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EAST ASIAN REVIEW . Vol. 14, No. 3, Autumn 2002, pp. 49-66
Agricultural Trade Between
Korea, China and Japan:
Disputes and Countermeasures
INTRODUCTION
The prospect of a further increase of agricultural trade between Korea, China and Japan with China’s membership into the World Trade Organization (WTO) raises the potential for more tradedisputes between the three countries. In particular, concerns aremounting over the possibility of increased vegetable imports fromChina, as a result of a shift from grain to vegetable and fruitproduction (after joining the WTO), and tougher competition againstChinese farm products in Japan, Korea’s major export market. With Japan adopting various curbs on imports to protect its local farmers from rising imports of farm products from China and Korea,Korea will have to deal with those import restrictions. Meanwhile,the growing influx of Chinese produce in the Korean market hasalready triggered domestic difficulties.
The purpose of this article is to assess the trade volume of farm products and the trade frictions that will occur between Korea, Chinaand Japan, to forecast future trade of agricultural products and toidentify a strategy to prevent trade disputes. East Asian Review, 14(3), Autumn 2002, pp.49-66 2002 by The Institute for East Asian Studies Published by the IEAS, 508-143 Jungrung 2-Dong Songbuk-Ku Seoul 136-851 KOREA EAST ASIAN REVIEW AUTUMN 2002
Table 1. Agricultural Trade Between Korea and China
Source: Korea Trade Information Service (KOTIS) AGRICULTURAL TRADE BETWEEN KOREA AND CHINA
Volume of trade between Korea and China was only US $4.4 billion in 1991, before diplomatic ties were established between thetwo countries, but rose seven-fold to US $31.5 billion by 2001. Of thistotal, agricultural trade was approximately US $1 billion in 1991, US$1.5 billion in 2000 and US $1.1 billion in 2001. Since 1993, Korea hasconsistently enjoyed a trade surplus with China, but on farmproducts it has recorded a deficit balance. Specifically, in 2001 totaltrade with China recorded a surplus of approximately US $4.9billion, while the balance for farm products stood at a deficit of aboutUS $900 million.
The export volume of farm products was US $3 million in 1991, before the establishment of diplomatic ties, and it grew to US $84 AGRICULTURAL DISPUTES AND COUNTERMEASURES Table 2. Key Korean Products Exported to China
million in 2001 while the volume of imports increased only slightly,from US $980 million to US $1.01 billion during the same period.
After the foreign currency crisis in 1998 and 1999, import of farmproducts from China dropped significantly to US $700-800 million,but since 2000 has recovered to pre-crisis levels. In terms of agricultural products exported from Korea to China as of 2001, most are processed farm products such as sugar, noodles,liquor, and candies, while grains, beans and fruits areproportionately low. However, export of nuts and ginseng hasgrown steadily since 1998 with the volume of ginseng export in 2001increasing eleven-fold from 1998. Export of fruits such as EAST ASIAN REVIEW AUTUMN 2002
Table 3. Key Chinese Farm Products Exported to Korea
9,712 479,072 334,097 133,457 606,306 273,773 persimmons and pears is increasing gradually but still remains low. In 2001, farm products imported from China included feed grain corn, peanuts, sesame seeds, garlic, ferns and chili peppers. Inparticular, import of chili peppers and garlic grew year-on-year 34.7percent and 70.4 percent respectively. Noteworthy is the 2001proportion of vegetables, which exceeds grain, excluding feed grain.
