The importance of agricultural liberalization in Korea and Japan’s FTAs

Agricultural liberalization has single handedly been the largest obstacle to Japan and Korea’s FTA endeavors. Although small in number, well-organized farmers mount a formidable opposition against agricultural liberalization. Japanese and Korean farms are not competitive in international standards. Small and inefficient family farms that average less than two hectares dominate the rural landscape of both countries (KOSIS 2019; Statistics Bureau of Japan 2017). As a result, farmers in both countries have survived on high levels of agricultural support. In the late 1990s, which is when the current study begins, various government support measures accounted for over 60 percent of farm receipt in Korea and over 50 percent of farm receipt in Japan (OECD 2020). These figures gradually declined throughout the 2000s and currently have reached 46 percent in Korea and 41 percent in Japan. In other words, government support for farmers is still very high in both countries, especially when compared to the Organization for Economic Cooperation and Development (OECD) average of 17 percent. Without substantial restructuring toward larger and more commercialized farms, Japanese and Korean farmers are highly vulnerable to foreign competition.

Farmers in both countries have traditionally benefited from favorable public opinion and politicians who are reluctant to upset their rural electorates. Public opinion polls conducted in Korea in the first decade of the 2000s consistently showed that over 60 percent of city respondents favored agricultural protection (Kim and Park 2007, iii; 2009,61). Likewise, a 2008 September public opinion poll conducted by the Cabinet Office of Japan showed that the majority of respondents had a negative view on food imports mainly due to concerns over food safety and supply. Eighty-nine percent of the respondents said that they would select domestic products when given the choice between imported and domestic food (Cabinet Office, Government of Japan 2008). Only in recent years has consumer resistance to purchasing imported food weakened. In a 2019 Korean public opinion poll, 51.9 percent of the respondents declared they have no aversion toward purchasing imported food. 22.3 percent of the respondents identified low price as the main reason behind their purchase of imported food despite the negative perception on food safety (Kim and Park 2019, 38). Similarly, in a September 2018 poll by the Cabinet Office of Japan, 40.3 percent of the respondents cited imported food as their main concern over food safety (Cabinet Office, Government of Japan 2018). Clearly, consumers in both countries have become more open to purchasing food imports in recent years. However, this openness has not translated into strong support for agricultural liberalization against the wishes of farmers.

Due to these reasons, the willingness (or unwillingness) of the Korean or Japanese government to liberalize its agricultural sector despite strong domestic opposition has factored largely in the selection of FTA partners and the content of FTAs. Greater willingness would lead the government to pursue FTAs with trade partners that are also major agricultural exporters. Such FTAs should entail comprehensive tariff concessions for its agricultural products. Less willingness would lead to the opposite behavior. More importantly, government position on agricultural liberalization largely determines whether the government can pursue high-level FTAs with major trade partners such as the U.S. and EU, which are large agricultural exporters. The following section examines variations in FTA partner selection and the content of FTAs in Korea and Japan from the late 1990s to 2020.

Patterns in Korea and Japan’s FTAs since the late 1990s

First period: late 1990s–2012

From the late 1990s to 2012, Korea and Japan have diverged in their selection of FTA partners as well as in the scope and depth of their FTA content. First, in terms of FTA partner selection, the Korean government actively pursued FTAs with major agricultural exporting countries, while the Japanese government avoided FTAs with major agricultural exporting countries. By the end of 2012, Korea had eight FTAs in force with Chile, Singapore, the European Free Trade Association (EFTA), the ASEAN, India, Peru, the EU, and the U.S. (Table 2.1). Altogether, the eight FTA partners accounted for about 50 percent of Korea’s food imports in 2012 (ibid.). Moreover, Korea’s successful FTAs with the U.S. and the EU are noteworthy given the potential impact of these two countries on Korea’s agricultural sector. The U.S. and the EU are major agricultural exporters, respectively accounting for

TABLE 2.1 Koreas FTAs and Share of Food Imports

• * Note: Refers to data from Choi and Oh (2017).
• ** Refers to 2014 data.
• *** All data as of August 31,2020.

Source: Choi and Oh (2017); Korea Agricultural Trade Information (2013, 2015); Ministry ofTrade Industry, and Energy (2020).

20.1 percent and 8.9 percent of Korea’s food imports in 2012 (ibid.).³ An FTA with one of these trade partners would imply even greater volumes of food imports. In the same time period, the Korean government also began FTA negotiations with other major agricultural exporting countries such as Australia, Canada, and New Zealand, which collectively accounted for about 15 percent of Korea’s food imports in 2012 (ibid.). What these figures indicate is that the Korean government did not shy away from pursuing FTAs with major agricultural exporting countries despite the unpopularity of agricultural liberalization at home.

In contrast, since Japan’s first FTA with Singapore in 2002, the Japanese government has strategically favored FTA partners with small agricultural sectors. For example, Japan selected Singapore as its first FTA partner largely due to the latter’s small agricultural sector. With agriculture out of the picture, it was easier for Japan to comply with the WTO’s FTA rules and conclude an agreement that covered substantially all trade (Krauss 2003,319). By the end of 2012, Japan had 13 FTAs in force with Singapore, Mexico, Malaysia, Chile,Thailand, Indonesia, Brunei, ASEAN, the Philippines, Switzerland, Vietnam, India, and Peru. With the exception of ASEAN, only Chile and Thailand contributed more than 2 percent to Japan’s food imports, respectively accounting for 2.9 and 6.3 percent of Japan’s food imports in

TABLE 2.2 Japan’s FTAs and Share of Food Imports

* Notes: All data as of August 31,2020.

