U.S.-South Korea Trade Pact Could Beef Up American Meat Exports

It may seem like an agricultural footnote in a much larger treaty between two countries, but in some circles, the U.S.-South Korean Free Trade Agreement (FTA), announced earlier this month by President Obama, is being seen as a harbinger of better times ahead for U.S. meat exporters -- and perhaps for U.S. agricultural exports in general.

Before 2003, South Korea was one of the top importers of U.S. beef, a market approaching $1 billion in annual sales. But then came news that a cow in Washington state had been diagnosed with bovine spongiform encephalopathy (BSE), also known as mad cow disease. Soon after that discovery, South Korea, Malaysia, Japan and several other East Asian countries imposed bans on U.S. beef.

While other Asian markets lifted their bans on U.S. beef imports within a few years, it wasn't until 2008 that South Korea resumed limited imports, with severe restrictions on the age of the animals used (30 months or younger, since younger cattle are considered less susceptible to BSE) and the cuts of meat allowed in. But even that partial resumption sparked huge protests in Seoul against the incoming government of South Korean President Lee Myung-bak.

Not Really a Beef About Beef

A lot of the anger expressed toward U.S. beef was apparently linked to other political and economic issues, including the large, decades-long American military presence in South Korea, and the global financial downturn.

"Korea's economy was really in a slump at that time. There was a lot of sentiment against new government that they weren't doing enough to keep the economy moving," says Joe Schuele, communications director for the U.S. Meat Export Federation (USMEF). "The anti-beef sentiment picked up some momentum based on issues that really had nothing to do with beef safety or even food safety." But once the mad cow controversy began to fade from the headlines in South Korea, he says, "we felt confident that we would make more inroads into the market."

The turnaround began last year. According to USMEF data, the U.S. exported nearly 82,000 metric tons (more than 180 million pounds) of beef to South Korea during the first nine months of this year -- at a value of $383.8 million. That's a 181% increase in value and a 136% growth in volume, compared to the same period in 2009.

A Hefty Price Cut

And once it's ratified, the FTA will eventually eliminate heavy tariffs on U.S. agricultural products -- especially beef. "The 40% tariff on U.S. beef will be phased out over 15 years," says Schuele, "which is consistent with the terms of other agreements Korea is negotiating with providers such as Australia and the European Union." USMEF estimates that, once the beef tariff is zeroed-out, final costs on a metric ton of U.S. beef in South Korea will have been cut by $1,300, which will make American beef significantly more accessible to consumers there.

"We see this FTA as a definite positive. . .as it will move us toward normalized trade," said Jeremy Russell of the National Meat Association via email. "In fact, it's not just a positive for Korea, but for the entire region, because all. . .the countries in Asia watch each other and try not to be perceived as being less diligent on the safety of imported food. Also, as exports to Korea expand, other countries will be forced to make similar changes in order to compete for U.S. product."

The FTA still needs to be ratified by both the U.S. Congress and South Korea's National Assembly, and as recently as last month, when Presidents Lee and Obama met at the G20 summit, the agreement seemed in doubt. But observers say rising tensions between North and South Korea have helped ease the FTA's path.

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Seoul "is looking for as much support as they can gain in the U.S. . . .given the fact we've got two other wars we're fighting," says Gordon Von Stroh, professor of management at the University of Denver's Daniels College of Business. "From the South Korean perspective, [the FTA] is shoring up their political support -- gaining more support from U.S. senators in agricultural states. Because, let's be honest -- every job counts right now in the U.S."

That sentiment appears to echoed in South Korea. "We believe the pact will contribute in strengthening economic and security ties between the two countries, and therefore request the government and parliament to speed up the ratification," said the Federation of Korea Industries, a prominent business lobbying group, in a statement quoted by the Yonhap News Agency. And according to Korean International Trade Association, "Amid rising trade uncertainties -- such as slowing global economic growth, eurozone debt risks, and rising inter-Korean tension -- the early ratification of the KORUS FTA is important than ever."