The average agricultural tariff in Korea is 62% , which is considerably higher than the average applied tariff of 11.2% on manufactured goods . Of all Korea’s agricultural tariffs, only about 2% are zero and only about 15% are less than 10% . At the other end of the spectrum, about 10% of the tariffs exceed 100% and about 4% exceed 400%. The bulk of the tariffs—more than 80% of all tariff lines—fall between 11% and 60% . For comparison, the average agricultural tariff applied by the United States is 12% with many tariff lines already set at zero. Even with low or zero U.S. tariffs for most agricultural products, imports from Korea have been negligible. Some of the highest Korean tariffs are for specialty agricultural products that are important in Korean food. For example, the sesame tariff is 630%, the pepper tariff is 270%, and the garlic tariff is 360%. These products are important for preparation of Korean specialty foods and face potential import competition, especially from China. Tariffs for meat products, although still very high by international standards, are much lower. The tariff for beef is 40% and the tariff for chicken is 18% . In many cases, indoor vertical farming major import commodities from California face tariffs of more than30%.
In a number of cases, such as beef, citrus, tree nuts, and others, significant exports are able to penetrate the Korean market despite high tariffs. In addition to high tariffs, imports of products important for Korean agriculture are often restricted by imposition of quotas. Table 3.a shows tariff rate quota quantities for selected commodities for each year since the beginning of implementation of the Uruguay Round WTO agreement in 1995. We will discuss the dairy quotas in more detail. Here we only note that orange imports far exceeded the access available at the within-quota tariff rate and, according to Korean data, all imports pay the duty of 50%. Expanding or removing these quotas and lowering the tariffs, especially on a bilateral basis, would create substantial opportunities for California exports to Korea. For example, a lower tariff for California garlic while China continues to face a 360% tariff would create a substantial advantage for California. We consider such cases in more detail in Part 4. Lower tariffs and fewer other barriers would allow important export expansions for citrus products, tree nuts, dairy products, beef, grapes and grape products, stone fruits, strawberries, fresh and processed vegetables, flowers and ornamental horticulture, processed tomato products, olives, hides and skins, cotton, and hay.California is an important supplier of many agricultural products, including fruits, tree nuts, vegetables, rice, cotton, beef and beef related products, and dairy products. In previous parts of this report, we have provided an overview of changes in trade barriers that would be achieved under the KORUS FTA for California export commodities.
However, some details were necessarily deferred given that import access, even for seemingly similar products, is often differentiated depending on the commodity classification used in trade. Our purpose here is to supplement the information previously provided by adding more detail on a product-byproduct basis. We identify the products with their ten-digit HS codes and provide information on access improvements specified in the KORUS FTA, recent imports, and major exporters.Korea has been a major market for fresh oranges and other citrus fruit from California despite a current duty of 50%. Table 4.a provides detailed information on how various citrus imports will enter the country under the KORUS FTA. Off-season oranges will receive an immediate tariff cut to 30%, which will then decline to zero over six years. In-season imports will be subject to tight TRQs. Beginning with a duty free TRQ of 2,500 metric tons in the first year, the TRQ grows each year at a 3% compounded rate in perpetuity. The schedule for in-season imports specified under the KORUS FTA is indeed very restrictive given that the first-year TRQ of 2,500 MT is equivalent to only 0.4% of the citrus fruit produced in Korea in 2007. The limited access improvement for in-season oranges is designed to protect a domestic industry that produces a citrus fruit that is similar to the mandarin orange and almost identical to a Satsuma variety .
This Korean citrus fruit is easy to peel, often quite sweet, and nearly seedless. Korea produces more than 600,000 MT of this Korean citrus fruit on Jeju Island, which is located just off the southern tip of the peninsula. During the marketing season, imported oranges are clear substitutes for Korean citrus. In addition to limits on imports of fresh oranges, the Korean citrus industry is protected by the 144% tariff imposed on foreign supplies of close substitutes for Korean citrus and mandarins. Under the KORUS FTA, the tariff on Korean citrus is scheduled to phase out over fifteen years. Currently, about 70% of fresh orange exports to Korea are shipped during the off-season . Korea was the second largest market for California oranges in 2004 and 2005 before slipping to fourth in 2006. California shipped oranges to Korea valued at about $75 million per year from 2003 to 2006 with only very limited competition from South Africa, Australia, and Spain. Given the 50% base tariff, the KORUS FTA would provide considerable access improvement for California exporters. Table 4.b shows that fresh citrus and juice are the two major citrus product imports. For orange products, frozen orange juice imports are especially substantial, comprising almost 40% of all combined orange products. More than 60% of Korea’s frozen orange juice imports come from Brazil. The United States follows Brazil with about 23% of market share. However, Korea’s 54% WTO tariff on frozen orange juice concentrate will be eliminated immediately, and this will substantially enhance the competitiveness of U.S. frozen orange juice producers.The 30% tariff on fresh lemons and limes will be eliminated in two years and the 50% tariff on juice will be eliminated in ten years for lemon juice and fi ve years for lime juice. Korea is a major export market for California lemons. In 2006, Korea imported $8.4 million worth of fresh lemons and limes; of this, California lemons and limes accounted for $5.3 million. The KORUS FTA would contain fresh lemon exports from Chile,hydroponic vertical farming which have increased since the Chilean FTA with Korea reduced the tariff faced by Chile. Lemon and lime juice imports are about 25% of the lemon and lime product market and the United States is the second largest exporter, following Italy very closely . The current 30% tariff on fresh grapefruit will be eliminated in fi ve years in equal annual installments. In 2007, Korean imports of fresh grapefruit and grapefruit juice products combined approached $9 million .
