These fresh cherry exports to Korea reached about $30 million in 2007 and were supplied mostly by California. Korea produces almost no cherries and elimination of the 24% tariff is expected to expand the fresh cherry market even further. The immediate elimination of the 45% tariff on preserved cherries will also expand the market for canned cherries substantially. Strawberries are another favored fruit in Korea. The 45% tariff on fresh strawberries will be eliminated in nine years. Currently, no fresh strawberries enter the country and more than 70% of Korea’s imported strawberries are frozen. Strawberries are probably the largest greenhouse crop in value in Korea. Under the KORUS FTA, the 30% tariff on frozen strawberries will be reduced to zero over five years. Korea imported more than $7 million worth of frozen strawberries in 2007 and about 80% of those imports originated from China with the rest supplied by the United States and Mexico. Preserved strawberries also add to strawberry imports . The 45% tariff on preserved strawberries will be eliminated over fifteen years. Kiwis are relatively new to Korean consumers. Though kiwis were introduced in Korea only about a decade ago, the import market in Korea has grown rapidly,vertical hydroponic garden reaching $70 million in 2007 . Kiwi imports consist of fresh kiwis only and the 45% tariff currently imposed will be eliminated over fifteen years under the KORUS FTA.
Kiwi exports to Korea are dominated by New Zealand, which has 78% of the import market in Korea. The rest of the market is distributed between Chile and the United States . Currently, Korean markets for avocado and olive exports are small at less than $3 million in combined value. Under the KORUS FTA, Korea’s 30% tariff on avocados will be phased out over two years and the 20% tariff on olives will be eliminated over five years. Even though the current markets are small, with no Korean production and no major competitors for the United States, these markets have growth potential under free trade.We consider wine separately because it is a large import product in value among all food and beverage items in Korea and is one of the most important agricultural products that California produces. Table 4.g provides data on Korean wine imports for the most recent decade. Korean wine imports have grown more than twenty fold over the last ten years and evolved into a major market with wine imports reaching more than $150 million in 2007. In Korea, traditional wines are made from sources other than grapes and consumption of wine made from grapes is mostly due to Western influences. Until very recently, there was no commercial grape wine industry in Korea. Under the KORUS FTA, the 30% tariff on wine will be eliminated immediately. France has been the largest wine exporter in the Korean market. Chile has come in second in recent years. But note that Chilean wine exports jumped after the FTA with Korea was completed. Elimination of the tariff on U.S. wine would allow the California industry to compete effectively with other import suppliers and match the zero tariff now enjoyed by Chile. In 2007, the United States exported $17 million worth of wine to Korea, almost all from California.
The unit export prices implied in Table 4.g indicate that California exports mainly relatively inexpensive wines to Korea as Spain is the only exporter of the six that has a lower unit price.The historical import data indicate that the trend of an expanding Korean wine market is likely to continue, and California’s share of that growth would be much enhanced by a tariff advantage relative to European and Australian wines. Further, improving the access of California wine to an up-scaled premium wine market in Korea would also increase the total value of California exports.Table 4.h documents access improvements for three major tree nut exports under the KORUS FTA. These three nuts constitute a major share of Korean tree nut imports and are the major tree nuts produced in California. Since Korea does not import tree nut products other than shelled and in-shell nuts, we do not provide a product-specific import table for tree nuts. We also do not provide imports by source because California is the major exporter of these nuts and those import figures are provided in the preceding tables. Both shelled and in-shell almonds are currently subject to an applied tariff of 8%. In 2006 and 2007, Korea established a TRQ for almonds of 5,300 MT. The in-quota rate was lowered to 5% while the out-of quota rate remained at 8%. While the applied rate for almonds has been 8% for a number of years, Korea’s WTO-bound duties are 21% for shelled almonds and 45% for in-shell almonds. The FTA will prevent arbitrary imposition of the higher tariffs should Korea decide to protect domestic nut industries . With elimination of the tariff on almonds under the KORUS FTA, all export expansion would be new demand because Korea produces no almonds and no other supplier is in the market. U.S. pistachios are currently subject to applied tariffs of 30%. However, Korea’s WTO-bound duty is 45%. As with almonds, without the FTA Korea could impose the higher tariff should it decide to protect domestic nut industries. Exports are currently small but a price cut could create new demand as incomes in Korea rise and the diet continues to diversify. In addition,vertical grow imports from Iran now account for about half of the market. Shelled walnuts face a tariff of 30% and in-shell walnuts face a tariff of 45%. Until 2006, phytosanitary restrictions kept in-shell walnuts out of Korea. Since lifting of those restrictions, imports have grown. Under the KORUS FTA, the tariff for shelled walnuts will be eliminated in six years and the tariff for in-shell walnuts will be eliminated in fifteen years.