This change appears to have been prompted by China’s recent policyto raise vegetable production and expand their exports.1) The policy 1) China’s export of vegetables grew about 2.7-fold from KR 600 million in 1990 to AGRICULTURAL DISPUTES AND COUNTERMEASURES Table 4. Agricultural Trade Between Korea and Japan
may lead to more trade frictions with Japan and even become themain cause behind trade disputes between Korea, China and Japan. In addition, the growing import of Chinese farm products can be attributed to geographical conditions and food preferences similar tothose of Korea as well as to competitive prices. AGRICULTURAL TRADE BETWEEN KOREA AND JAPAN
In contrast to trade with China, Korea is suffering from a chronic overall trade deficit with Japan, while recording a surplus in farmproducts. Trade with Japan in 2001 recorded an overall deficit of US KR 1.6 billion in 2000. Included in that figure, fresh vegetables increasedsignificantly from KR 200 million to KR 500 million.
EAST ASIAN REVIEW AUTUMN 2002
Table 5. Key Korean Farm Products Exported to Japan
$10 billion, but a US $400 million surplus in farm products trade.
However, the surplus in the trade of farm products has fallen fromapproximately US $800 million in 1999 to about US $500 million in2000. This drop reflects the sharp fall of livestock exports after theoutbreak of foot-and-mouth disease in 2000, as well as growingimports. The bulk of farm products exported to Japan in 2001 included liquor, vegetables, nuts, candies, mushrooms, and fruits. Inparticular, exports of vegetables and fruits are growing rapidly withthe trade volume of both chili peppers and tomatoes rising morethan 12-fold, from US $ 3 million and US $1.2 million respectively in1996 to US $37 million and US $14.3 million respectively in 2001.
Also, exports of mandarin oranges and strawberries increased 31-fold and 2-fold respectively against 1996 levels. However, export ofpork, the number-one farm product export to Japan until the AGRICULTURAL DISPUTES AND COUNTERMEASURES Table 6. Key Japanese Farm Products Exported to Korea
breakout of the foot-and-mouth disease in 2000, plummeted from US$330 million in 1999 to US $600 thousand in 2001. As evidenced by these figures, export of vegetables and fruits to Japan is rapidly growing. Such a trend is also seen in the export ofChinese goods to Japan, raising the future possibility of intensecompetition against Chinese farm products in the Japanese market. On the other hand, key imports of Japanese farm products in 2001 (feed, vegetables, candies, honey and royal jelly) dropped year-on-year by US $7 million to US $158 million.
AGRICULTURAL TRADE DISPUTES
BETWEEN KOREA, CHINA AND JAPAN
China’s growing export of farm products is leading to more frequent trade friction between Korea, China and Japan. Korea andChina are at odds over Chinese garlic on the Korean market, while EAST ASIAN REVIEW AUTUMN 2002
China and Japan are involved in disputes over safeguard measuresagainst farm products. Meanwhile, an uneasy atmosphere loomsbetween Korea and Japan over possible safeguard measures andstrengthened quarantine rules by Japan. Also, it is predicted thatChina’s farm product exports to Korea and Japan will expandfurther now that it is a member of the WTO, and it will potentially bea source of future trade disputes. Trade Friction Between Korea and China over Agricultural Products As a result of low 30-percent tariff imposed on frozen garlic and vinegar-processed garlic, imports to Korea grew rapidly. When garlicprices dived with the surge in Chinese imports and increasingdomestic production and the damage among local garlic growersspread, the National Agricultural Cooperative Federation of Korea(NACF) requested through the Trade Commission under theMinistry of Commerce, Industry and Energy the introduction of asafeguard2) against Chinese garlic. The Ministry of Finance and Economy in March 2000, decided to impose, a tariff rate totaling 315 percent on frozen garlic and vinegar-processed garlic, an emergency tariff of 285 percent on top of thebasic 30 percent tariff and a tariff totaling 436 percent (an emergencytariff of 376 percent on top of the basic 60 percent) on peeled