The United States exports mostly fresh grapefruit and not much grapefruit juice . Korea produces no grapefruit so lower prices will increase demand.The KORUS FTA promises the complete opening of fruit markets in Korea to U.S. exports with some markets opening immediately and others opening within specified time schedules. Table 4.d provides the detailed schedule of market openings for non-citrus fruit products. Immediate complete opening of the markets is allowed for cherries, olives, raisins, and grape juice concentrate. For most of the remaining products, the tariffs will be reduced to zero in two to fifteen years. The market opening schedules for apples, Asian pears, and table grapes are more restrictive. These are fruits consumed widely in Korea and Korean fruit farmers are particularly threatened by rapid opening of these markets. For these items, the KORUS FTA includes safeguard quantities/duties and seasonal restrictions in addition to the simple tariff phase-out. Note that apples and pears were excluded from the FTA that Korea recently concluded with Chile. However, there currently is no market access for apples and pears due to sanitary and phytosanitary issues. The market opening for apples has been delayed with safeguard quantities and duties. The safeguard quantity, starting with 9,000 MT, increases to 20,429 MT by year 23. Given annual apple production of more than 400,000 MT in Korea, the safeguard quantity starts at less than 2.5% and ends at about 50% of domestic production. The tariff phases out in ten years. The safeguard duty decreases over the same period, ending after year ten for all apples but the Fuji variety. Fujis, which are favored by Koreans, have a long period of market opening with the safeguard duty lasting 23 years. As shown in Table 4.e, under the currently restrictive import policy, no fresh apples enter the country. Imports of apple juice are substantial— close to $10 million in 2007. Table 4.f shows that these apple juice imports are mostly supplied from China. The United States is a distant second and California is not a significant exporter of apple juice. Table grapes do not face quantity restrictions but seasonal import restrictions apply . The Korean tariff on U.S. table grapes is now 45% and, under the KORUS FTA, it will fall to 24% immediately and then be phased out. For off-season imports , the tariff will be eliminated in four years; for in-season imports , the tariff phases out in seventeen years. Currently, about 70% of U.S. table grape exports to Korea are shipped during the off-season period. Chile currently accounts for 85% of Korea’s grape imports, in part because Chile’s exports are counter-seasonal to Korean production . The Korean market for table grapes is substantial at close to $60 million in 2007. The import markets are dominated by only two countries, Chile and the United States . The immediate tariff reduction from 45% to 24% will provide access improvement for U.S. producers. The market for grape juice is also large, exceeding $25 million in 2007 . The Korean import tariff of 45% on grape juice will be eliminated immediately. As shown in Table 4.f, U.S. suppliers in 2007 shipped grape juice valued at $10 million to Korea, which is the United States’ third largest market for this product. Spain is the number two exporter of grape juice to Korea and Chile and Argentina have rapidly increased their presence in the market . The 21% raisin tariff will be eliminated immediately, allowing a substantial reduction in the domestic price in Korea. Raisin imports have exceeded $5 million a year and more than 95% of these imports are shipped from California. Korea produces no raisins and there are only very limited imports from Turkey. Elimination of the tariffs for grape juice and raisins means that the Korean prices of these products will decline substantially and the markets for these products will expand. Table grapes present one of the largest potentials for U.S. expansion in the Korean market. Korean grapes are available seasonally but the California season is longer. Elimination of the 45% tariff would allow the California grape industry to replace some Korean product and supply grapes during months when Korean grapes are unavailable or extremely costly and the Chilean product is not yet in the market. Under the Korean FTA with Chile, the tariff rate for table grapes is set at 28.9% in 2007 and scheduled to go to zero in 2014. The 45% tariff for all pears except Asian pears will phase out over ten years, but Asian pears are subject to the twenty-year tariff phase-out. Fresh pears are not allowed to enter the country and the market for processed pears is presently very small. Most California stone fruits other than cherries are not in the Korean market in a significant way. As shown in Table 4.e, imports of peach products are all in non-fresh form. Among these, the largest imports are identified with HS code 2008701000, which is fruit preserved in airtight containers with sugar added . As shown in Table 4.d, the base tariff of 50% for this product will phase out in ten years. Table 4.f indicates that the largest exporter of this product to Korea is China, followed by South Africa and Greece. Gradual elimination of the 50% tariff for canned peaches from the United States will allow a modest price advantage for California products. The prune market , which is also small, will be completely open in two years. Under the KORUS FTA, the 24% tariff on fresh cherries will be eliminated immediately.