By Bruce Odessey
Washington File Staff Writer

Washington - Rice, the staple food for much of Asia, will doubtless be a tough issue in negotiations on a U.S.-South Korea free-trade agreement (FTA) and could be an issue in U.S.-Malaysia FTA talks, experts say.

A series of violent demonstrations by Korean farmers provides evidence that opening Korea's market to more rice imports will be a politically sensitive endeavor.

Chris Garza, director of congressional relations in Washington for the American Farm Bureau Federation, said that his group has worried since the Koreans announced right after negotiations were launched in February they wanted rice excluded.

"Obviously, that's not going to work for us," Garza said. "We understand the Korean sensitivities on rice, but within the negotiations I'm sure we can try to open up that rice market in a manner that will not harm the Korean rice producer."

Korea negotiated two sequential 10-year exceptions from a World Trade Organization (WTO) requirement that it convert its rice import ban to a tariff in exchange for establishing a minimum market-access quota that increases gradually.  Imports increased from zero to a 4 percent share of the Korean rice market in 2004, when the first quota arrangement ended, according to the Office of the U.S. Trade Representative (USTR).

A USTR report said the Korean government fully controls the purchase, distribution and end use of the imported rice.  Under the existing arrangement, the quota for rice imports is scheduled to increase from 225,575 metric tons in 2005 to 408,698 tons in 2014, with part of the imports for the first time going to consumers as table rice - from 10 percent of the quota in 2005 to 30 percent in 2010.

Other published reports, however, said Korea, in mid-2006, still has not allowed imported rice to find a place on store shelves for Korean consumers.

Jeffrey Schott, a scholar at the Institute for International Economics in Washington, predicted that Korea will agree to a tariff-rate quota (TRQ) to allow some more imports.  Under a TRQ, imports beyond the quota are subject to prohibitively high tariffs.

"I would be surprised if there was free trade in rice at the end of this negotiation," Schott said, "but I would be even more surprised if the negotiation didn't produce increased market opportunity for U.S. exporters of rice to the Korean market."

Schott said he doubted Korea could prevail in excluding rice from FTA negotiations the way the United States prevailed in excluding sugar in its FTA with Australia.

"The U.S. ... wouldn't have started [negotiating] unless the Koreans recognized that they will have to do something on rice," he said.

The Farm Bureau says that Korea was already the United States' fifth largest export market for agricultural products in 2004 at $2.5 billion for an agricultural trade surplus.  Yet the U.S. share of Korea's agricultural imports has fallen from nearly 45 percent in 2006 to less than 30 percent in 2004, it says.

One of the Farm Bureau's goals in FTA negotiations is to eliminate or at least significantly reduce some of Korea's tariffs, which exceed 40 percent on some fruits and nuts, distilled spirits and beef.  Another goal is to reopen Korea's market to U.S. beef.  Before the December 2003 ban stemming from diagnosis of a U.S. cow with bovine spongiform encephalopathy, Korea was the third largest market for U.S. beef, with imports averaging $1 billion a year.

According to the Farm Bureau, rice is also an import-sensitive commodity in Malaysia subject to government protection.  A Malaysian government corporation is the sole authorized importer of rice with broad power to regulate imports by license and responsibility for promoting sale of the domestic crop, the Farm Bureau says.

In 2005, the United States had an agricultural trade deficit with Malaysia of $273 million. U.S. exports account for only about a 7 percent share of that country's agricultural market, and that share has fallen.  The Farm Bureau seeks to increase the U.S. share towards the 20 percent to 25 percent common elsewhere in East and Southeast Asia.

In the Malaysia FTA negotiations, the politically sensitive product for the U.S. side will be sugar, the Farm Bureau's Garza said.  Malaysia is one of the many countries that already hold an annual quota for exporting sugar to the U.S. market.

"We can only assume that they want some additional access," Garza said.

See also the related article, “Korean, Malaysian Auto Barriers Pose Trade Negotiation Challenge.”

For information on U.S. policy, see Trade and Economics.