Source: Ministry of Foreign Affairs (2020b); Statistics Bureau of Japan (2014).

2012 (Table 2.2). Collectively,Japan’s FTA partners accounted for only 20.1 percent ofjapan’s food imports in 2012.The figure for ASEAN is not included as it is generally the sum of the figures from ASEAN member states who have concluded FTAs with Japan (i.e., Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam). Cambodia, Laos, and Myanmar either do not export or export negligible amounts of food products to Japan. During the period from the late 1990s to 2012, the Japanese government was not able to conclude FTAs with major agricultural exporting countries. Moreover, the Japanese government’s efforts to pursue FTAs with major agricultural exporting countries such as Australia and the EU were not successful.

Second, Korean FTAs from the late 1990s to 2012 have been characterized by substantial agricultural liberalization unlike Japanese FTAs that have excluded substantial portions of their agricultural products from liberalization measures. The Korean government adopted the negative-list approach on all sectors when negotiating on tariff concessions during FTA negotiations. As a matter of principle, with the exception of rice, all agricultural products were included in the FTA negotiations. In Korea’s FTA with major agricultural exporting countries such as Chile, the U.S. and the EU, tariff concessions respectively covered 98.9 percent, 99.2 percent, and 99.1 percent of total agricultural and fishery products (tariff concession rates measured by number of trade items according to the Harmonized System

(HS)-code⁴) (Choi and 011 2011, 511). Koreas tariff concession rates for agricultural and fishery products were not as comprehensive with smaller trade partners. For example, in the Korea-Singapore FTA the concession rate was 64.6 percent (ibid.). But given that Singapore accounted for less than 1 percent of Koreas food imports, the small concession rate for agricultural and fishery products had economically marginal impact on Korea and Singapore’s trade (Table 2.1). Moreover, the Korean government agreed to immediately eliminate duties on large portions of its food imports. For example, according to the contents of the KORUS FTA, two thirds of food imports (by value) from the U.S. were to become duty-free upon entry into force while tariffs on the rest of the agricultural products were to be gradually eliminated within 10 years (USTK 2009, 305).

In contrast, the Japanese government preferred the positive-list approach on agricultural products when discussing tariff concessions during FTA negotiations.⁵ Japan’s FTA negotiations generally excluded on average 40 percent of its agricultural products from tariff concessions (Kim 2009, 5). For example, the tariff concession rates for agricultural and fishery products were 53.5 percent in the Japan-Singapore FTA, 47.4 percent in the Japan-Mexico FTA, 61.7 percent in the Japan-Malaysia FTA, 64.1 percent in the Japan-Chile FTA, 63 percent in the Japan-Indonesia FTA, 60.6 percent in the Japan-Brunei FTA, and 59 percent in the Japan-Philippines FTA.The Japan-Thailand FTA had the highest tariff concession rate for agricultural and fishery products at 71.7 percent (ibid.). Still this figure excluded a third of agricultural and fishery products from tariff concessions. Considering that Japan’s FTA partners in this time period were with small agricultural exporting countries that did not contribute substantially to Japan’s food imports, the low tariff concession rates for agricultural and fishery products are even more surprising. Moreover, in all its FTA negotiations,Japan had excluded sensitive primary commodities such as rice, sugar, wheat and barley, beef and pork, and dairy products. The total number of these sensitive agricultural products were 586 according to the HS-code classification.

Japan’s reluctance to liberalize its agricultural sector proved to be a huge stumbling block in negotiating economically meaningful FTAs. This was especially true for FTAs with major trade partners such as Australia, the EU, and the U.S. that had the potential to benefit greatly from an open Japanese agricultural market. For example, Japan’s attempt to forge an FTA with Australia was unsuccessful due to strong differences in Japan and Australia’s positions on agricultural market opening. Japan resisted opening up its agricultural market to Australian rice, beef and dairy products, whereas Australia refused to negotiate an FTA without gaining substantial access to Japan’s agricultural market (Ahearn 2005, 8). The EU expressed a reluctance to engage in FTA talks with Japan unless there were substantial reductions in Japan’s nontariff barriers such as regulations on government procurement and product safety screening. In particular, the Japanese ban on EU beef import due to food safety concerns was a contentious issue between both parties (Ajima 2010). Although the EU’s demand was not centered solely on Japan’s agricultural market, Japan’s food safety regulations played a large role in making Japan an unattractive FTA counterpart for the EU.

FTAs with major agricultural exporting countries are not likely to materialize unless accompanied by substantial liberalization in agricultural products. From the late 1990s to 2012, the Korean government successfully signed FTAs with major trade partners that contributed a substantial portion of Korea’s food imports and, in the process, did not shy away from substantially liberalizing its agricultural sector. The Japanese government, on the other hand, was reluctant to pursue FTAs with major agricultural exporting countries and successfully protected its agricultural sector during FTA negotiations. Many scholars observed during this time period that without substantial agricultural liberalization,Japan would not be able to negotiate FTAs with its largest trade partners—for example, Australia, China, the EU, and the U.S.—despite the potential for higher economic gains (Mulgan 2008,164-165; Solis 2010,210—214). Considering that these four trade partners accounted for 56.2 percent ofjapan’s food imports in 2012, prospects for FTAs with any of these trade partners seemed low in 2012 (Statistics Bureau ofjapan 2014).