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The U.S.-Korea Free Trade Agreement (KORUS FTA) will provide America’s
farmers, ranchers, food processors, and the businesses they support with
improved access to the Republic of Korea’s 49 million consumers. If approved by
Congress, this would be the most economically significant trade agreement for
the U.S. agricultural sector in 15 years.
Under this agreement, more than 60 percent of U.S. agricultural exports will
become duty free immediately. Lower tariffs benefit both U.S. suppliers and
Korea’s consumers. The KORUS FTA will help the United States compete against
Korea’s other major agriculture suppliers and help keep the United States on a
level playing field with Korea’s current free trade partners, such as Chile, and
any future FTA partners.
This FTA will provide immediate duty-free access for double the current
export volume of total dairy products. Duty-free quotas will be established for
cheese, skim/whole milk powder, food whey, and butter. Current annual U.S. feed
whey exports of $8 million will gain duty-free access to the Korean market
immediately upon implementation.
Skim and Whole Milk Powder, Condensed and Evaporated Milk
With the Agreement…
U.S. exporters will benefit immediately from an initial duty-free tariff-rate
quota (TRQ) of 5,000 metric tons on Korean imports of U.S. milk powder and
condensed and evaporated milk. With this new duty-free access, the industry will
not be subject to Korea’s current small global WTO quotas for the same products
with 20- and 40- percent tariffs and its over-quota tariffs of 176 and 89
percent. From year 2, the KORUS TRQ will grow at a compound 3-percent annual
rate in perpetuity. At current trading levels, the tariff savings for
these products over the first 5 years of the agreement are estimated at
$600,000. However, if U.S. exports increase to the level afforded by the TRQ,
tariff savings over 5 years could reach $14 million. Some of this savings will
likely be offset by the auctioning of import quota rights.
The Trade Situation…
From 2004 through 2006, U.S. suppliers shipped a combined annual average of
1,300 tons of milk powder and condensed and evaporated milk, valued at $2.2
million. The U.S. share of Korea’s import market is 3 percent. The KORUS FTA
will help these U.S. milk products to compete with similar products from
Australia, New Zealand, and the European Union.
The Current Market Access Situation…
U.S. milk powder and condensed and evaporated milk products face Korean
global WTO TRQs ranging from 130 tons for evaporated milk to 1,034 tons for skim
milk powder. In-quota tariff rates range from 20 percent to 40 percent, while
out-of-quota or WTO bound rates range from 89 percent to 176 percent.
Cheese
With the Agreement…
U.S. cheese exports will benefit from a new duty-free TRQ of 7,000 tons. This
compares to Korea’s present cheese import tariff of 36 percent. From year
2 through year 14, this TRQ will grow at a compound 3-percent annual rate.
Beginning in year 10, an unlimited quantity of cheddar cheese will be able to
enter Korea duty free. Beginning in year 15, an unlimited quantity of all U.S.
cheeses will be able to enter the Korean market duty free.
Assuming current trade levels, the value of the duty-free TRQ and duty
reductions in year 1 of the agreement will be over $8 million. At current
trading levels, the cumulative value of tariff savings for U.S. cheese exports
over the first 5 years of this agreement is estimated at $43 million. If trading
levels increase to the maximum allowed to enter duty free under the TRQ, tariff
savings are estimated at $10 million in year 1 and $53 million over the first 5
years.
The Trade Situation…
Korea is the fourth largest market for U.S. cheese. From 2004 through 2006,
U.S. suppliers shipped an annual average of 5,657 tons of cheese valued at $20
million. The U.S. share of Korea’s import market is 14 percent and has grown
slightly over the past 5 years. The KORUS agreement will help U.S. cheese
producers compete against New Zealand, Australia, and Uruguay in Korea’s market.
The Current Market Access Situation…
U.S. cheese products face Korea’s WTO-bound import tariff of 36 percent.