garliccloves. In response, China requested bilateral discussions. Tworounds of talks were held, one in Seoul (April 2000) and one inBeijing (May 2000). The two parties failed to reach an agreement, 2) A safeguard, based on Article 19 of the GATT (1947) agreement, allows an emergency import restriction to be invoked as necessary for a period of time toprevent damage or to enable recovery from damage resulting from the rapidincrease in imports of a certain product. According to WTO regulations, a safeguardis a legitimate measure that can be adopted if import of a particular product growsabsolutely or relatively to domestic production, causing serious damage to the localindustry. AGRICULTURAL DISPUTES AND COUNTERMEASURES Table 7. Tariff Quota Set at the Garlic Talks Between Korea and China
Tariff quota volume vinegar-processed 20,105 Source: Korea Rural Economic Institute (KREI), Agricultural Outlook 2001. however, with China maintaining that the fall of garlic prices inKorea and the resulting damage to Korean garlic farmers were due toincreased domestic production and that, therefore, imposing anemergency tariff was unfair. In the end, when Korea formally invoked emergency tariffs on June 1, 2000, China argued that those safeguard measures and theemergency tariffs on Chinese garlic were discriminatory andprotective trade practices. It retaliated by banning the import ofKorean mobile phones and polyethylene (PE) as of June 7, 2000. Toresolve the “garlic dispute” the two countries met in Beijing on June29, 2000 and on July 15, 2000, a temporary agreement was reached. As a result of the talks between Korea and China in July 2000, the import of Chinese frozen garlic and vinegar-processed garlic wasallowed based on a three-year tariff quota. The amounts allowed forimport were 20,105 tons in 2000, 21,190 tons in 2001 and 22,267 tonsin 2002 and a specific duty of 30 percent was to be imposed for theseamounts. See Table 7. Also, for the amount exceeding the minimum market access volume a high tariff was set. In 2002, peeled garlic cloves weresubject to a specific duty of 423 percent with an ad valorem duty ofKR 2,116 per kilogram. Whole garlic was subject to a specific dutyof 368 percent with an ad valorem duty of KR 1,840 per kilogram,and frozen garlic and vinegar-processed garlic was subject to a basic EAST ASIAN REVIEW AUTUMN 2002
tariff of 30 percent, and an emergency tariff of 263 percent, resultingin a specific duty of 293 percent, with an ad valorem duty of KR 1,573 per kilogram. However, in early 2001, China demanded that Korea import the remaining quota of 10,300 tons from the 32,000 tons of garlic it hadagreed to import in 2000, threatening to reduce by half the import ofmobile phones and polyethylene (PE) from Korea. This broughtabout a second round of talks over garlic. At the trade ministersmeeting between Korea and China in April 2001 in Beijing, Koreaagreed to import the remaining garlic from 2000 at FOB US $550 perton by August 2001.3) Meanwhile, it was recently revealed that during the dispute in June 2000, an agreement was reached not to extend the safeguardmeasures beyond January 2003.4) A clause in the import controlagreement states that private Korean companies may freely importfrozen garlic and vinegar-processed garlic from China as of January1, 2003, which will make it difficult to extend the safeguard onChinese garlic imports. Then, last June 28, the National AgriculturalCooperative Federation requested that the government extend thesafeguard measure on Chinese garlic imports for four years until theend of 2006. After the economy ministers’ meeting and the deputyministers’ meetings held early July, it appeared that the governmenthad decided not to go ahead with the safeguards and instead, woulddevelop plans to support local garlic growers. Agricultural Trade Dispute Between Korea and Japan The recent growth in vegetable exports to Japan is leading to trade friction between Korea and Japan. In 2001, Japan consideredinvoking safeguard measures on Korean farm products, tomatoes 3) Lim Jeong-bin, Progress and Recent Trends in Discussions on Garlic Between Korea and China (Korea Rural Economic Institute, May 2001).
4) Chosun Ilbo, July 16, 2002.
