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Korea Rice Farming Policies
The Korea Times
The clock is ticking. By the end of this year, Korea has to open its rice market. It sounds urgent and it is indeed very urgent. The clock, however, has been ticking for the past ten years. Korea is currently negotiating with nine countries to earn more time to postpone the forthcoming market opening schedule.

At the end of the Uruguay Round in 1994, Korea earned a ten year period to prepare for the opening of its rice market. Ten years ago, it was negotiated that Korea would remove all non-tariff barriers, including import quotas, by Jan. 1, 2005. Under the import quota, no rice could be imported beyond a certain preset percentage or amount at any price or equivalently at any tariff rates. Tariffs are taxes importers pay at the border so that the domestic price becomes more expensive. At the same time, Korea promised that minimum market access (MMA) would be changed from 4 percent to 8 percent. The market share of foreign rice would be 8 percent, at the minimum. In addition, 30 percent of imported rice should be able to directly reach customers in retail stores.

In order to understand the present situation, let us go back ten years. Korea successfully argued the uniqueness of rice and rice farming in the Korean economy and culture. At that time, the MMA was 1 percent. Many rice producing and rice exporting countries demanded Korea open its rice market substantially. Korea successfully negotiated the MMA would be increased from 1 percent to 4 percent in ten years time, namely, by the end of 2004. No rice would, however, be sold directly to consumers. Instead, imported rice should only be used for processed food. This way, Korea earned a precious ten-year period to prepare for the opening of the rice market.

Looking at Japan, Japan used the same argument that its rice was a unique product with cultural and sentimental value as well as an economic one. It is not like automobiles or television sets. The whole country must produce rice at any cost and rice farmers should be protected at all costs. The dates are different, but Japan went through similar negotiations and similar time schedules to delay the opening of its rice market

. Japan did open its rice market and did it ahead of schedule. Before the set date that its MMA should be 8 percent, Japan imported more than 8 percent. Japan used a so-called tariffication by calculating the required tariff rates to make sure the necessary MMA would be satisfied. Japanese rice farmers and more importantly Japanese policy makers must have realized that Japan could not compete in rice production in the global economy. In order to sell more of its automobiles and electronics, Japan asked foreign countries to open their markets for those products in exchange for it opening its rice market. Though domestic rice farmers suffered, it was not a bad strategy.

Many rice farmers suffered and left rice farming for good. Although less rice was produced, the price of rice went down in Japan because of increasing imports and reduced price support by the government. The gap between domestic and world rice price has been going down steadily. Of course the Japanese government helped rice farmers get other jobs and supplemented their income. Japan correctly anticipated and realized that the country would be better off in the long term by abandoning its uncompetitive rice farming.

Korea followed Japan in its rice negotiation, later in time, but in a similar fashion. Yet government policy has been exactly the opposite of the Japanese one. Instead of discouraging rice farmers in their rice farming, Korea helped and encouraged it. Every year, the government increased its rice subsidy and rice support price higher and the domestic rice price has gone up steadily year in and year out. Currently, the price of rice in Korea is about five times that in the world market.

Korea had 10 years to reduce rice production and the gap between the prices of domestic and world rice. However important rice farming is, it is simply not competitive against other countries. Rice farmers should have been prepared to reduce rice farming. This way, the gap between the domestic and world price would have been narrowed. This is the only way to open the rice market in an orderly way.

Korea is in last minute negotiations with nine countries _ the United States, China, Australia, Thailand, India, Pakistan, Egypt, Argentina and Canada _ to extend the grace period Korea has enjoyed in the past ten years. It is possible it will receive an extension but in order to receive a favor, the country has to give up other trade-related issues.

In any negotiation, you have to give something up to gain something. The something else could potentially be far more important to the country in the long run. Rice production is not competitive in Korea. In order to hold on to this uncompetitive product, Korea may very well give away its competitiveness of many products.

Korea has lost an entire decade. Rice production in Korea has become less competitive than it was ten years ago. How do we know that? The gap between domestic and world rice prices ten years ago was much narrower than it is now. A tariff rate of about 250 percent would have been sufficient to fend off rice imports ten years ago. Now that rate has become 400 percent or greater.

It is unfortunate Korean policy makers and politicians have lost this important ten-year period. It was completely wasted, not only the time, but also all the tax money to support rice price. Consumers have been paying higher prices. Japan gave us an important lesson by showing is how it opened its rice market. Its Korean counterparts, unfortunately, have not learned from Japanese policies and strategies.

Time is running out for Korea. Whatever happens in the end, it should be clear Korea requires a good domestic rice farming policy in the future.

The writer, professor of business economics and public policy at the Indiana University Kelley School of Business, is a member of The Korea Times Economic Editorial Board.
MGR Archive 7.12.2004
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