Whey (Feed and Food)
With the Agreement…
U.S. feed whey exports will gain duty-free access to the Korean market
immediately upon implementation of the agreement. This is a significant
improvement over current duties ranging from 4 to 49.5 percent. For feed whey,
the savings from duty reductions in year 1 of the agreement are estimated to be
$2 million. By the end of year 5, the cumulative tariff savings will have
increased to approximately $10 million.
U.S. food whey exports will benefit from a new duty-free TRQ of 3,000 tons.
From year 2 through year 9, the TRQ will grow at a compound 3-percent annual
rate, with the out-of-quota tariff rate being reduced each year until year 10 of
the agreement, when an unlimited quantity of U.S. food whey will be able to
enter the Korean market duty free.
This increased market access compares to Korea’s present global WTO TRQ,
which allows 54,223 tons to enter the market at a 20-percent tariff. Within the
global WTO TRQ, Korea allowed up to 45,000 tons to be imported at a 4-percent
tariff as part of its 2006 autonomous TRQ. Korea adjusts its autonomous TRQs
annually.
At current trading levels, the value of the TRQ and duty reductions for food
whey in year 1 of the agreement will be approximately $100,000. The
cumulative value of tariff savings over the first 5 years of the agreement is
estimated at $450,000. As current U.S. food whey exports to Korea are at levels
that will fully utilize the TRQ, U.S. exporters are expected to benefit from
maximum tariff savings as a result of the KORUS FTA upon implementation of the
agreement.
The Trade Situation…
For U.S. food whey, it is estimated that from 2004 to 2006 Korea imported on
average 1,100 tons a year valued at $900,000. For U.S. feed whey, it is
estimated that from 2004 to 2006 Korea imported on average 26,500 tons a year
valued at $19 million.
When considering whey imported for both food and feed uses, the U.S. share of
Korea’s market is 64 percent and has been increasing. The KORUS agreement should
help U.S. whey producers in the face of competition from the European Union and
Australia.
The Current Market Access Situation…
U.S. whey enters the Korean market under tariff rates of 4, 20, or 49.5
percent, depending upon the type of product and how much has already been
imported in a particular year. Korea’s present global WTO TRQ allows 54,223 tons
to enter the market at a 20-percent tariff. Within the global WTO TRQ, Korea
allowed up to 45,000 tons to be imported at a 4-percent tariff as part of its
2006 autonomous TRQ. Korea adjusts its autonomous TRQs annually. The
out-of-quota tariff rate is 49.5 percent. Most other types of whey for feed use
face a 49.5-percent tariff rate and do not enter the Korean market under TRQs.
U.S. food whey is subject to autonomous and global WTO TRQs and tariff
treatments of the same quantity and duty rates as whey for feed use, but Korea
often gives priority to the lower-value feed-use whey.
Butter
With the Agreement…
An initial duty-free TRQ of 200 tons will apply for imports of butter from
the United States. From year 2 through year 9, this TRQ will grow at a
compound 3-percent annual rate. Beginning in year 10 of the agreement, an
unlimited quantity of U.S. butter will be able to enter the Korean market duty
free. This compares to Korea’s current global WTO TRQ of 420 tons of
butter that can be imported at a 40-percent tariff, with any additional butter
levied at an 89-percent duty. At current trading levels, the cumulative tariff
savings for these products over the first 5 years for the agreement are
estimated at more than $100,000. However, if U.S. exports increase to the level
afforded by the TRQ, tariff savings over 5 years could exceed $1 million. Some
of this savings will likely be offset by the auctioning of import quota rights.
The Trade Situation…
The United States does not currently export a large amount of butter to Korea
and the U.S. share of Korea’s import market is less than 1 percent and has been
decreasing. U.S. butter faces strong competition from Australia, New Zealand,
and the European Union.
The Current Market Access Situation…
Butter faces Korea’s global WTO TRQ of 420 tons with an in-quota tariff rate
of 40 percent. The out-of-quota rate is 89 percent. Butter spreads face a tariff
of 8 percent.
Back to the U.S.-Korea Free Trade
Agreement