AGRICULTURAL DISPUTES AND COUNTERMEASURES Table 8. Trend of Korea’s Export of Vegetables to Japan
Source: The Ministry of Agriculture, Forestry and Fisheries of Japan, requoted from and paprika. As the impact on local farmers spread, the Japanesegovernment initiated an investigation in December 2000 as apreliminary step to imposing safeguard measures. The investigationtargeted imported Welsh onions, onions, tomatoes, paprika, freshshiitake mushrooms and rushes used for tatami mats, but tomatoes,paprika and onions, imported from Korea, were excluded. In addition, when vegetable prices and farming households’ income dropped amid increasing imports of Korean cherry tomatoes,paprika and cucumbers5)––vegetables produced in controlledenvironments––Japan as of April 1, 2001, restricted the number ofinspections per import channel while strengthening thoseinspections. The measure to restrict the number of inspections wastargeted at Korean imports but was introduced without any advancenotice.6) Stricter inspection of imported vegetables has an adverseeffect on Korean exports as it reduces the export volume, and 5) In 2000, Japan imported from Korea 11,262 tons of cherry tomatoes, a 35-fold increase from 320 tons in 1996, and 6,725 tons of paprika, a 29-fold rise from 234tons in 1996. 6) Kim Byung-yul, Japan’s Import Restriction and Trade Issues Between Korea, China and EAST ASIAN REVIEW AUTUMN 2002
Table 9. Market Access Volume and Tariff Equivalent
Source: KREI, Agricultural Outlook 2002. prolongs the inspection process, causing deterioration in quality andhigher logistics costs. Agricultural Trade Dispute Between China and Japan Japan invoked a 200-day safeguard from April 23 to November 8, 2001 on fresh shiitake mushrooms, rushes for tatami mats and Welshonions imported from China.7) The method used was a tariff quotasystem in which a low tariff of 4.3 percent on fresh shiitakemushrooms, 6 percent on rushes for tatami mats and 3 percent onwelsh onions are imposed on products within the quota. On amountsexceeding the quota a higher tariff was to be applied. See Table 9.
As of June 22, 2001, China retaliated by levying a 100-percent special tariff on Japanese automobiles, mobile phones and airconditioners. After several bilateral talks, in a ministers’ meeting onDecember 21, 2001, the two countries resolved the dispute over importrestrictions by agreeing to maintain the production volume of fresh 7) In addition to fresh shiitake mushrooms and rushes for tatami mats, Japan requested a government investigation of impact of tomatoes, peppers and onions,but these three products related to Korea were excluded. The amounts of freshshiitake mushrooms, rushes and Welsh onions from China in Japan’s importmarket are 99.9%, 99.9%, 98.5% respectively. AGRICULTURAL DISPUTES AND COUNTERMEASURES shiitake mushrooms, rushes and Welsh onions at optimal levels, andto establish a trade committee that would prevent excessive exports.
Following the meeting, Japan lifted the safeguard on the threecommodities while China withdrew the import restriction on Japaneseautomobiles and mobile phones as of December 27, 2001. TRADE OUTLOOK AND COUNTERMEASURES
Outlook for Agricultural Trade Between Korea, China and Japan Amid changes in trade following China’s entry into the WTO, trade of farm products between Korea, China and Japan is expectedto rise further, heating up competition between the three countries.
Korea is positioned as an importer of farm products from China andexporter to Japan, as the three countries become more dependent oneach other for trade.
Now that China is a member of the WTO, imports of grain such as wheat are expected to increase as China is less able to produce grainthan countries like the U.S., and thus, is likely to move from grainproduction to that of vegetables, which produce higher yields and canbe exported.8) Meanwhile, Japan, the world’s largest importer of farmproducts is likely to import even more from Korea and Japan as localproduction decreases, production capabilities weaken, the farmingpopulation shrinks and the general population ages.9) Currently China’s export of field-grown vegetables such as onions, carrots and radishes are mostly destined for Japan, but export to Koreais also steadily rising. Korea is increasingly importing more condimentvegetables from China while the export of greenhouse vegetables suchas tomatoes, cucumbers and eggplants is mostly concentrated on 8) Agricultural Outlook (Korea Rural Economic Institute, 2002).
