Markets

CME: S Korea FTA Significant to US Pork Exports

US - The US Congress ratified three free trade agreements, with S. Korea, Panama and Colombia. In the context of US beef and pork trade, the FTA with S. Korea is the most significant since it represents a market which through the first eight months of 2011 has accounted for 10 per cent of all US pork exports and 16 per cent of all beef exports, write Steve Meyer and Len Steiner.

17 October 2011

4 minute read

North America

On a volume basis, Korea through August had purchased 115,917MT of US pork and 98,171 MT of US beef.

US beef shipments to S. Korea have surged in the last two years as both countries worked through the difficulties of restarting trade following the outbreak of BSE in North America in 2003.

This year, Korea is expected to double the amount of pork imported from the US due to the devastating impact of the FMD outbreak last spring followed by significant reductions in the domestic hog breeding herd.

At this time the ball is in the court of Korean authorities as they have to push the law through the South Korean National Assembly. If the bill is ratified in South Korea as well, then it could go into effect as early as January 2012.

The US-Korea FTA prescribes that commencing in year one, which could be as early as 2012, US beef shipments up to a threshold of 270,000 MT will enter the S. Korean market duty free.

Today, all US beef entering South Korea has to pay a 40 per cent tariff. The removal of this tariff will make US beef significantly cheaper and thus more competitive. It is reasonable to expect that the lower price will allow consumers to purchase more US beef in the coming year.

Any additional beef over the specified trigger levels will have to pay a safeguard duty of 40 per cent. The safeguard trigger level will be increased by 6000MT in each of the next 15 years. After year five, the safeguard duty will be reduced from 40 per cent to 30 per cent and in year ten it will be reduced to 24 per cent. After year 15, all US beef shipments to S. Korea will enter duty free.

In the case of pork the agreement includes a safeguard trigger for fresh/chilled pork cuts. This category will constitute less than 10 per cent of US pork shipments and the safeguard effectively is in place to protect domestic sales of fresh pork.

Much of US pork shipments will no longer have to pay the 22.5 per cent tariff that is currently in place. This agreement opens the door to a significant increase in US beef and pork exports to the Korean market.

But, keep in mind that Australia (our top competitor in the beef market) and the EU (our top competitor for pork) are both working on their on FTA agreements with Korea. It is expected that both will be finalised in 2012.

The winners in this deal are US producers, that will see more advantageous access and who will be no be disadvantaged when other countries sign FTA agreements with Korea.

Korean consumers are also winners as they will likely see lower meat protein prices. For US consumers, the agreement will likely mean higher prices, particularly when US beef supplies are expected to decline in 2012 and 2013.