinds of payment to rice farmers. The first pays
600,000 won per hectare (about $600 per hectare) each year for
farmers growing rice, as compensation for benefits to the public
that come from maintaining rice paddies. The second payment is
related to the price of rice that farmers receive. If the price
falls below a target that is fixed in advance, the Government pays
farmers 85 percent of the difference between the target and market
price for the quantity of rice that farmers sell.
Another measure to deal with surplus rice production is the
direct payment for adjustment of rice production. Currently, the
payment is 3 million won per hectare ($3,000 per hectare) for
fields that are not used for any commercial production for 3
years.
For more information on South Korea's domestic policy changes in
2005, see the USDA Foreign Agricultural Service GAIN report, 2005 Annual Grain and Feed Report 
(KS5015, April 1, 2005), on which this explanation
is based.
Top of page
Market Access for Products
Other Than Rice
Under its market access commitments, South Korea began to phase
out nontariff import restrictions on agricultural products in
January 1995. TRQs were established for a number of former
import-restricted agricultural products, including many
horticultural products. The remaining phase of the BOP
liberalization, somewhat modified by the URAA, was completed on
schedule by January 1, 2001. Since then, South Korea technically
has liberalized imports of all agricultural products except rice.
In addition, the maximum levels for tariffs on all agricultural
products except rice were fixed (bound). The simple average of the
1,239 bound tariff lines is 64.8 percent-high tariffs more
representative of a developing country, even though South Korea is
a member of OECD.
South Korea agreed to remove all nontariff barriers to beef
imports, including state trading and price markups, by January
2001. Before then, South Korea's beef import regime followed rules
negotiated under the auspices of GATT in agreements reached with
the United States and other trade partners in 1989 and 1993, before
the URAA. Imported beef was under a quota, which increased until
2000, the final year. Steep price markups have been eliminated.
Before 2001, an increasing share of the quota was allocated to
private "supergroups," representing private buyers such as
supermarkets, restaurants, and hotels. Through the
Simultaneous-Buy-Sell (SBS) system, supergroups were free to
negotiate specific cuts and qualities with foreign exporters. The
rest of the quota was administered by the Livestock Products
Marketing Organization (LPMO), a state trading enterprise. The LPMO
allocated some imported beef to special shops licensed to sell it.
As of January 1, 2001, beef became freely importable, at a
41.2-percent tariff. Special treatment of imported beef, such as
the requirement that it be retailed in shops that did not also sell
domestic beef, was supposed to end. The scheduled reduction of
tariffs under the URAA reached its end in 2004.
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Korea: Beef import commitments
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Year
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Markup
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1997
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1998
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1999
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2000
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2001
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2002
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2003
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2004
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SBS = Simultaneous-Buy-Sell.
NA = Not applicable. 1/ The quota is in metric tons, retail weight
equivalent. The quota's final year was 2000.
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Specialty & Processed Product markets also benefited from
trade liberalization.
Top of page
Aggregate Measure of
Support
South Korea provides support to its farm sector through several
domestic policies, and some of these policies have significant
consequences beyond its borders. The URAA instituted the
Aggregate Measure of Support (AMS) to limit such support.
According to South Korea's Uruguay Round schedule, its AMS in the
base period was 1,718.6 billion won ($2.14 billion). Unlike every
other country involved in the URAA, South Korea used 1989-91 as a
base period to calculate its AMS commitment (see below). The base period AMS measured the monetary
amount of selected domestic (or internal) policies that transfer
funds to the agricultural sector by multiplying production by the
difference between internal and world prices in the base period.
The base period AMS is the starting point for upper limits on
domestic support spending for each year. The limits were reduced
each year, 1995-2004. Annual spending on certain kinds of domestic
support policies in Korea must fall beneath that year's AMS limit.
South Korea notified the WTO about internal support measures for
eight commodities, but the amounts for three of them (grapes,
silkworm, and milk) were "under the minimum," and exempted from
reduction commitments in the URAA. The five remaining commodities
were (with their 1989-91 base period amounts):
- rice, 1,268 billion won
- soybeans, 73 billion won
- barley, 52 billion won
- corn, 23 billion won
- rapeseed, 2 billion won
Rice support is overwhelming-accounting for over 90 percent of
total AMS through 2004, the latest year for which South Korea has
reported an AMS estimate. Thus, the basic policy measured by South
Korea's AMS was the annual Government purchase of rice production.
Each year, Korea's National Assembly determined a quantity and
price of rice to be purchased by the Government. Since the prices
were favorable, this was a subsidy to the farmers that they would
not receive in private-sector markets for rice and tended to
encourage greater production. The rice portion of the AMS was
defined as the extra value for farmers represented by the direct
government purchases of rice, with the quantity and price
determined annually by the National Assembly. These purchases were
made at prices above prevailing private-sector prices in South
Korea. The extra value, or subsidy, was calculated as the
difference between the government purchase price to farmers in the
current year and the sum of the free-on-board price of Chinese rice
plus 10 percent for transportation in the 1989-91 base period.
South Korea calculated its AMS
based on the higher 1989-91 average instead of the lower 1986-88
base period used by other countries. South Korea pledged to reduce
the AMS over 10 years (1995-2004) by 13.3 percent, to 86.7 percent
of its base level. In addition, because South Korea raised its AMS
considerably after its base period, the AMS for rice has been
calculated based on the higher 1993 market price support instead of
the 1989-91 average. The final bound commitment level in 2004,
however, is the level reduced by 13.3 percent from the 1989-91
average base total AMS. South Korea's AMS commitments in billion
won were as follows:
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South Korea's AMS commitments
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Year
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Billion won
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Year
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Billion won
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1995
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2000
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1996
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2001
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1997
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2002
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1998
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2003
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1999
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2004
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South Korea's purchase of cattle during a period of slumping
prices in 1997 and 1998 pushed spending under the AMS category
above the agreed limits, and this additional spending was
challenged in a WTO complaint against Korea by the United
States.
Top of page
References
USDA's Foreign Agricultural Service (FAS) office in Seoul
prepares commodity reports with policy information. The latest Attaché Reports and archives of earlier reports
are available through FAS. The annual FAS report on Food and Agriculture Import Regulations and
Standards explains current Korean rules
affecting agricultural imports in general. Additional information
and links to other sites about trade policy and regulations is
available from the FAS Agricultural Trade Office in Seoul, South
Korea.
The Organisation for Economic Co-operation and Development's
annual report, Agricultural Policies in OECD Countries: At a
Glance
, provides information on the extent
and trend over time of South Korea's support to agriculture. In
2008, the OECD published a special report on Korea, Evaluation of Agricultural Policy Reforms in Korea.