9) To deal with the glut resulting from growing production of vegetables and fruits, EAST ASIAN REVIEW AUTUMN 2002
Figure 1. Key Chinese Farm Products Exported to Korea
Japan, and is expected to further rise with lower production, yethigher demand in Japan. While exporting vegetable seeds to Koreaand China, Japan is increasingly importing more farm products,especially fresh vegetables, from these countries. Figure 1 illustrates major farm products imported from China recently. Imports of corn, soybeans and chicken are gradually rising,while the pace of growth has slowed down large volumes of chilipeppers and sesame seeds. Growing imports of these productsurgently calls for restructuring of Korean production. China, by transforming its agricultural production, will become more competitive in the export of vegetables, fruits and meat toJapan and Korea. On the other hand, these two countries areexpected to restrict imports from China in response to theaccelerating influx of Chinese farm products, raising the possibilityof increased trade disputes on farm products. Furthermore, concern is increasing that Korea will have to face competition against Chinese farm products in its largest exportmarket, Japan. As Chinese farm products are still lacking in terms ofquality and food safety, it must make efforts to offer higher-qualityproducts that satisfy the tastes of Japanese consumers through AGRICULTURAL DISPUTES AND COUNTERMEASURES Korea mostly exports processed farm products to China, but the recent export of nuts and ginseng are noteworthy. And the export ofginseng is expected to rise further once an agreement on ginsengimports is reached between Korea and China. Export to Japan ismostly focused on fresh vegetables such as cherry tomatoes andpaprika, but recently exports of fruit, especially mandarin orangesand strawberries, are on the rise, signaling a need to develop anddiversify the range of exportable farm products.
Trade disputes between Korea, China and Japan, expected to further intensify once China strengthens its policy to promote exportof vegetables and fruits, should be countered by fully utilizing theofficial dispute settlement procedures set forth in WTO regulations. Multilateral agreements could be considered first. Among the conditions for China’s entry into the WTO, member countries canintroduce a special safeguard measure on Chinese products for 12years since its entry. The purpose of the safeguard against China is toallow member countries to restrict Chinese imports if pricesplummet or if damage is suffered by local industries as a result ofincreasing Chinese imports. In fact, the safeguards can now beinvoked more easily than regular WTO safeguard measures for“material injury to the local industry,” rather than only in the case of“serious injury” as before.
Another multilateral resolution is the special safeguard (SSG).
The special safeguard, developed during the Uruguay Round, allowscountries to raise the tariff if the import of a tariff-regulated farmproduct rises rapidly or import prices drop sharply, dealing a major 10) While the safeguard in Article 19 of GATT can only be invoked when specific damage to the local industry is shown, the special safeguard (SSG) is imposed automaticallyonce conditions are satisfied, regardless of damage to the local industry. EAST ASIAN REVIEW AUTUMN 2002
blow to domestic production and the market.10) Essentially, a specialsafeguard can be invoked on general-tariff farm products that fallunder a special safeguard in the agreement. Under these conditions,Korea can invoke special safeguard measures on barley, corn,potatoes and sweet potatoes which are subject to restrictionsaccording to the Uruguay Round agreement. However, in practice it is not easy to satisfy the conditions for invoking safeguard measures––rapid increase in export––and there isalways the risk of having to offer compensation, or of anothercountry taking retaliatory measures. Also, since China views theclause on allowing other countries to invoke special safeguardmeasures for 12 years as unfair, it will likely respond very sensitivelyto the measure, which could lead to disputes. Therefore, invokingspecial safeguard measures should be an option approachedobjectively and rationally. Meanwhile, Japan is setting up a market surveillance system to strengthen restrictions against the import of farm products, withKorea’s main export items, tomatoes, peppers and onions includedin the list of products subject to emergency surveillance. Althoughsafeguard investigations against these products have beensuspended, the possibility remains that Japan could restrict importsthrough various means such as tougher quarantine regulations onKorean farm products, so a more thorough strategy on food