Walnut exports to Korea are already substantial and lower tariffs will allow the market to grow while insuring California products an advantage relative to imports from Vietnam and potential imports from China. The California tree nut industry successfully exports globally and Korea has begun to increase imports despite tariffs as high as 45%. California has a strong presence in the Korean market for tree nuts. Tariff elimination would allow the industries to build on recent momentum. Tree nuts fi t well with the Korean diet and there is no domestic industry to offer competition. Current imports are ready to expand rapidly with tariff elimination, generating lower prices for Korean customers.Table 4.i presents the detailed schedule for tariff elimination or phase-out for vegetables. The KORUS FTA allows Korean tariffs on vegetables to be either eliminated immediately or phased out over time for all but a few sensitive products for which safeguard restrictions are applied. Many fresh vegetables and tomato paste will be free of duties immediately. Products such as carrots, cauliflower, and broccoli have a five-year phase-out. Fresh tomatoes have a seven-year phase-out while products that include artichokes, brussels sprouts, and fresh lettuce have a ten-year phase-out. We hereafter highlight only selected vegetables that are significant in import value or promise potential for exports from California. Even with the 45% tariff, Korea’s imports of lettuce have grown rapidly to more than $4 million in 2007 from $1 million in 2005 .The $4.4 million in imports in 2007 are, however, a small share of Korea’s 2007 lettuce sales, which exceeded $200 million. Nevertheless, the fact that California lettuce competes mostly with off-season, high-cost greenhouse lettuce in Korea and that California producers were able to penetrate the Korean market over the relatively high tariff suggest the potential for additional exports. China also ships lettuce to Korea, but elimination of the duty for U.S. lettuce will reduce China’s price in the Korean market. The domestic industry also incurs high costs for other fresh leafy vegetables that are favored by Korean consumers so there is potential for a large export expansion. Producers of other fresh vegetables that are not part of the traditional Korean diet, such as asparagus and artichokes, could also take advantage of the health-conscious and more globalized Korean consumers as prices fall. For a few sensitive products , the agreement allows for gradual access through eighteen-year phase-out periods with imposition of safeguard restrictions. Garlic, onions, and red peppers are important ingredients in the Korean diet and important domestic crops. Their economic importance in agriculture is substantial. Red peppers, for example, rank ninth in terms of economic value among all individual crops in Korea. The market opening process for these crops is very restrictive. The initial safeguard quantities for these products, which are currently tiny, double only after fifteen years and the safeguard duties remain strongly prohibitive. Even though free access eventually will be allowed , the agreement calls for tightly controlling access for these products.
Base tariffs for some products differ significantly according to how the product is prepared. For example, while fresh and dried garlic have base tariffs of 360%, frozen garlic has a tariff of only 27%. Red peppers are another example: a 270% tariff for fresh and dried products and 27% for frozen. The consequences of these differences are indicated by patterns in importation of these products. The most recent import data, shown in Table 4.j, indicate that about two-thirds of garlic imports were frozen garlic and more than 70% of red pepper imports were frozen. Table 4.j shows that there are other vegetables for which non-fresh use is the major form of imports. Tomato imports are mainly puree, bean imports are exclusively dry products, and cucumber imports are all preserved products.5 As indicated in Table 4.k, vegetable trading for all but a few products is dominated by China. Exceptions are fresh pumpkins, for which more than 90% of the export share is held by New Zealand; pickled cucumbers, for which the United States is almost the sole supplier; and fresh lettuce, for which the United States holds about 50% of market share.Under the KORUS FTA, beef imports from the United States are subject to a 40% base tariff that phases out in equal reductions each year over fifteen years. However, imports exceeding the safeguard quantity are subject to an over-quota tariff . The safeguard quantities, accompanied by gradually declining safeguard duties, are scheduled to increase over fifteen years from the initial 270,000 MT. At the end of year fifteen, safeguard restrictions no longer apply. However, as detailed in Table 4.l, reductions in the safeguard duties over time occur more slowly than the ones for general tariff reductions, indicating that the safeguard restrictions are aimed at providing more control over the access of foreign products, which allows the domestic beef industry to adjust to the open market. By value, beef products are the number one agricultural commodity imported into Korea. In 2007, beef imports in Korea exceeded $1 billion. Korea was an important market for U.S. beef after opening its market in 2001 . The United States had the largest share of the import market when Korea banned U.S. beef imports in December 2003 following detection of the first BSE case in the United States. Since then, Australia and New Zealand have replaced the United States, together supplying more than 90% of Korean imports. Table 4.m also provides the unit value of imported beef. The data indicate that the U.S. unit value has exceeded that of other countries , suggesting that U.S. producers supply higher quality beef. The United States resumed supplying beef to Korea in 2007. However, recapturing the market depends on how effectively the United States competes with Australia and New Zealand. Australia traditionally produces grass-fed beef but expanded its production of grain-fed beef for export to Korea. The initial safeguard quantity is sizable, amounting to about 60% of domestic consumption. The within-quota tariff is scheduled to fall 2.7% each year, which will provide a price advantage to U.S. producers over those in Australia and New Zealand. Korea also imports a substantial amount of offal and cattle hides and skins. Korea imported almost $9 million worth of bovine offal and $381 million worth of hides and skins in 2007.