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Sensitive issue could hobble US, Korea and US, Malaysia free trade talks

WASHINGTON, DC - 05/15/06 - The trade in rice will doubtless be a tough issue in negotiations on a US-South Korea free-trade agreement (FTA) with a series of violent demonstrations by Korean farmers providing evidence to some that opening the country's market to more rice imports will be a highly sensitive political exercise.

The issue on rice - the staple food for much of Asia - could also be a stumbling block to similar talks between the US and Malaysia, according to some analysts.

Chris Garza, director of congressional relations in Washington for the American Farm Bureau Federation, has said that his group has been concerned since Seoul announced right after negotiations were launched in February that they wanted rice excluded from the talks.

"Obviously, that's not going to work for us," Garza said. "We understand the Korean sensitivities on rice, but within the negotiations I'm sure we can try to open up that rice market in a manner that will not harm the Korean rice producer."

Korea negotiated two sequential 10-year exceptions from a World Trade Organization (WTO) requirement that it convert its rice import ban to a tariff in exchange for establishing a minimum market-access quota that increases gradually. 

Imports increased from zero to a 4% share of the Korean rice market in 2004, when the first quota arrangement ended, according to the Office of the US Trade Representative (USTR).

According to a recent USTR report, the Korean government fully controls the purchase, distribution, and end use of all imported rice entering the country. 

Under the existing arrangement, the quota for rice imports is scheduled to increase from 225,575 metric tons in 2005 to 408,698 tons in 2014, with part of the imports for the first time going to consumers as table rice - from 10% of the quota in 2005 to 30% in 2010.

Other published reports, however, said Korea, in mid-2006, still has not allowed imported rice to find a place on store shelves for Korean consumers.

Jeffrey Schott, a scholar at the Institute for International Economics in Washington, predicted that Korea will agree to a tariff-rate quota (TRQ) to allow some more imports.

Under a TRQ, imports beyond the quota are subject to prohibitively high tariffs.

"I would be surprised if there was free trade in rice at the end of this negotiation," Schott said, "but I would be even more surprised if the negotiation didn't produce increased market opportunity for US exporters of rice to the Korean market."

Schott said he doubted Korea could prevail in excluding rice from FTA negotiations the way the US prevailed in excluding sugar in its FTA with Australia.

"The US... wouldn't have started [negotiating] unless the Koreans recognized that they will have to do something on rice," he said.

The Farm Bureau says that Korea was already the US' fifth largest export market for agricultural products in 2004 at $2.5 billion for an agricultural trade surplus. 

Yet the US share of Korea's agricultural imports has fallen from nearly 45% in 2006 to less than 30% in 2004, the industry group said.

Access to the Korean market is of critical interest to California's rice growers and processors, most of whom have operations in the state's fertile Sacramento Delta region.

The state produces nearly 2 million tons of rice annually making it the second largest rice growing state in the nation behind Arkansas.

According to the California Rice Commission, some 40% of the state's total rice production is exported in bulk though the ports of Sacramento, Stockton, and Oakland to markets around the world including Turkey, Taiwan, Syria, and Japan

One of the Farm Bureau's goals in FTA negotiations is to eliminate or at least significantly reduce some of Korea's tariffs, which exceed 40% on some fruits and nuts, distilled spirits and beef. 

Another goal is to reopen Korea's market to US-produced beef. 

Before the December 2003 ban stemming from diagnosis of a US cow with bovine spongiform encephalopathy - more commonly known as mad cow disease, Korea was the third largest market for US beef, with imports averaging $1 billion a year.

According to the Farm Bureau, rice is also an import-sensitive commodity in Malaysia subject to government mandate and protection. 

A Malaysian government corporation is the sole authorized importer of rice with broad power to regulate imports by license and responsibility for promoting sale of the domestic crop, the Farm Bureau said.

In 2005, the US had an agricultural trade deficit with Malaysia of $273 million. US exports account for only about a 7% share of that country's agricultural market, and that share has fallen. 

The Farm Bureau seeks to increase the US share towards the 20% to 25% common elsewhere in East and Southeast Asia.

In the Malaysia FTA negotiations, the politically sensitive product for the US side will be sugar, the Farm Bureau's Garza said.  Malaysia is one of the many countries that already hold an annual quota for exporting sugar to the US market.

"We can only assume that they want some additional access," Garza said.

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Korea, US Free Trade Pact ''Possible'' by Early 2007

WASHINGTON, DC – 10/25/06 – A free trade pact between the US and South Korea could become a reality by early 2007, says chief US negotiator Wendy Cutler at the opening of this week’s fourth round of talks between the two countries; since the two sides launched FTA negotiations in February they have reported little progress even though they postponed consideration of the most politically sensitive issues, such as US access to the Korean rice market.