safetyand health is called for. An ongoing monitoring system, similar towhat Japan is currently establishing, should also be established toprepare for the growing inflow of Chinese products. After the safeguard dispute between China and Japan in January 2002, the two countries established a trade committee to promote theexchange of information on demand, the quality of farm products,production volume and prices, as well as the constructivedevelopment of bilateral trade of farm products. As Korea, Chinaand Japan have similar agricultural environments and all share arelatively weak competitive edge on farm products in the globalmarket, the three countries desperately need to establish strong ties AGRICULTURAL DISPUTES AND COUNTERMEASURES for exchange and cooperation. Under these circumstances, a tradecommittee on farm products between the three neighboringcountries must be established. Such a committee, (one has alreadybeen established between China and Japan) will promote exchangeand cooperation on farm products and prevent trade disputes. A subject of growing importance in WTO trade disputes on farm products is the quarantine and inspection of animals and plants. Aspredicted, the quarantine of animals and plants will also emerge asthe most debated issue in trade disputes between Korea, China andJapan. The three countries need to work together to narrow theirdifferences in quarantine regulations, to improve regulations ontrade of farm products and to stimulate trade. Reckless import of cheap Chinese farm products is making it difficult to control food safety and quarantine. Recently, the importof a farm product was restricted after high concentrations ofpesticides were found. In other instances, if import is restricted onthe grounds that food safety cannot be guaranteed due to poortransport or distribution conditions, or if foot-and-mouth disease hasbroken out, China will probably argue that the restriction is a non-tariff barrier, and this could lead to a bilateral trade dispute. Inparticular, recognizing the importance of controlling the safety andquality of vegetables and fruits, and the fact that China is keen toexpand exports, quarantine regulations need to be strengthened.11) Moreover, merchants take advantage of the similarities, mixing Chinese farm products with home-grown Korean products,negatively impacting both local growers and consumers. In 2000, theMinistry of Agriculture and Forestry of Korea identified more than10,000 instances in which imports were falsely labeled as domesticproducts, and it is assumed that the majority of these products really 11) Currently in Europe the import of some vegetables from China is prohibited for 12) Lim Jeong-bin, et. al., Internal and External Impact and Countermeasures to China’s Entry into WTO (Seoul: Korea Rural Economic Institute, Fall 2001).
EAST ASIAN REVIEW AUTUMN 2002
originated in China.12) The dramatic influx of cheap, poor-qualityChinese farm products greatly impacts the incomes of local farmers.
Farm products imported from China disrupt local markets not onlybecause of the low prices and poor quality, but because they areimported in large volumes, bringing down local market prices andcausing enormous damage to Korean farmers. A solution to thisproblem is reinforcing the current requirement for a “country oforigin” stamp. Once such proper market practices are in place andthe country of origin is clearly stamped on the product, local farmerswill be able to secure a strong, yet fair competitive edge over Chineseimports by offering local products with various advantages. Meanwhile, since China has joined the WTO, efforts will be made to resolve disputes through the organization’s dispute settlementbody, making it impossible for China to adopt measures that goagainst international trade practices simply to protect the country’sinterest as it did during the dispute over garlic. In response, Koreaneeds to identify and review cases of other trade disputes over farmproducts to protect its interests against China while seeking to betterutilize the WTO’s dispute settlement body. The fundamental reason behind serious trade disputes in the agricultural sector is delayed restructuring of the industry itself. Inorder to prevent future trade disputes on farm products and to makeChina an attractive export market to us, Korea needs to invest morein the industry while promoting continuous restructuring thatfocuses on enhancing quality, raising safety standards anddiversifying export products. In addition, faced with a trade dispute, countermeasures should be developed between relevant ministries. To this end, an ongoingprogram to effectively respond to and deal with trade disputes mustbe established.

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