KORUS at One Year: Expanding Opportunities for U.S. Agricultural Exports

It’s been one year since the United States-Korea Free Trade Agreement (KORUS) entered into force and, as a result of the agreement, U.S. exports of high-value, consumer-oriented agricultural products to South Korea reached a record $2.8 billion in calendar year 2012. Fruit, tree nut, dairy, and vegetable products were major winners in 2012, while some bulk commodity exports, such as wheat and soybeans, have also grown substantially. KORUS is the most commercially significant free trade agreement for the United States since the North American Free Trade Agreement, providing U.S. farmers, ranchers, food processors, and the businesses they support with improved access to Korea’s $1.6 trillion economy and 50 million consumers.

Significant Trade Access Achieved by Major Tariff Reductions under KORUS

KORUS eliminated duties on almost two-thirds of U.S. agricultural exports to Korea, increasing opportunities for many farm products. These products, with duties previously ranging from 1 to 487 percent, include wheat, corn, soybeans for crushing, whey for feed use, hides and skins, cotton, almonds, pistachios, orange juice, cherries, and wine. Additionally, many other products gained duty-free tariff-rate quota access and tariff reductions, with duties falling to zero over time. Following the implementation of KORUS, U.S. exports of fruit, tree nut, dairy, and vegetable products expanded greatly.

Tariff Reductions Led to Gains for U.S. High-Value Agricultural Exports in 2012

Top High-Value Agricultural Exports to Korea

High-Value Product Export Gains from KORUS

Fresh Fruit: U.S. orange exports to Korea increased 42 percent from 2011 to reach $217 million in 2012, as a result of the KORUS tariff reduction from 50 to 30 percent. In 2012, Korea became the largest export market for U.S. oranges, accounting for nearly one-third of total U.S. orange exports by value.  Under KORUS, the tariff on lemons dropped from 30 to 15 percent in 2012 resulting in lower retail prices and a positive consumer response. U.S. lemon exports to Korea grew 74 percent over the past year.  Korea’s previous 24-percent tariff on fresh cherries fell to zero and sparked U.S. cherry exports to increase 88 percent to $74 million in 2012. Consumers directly benefited from lower retail prices and, at certain times during the season, U.S. cherries were the top-selling item in Lotte Mart’s fresh imported fruit section. As Korean importers are aggressively marketing through retail sampling, street vendor marketing, cooking contests, and recipes, U.S. sales are expected to continue to grow in 2013.

Fruit Juice: With the elimination of the 54-percent duty on frozen orange juice concentrate, U.S. exports to Korea expanded 173 percent to reach $30 million in 2012. The U.S. market share for frozen orange juice in Korea grew 75 percent from 2011. As Korea’s previous 45-percent duty on grape juice fell to zero, U.S. grape juice exports to Korea more than doubled to reach $15 million in 2012. For U.S. grape juice exporters, KORUS leveled the playing field with Chile, which already enjoyed duty-free access to the Korean market.

Tree Nuts: Following the elimination of the 8-percent duty on U.S. almonds, U.S. exports to Korea jumped 54 percent to $130 million in 2012. Korea imports almonds almost exclusively from the United States. With KORUS’ tariff reductions for walnuts, Korea became the largest market for U.S. shelled walnuts in the world in 2012, surpassing Germany and Japan. U.S. exports increased 22 percent to reach $103 million in 2012.

Potatoes: Under KORUS, U.S. frozen potato duties dropped from 18 percent to zero. U.S. frozen potato exports, primarily French fries, increased 35 percent to reach $74 million in 2012.

Cheese: U.S. fresh cheese exports more than doubled to Korea, reaching a record $62 million in 2012. Advantages offered by KORUS spurred U.S. interest in the Korean market for all cheeses – including fresh, cheddar, and other cheeses – as total U.S. cheese exports reached $160 million in 2012.  U.S. exports are expected to continue to show gains in 2013.

Wine: As Korea removed duties on wine that previously ranged from 15-30 percent, U.S. exports increased 52 percent. Recently, Oregon sent its largest shipment of wines to Korea after the country purchased 2,200 cases of Pinot Noir and Pinot Gris from Oregon vineyards. The wines will be sold in E Mart and Lotte Mart – two of the largest discount grocery retail store chains in Korea – and promoted for their quality and affordable price.

Major Grain Exports Challenged by Drought

Despite the many benefits of the agreement, a few of the United States’ major agricultural exports have been affected by outside factors. Historically, corn has been the largest agricultural export to Korea and comprised roughly one-fourth of total U.S. agricultural exports to Korea in 2011.  However, due to the U.S. drought in 2012 and the stronger U.S. dollar and weaker Korean economy, U.S. corn exports to Korea fell dramatically. As a result of reduced supplies, the United States faced strong competition from Brazil and Eastern Europe.

Meat Exports on Track to Increase After Significant Shipments in 2011

U.S. pork and beef exports to Korea sharply increased in 2011 due to reduced domestic supplies caused by a foot and mouth disease (FMD) outbreak. The government of Korea temporarily lowered tariffs on imported pork in 2011 to address the pork shortage. Both factors contributed to record U.S. pork exports to Korea in 2011. Although U.S. pork exports fell in 2012, they were the second-highest ever. Pork exports are expected to remain strong in 2013 as KORUS reduced duties on many pork products. Roughly 90 percent of U.S. pork products entering Korea will become duty free in 2016. The economic slowdown, as well as Korea’s record-high cattle inventory, reduced demand for imported beef in 2012. Additionally, the April 2012 BSE case in the United States temporarily slowed U.S. beef exports to Korea. Despite these factors, U.S. exports in 2012 were at their second-highest level since 2003, down slightly from the 2011 record.

U.S. Agricultural Trade Prospects to Korea

It is still too early to see the ultimate impact of KORUS as over 20 years remains before it reaches full implementation. Korea is currently the world’s 13th-largest economy and the sixth-largest market for U.S. farm products. Growing urbanization and increasingly sophisticated tastes in Korea continues to drive the market’s strong consumer demand for value, convenience and quality. The United States remains the leading supplier of consumer-ready food products to the Korean retail sector. Despite an expected drop in corn exports, total U.S. agricultural exports are forecast to increase slightly in fiscal year 2013 to reach $6.3 billion, up $100 million from FY 2012. KORUS, along with other efforts to promote U.S. exports, are helping level the playing field for American businesses abroad and create and sustain jobs in rural America.