CHILE-SOUTH KOREA FTA IN FORCE DESPITE KOREAN AG CONCERNS

On 1 April, a free trade agreement (FTA) between Chile and South Korea came into effect. The treaty is the first Korea has entered into, and its ratification was delayed three times due to farmer protests. Under the new treaty, Korea agreed to abolish tariffs on 87 percent of all industrial items and most agricultural, fishery and forestry products from Chile, including tariff elimination on Chilean copper products, animal feed, wheat, wool and tomatoes. In return, Chile will decrease duties on 42 percent of Korean export products including cellular phones, computers and machinery. The tariffs will be cut in phases so that nearly 97 percent of the countries' products will be duty free by 2014.

According to the Korean Ministry of Commerce, Industry and Energy (MOCIE), South Korea's exports to Chile totalled US$500.17 million in 2003, while Chile shipped more than US$1 billion worth of products to South Korea.

In addition to the elimination of tariff and non-tariff barriers on industrial and agricultural commodities, the Chile-South Korea FTA covers investment, services, government procurement, intellectual property rights and competition policy. According to the chapter on investment, it is "inappropriate" for parties to relax health, safety or environmental measures to encourage investment. If a party does feel that environmental standards have been compromised, then consultations may be requested.

Agriculture a stumbling block

During the course of the FTA negotiations, which began in 1999 and were concluded in October 2003, agriculture emerged as the main stumbling block. Once the FTA was agreed, the treaty was debated for months in the Korean parliament until it was officially ratified. Korean farmers are concerned that cheaper agricultural products from Chile will force them out of business. In the final agreement, rice, as well as apples, pears and grapes in high-demand season, are treated as "exceptions to liberalisation". The agreement also contains provisions for a "seasonal tariff system" imposed on Chilean wines for the next 10 years. Under the system, a 45 percent tariff is placed on wines imported between May and October. Recognising that farmers would suffer disproportionately under the new trade pact, the Korean government launched a ten year-project earlier this year to support rural development and strengthen the competitiveness of farms. In addition, the existing farm support programme in Korea will be used to offset losses resulting from Chilean imports.

A representative of the Korean Farmers League commented that "the ratification of the trade pact was obviously a big blow. But we don't think that the nightmare is over. We also fear the coming impact of rice import negotiations. Since rice accounts for 50 percent of local farmers' total income, the influence of rice imports will be overwhelming". Government officials forecast that Korea eventually will be forced to raise rice import quotas, currently at four percent.

Korea entering the FTA race

Due to the export-driven economy of Korea -- the world's twelfth largest economy --analysts had been warning that the country would be left as an "international orphan" without FTAs. "Korea has no time to take a wait-and-see stance in the global FTA race as the importance of FTAs becomes larger," said Chung Hae-kwan, of the Ministry of Foreign Affairs and Trade. He added that, "against this backdrop, the pursuit of FTAs is not a matter of choice for Korea, but rather a necessity for future economic growth". There are currently more than 180 FTAs in effect, covering nearly 43 percent of global trade.

For Chile, which already has FTAs with the EU and the US, this new FTA is seen as a move to consolidate the country's Pacific basin strategy, which accounts for 33 percent of Chile's foreign trade.

For the full text of the agreement see http://www.sice.oas.org/Trade/Chi-SKorea_e/ChiKoreaind_e.asp

"Korea faces global pressure to open farm market," THE KOREA HERALD, 6 April 2004; "Chile-South Korea free trade agreement," MERCOPRESS, 1 APRIL 2004; "Korea-Chile FTA Takes Effect, Nation's First," CHOSUN ILBO, 31 March 2004; "Korea-Chile FTA Affects 224 Agricultural Products," CHOSUN ILBO, 2 April 2004; "Korea, Chile begin tariff elimination," THE KOREA HERALD, 1 April 2004; "Chile Ratifies South Korea Trade Agreement, First With Asia," BLOOMBERG.COM, 22 January 2004; "Korea Finally Gets on FTA Bandwagon," KOREATIMES, 18 February; "FTA With Chile to Boost Korea's Global Image," KOREATIMES, 31 March 2004.