UNIVERSITY PARK – American agriculture should benefit from a pending free-trade agreement between the United States and South Korea, according to an expert in Penn State’s College of Agricultural Sciences.
“As with all free-trade agreements, there will be diffused gains and concentrated losses,” said James Dunn, professor of agricultural economics. “A free-trade agreement would open Korean markets to more dairy, beef, pork, poultry and mushrooms, as well as to nonagricultural products such as American automobiles.”
Pennsylvania is ranked in the top 10 among states in the production of dairy products, eggs and turkeys. The Keystone State leads the nation in mushroom production and in the number of commercial meat-processing plants.
United States and South Korean negotiators finalized the agreement in December, and Congress could ratify it sometime this summer. Several labor unions, such as the Teamsters and the AFL-CIO oppose the deal, but the Obama administration supports it.
“Opponents warn of the possibility that American jobs would be transferred to South Korea,” Dunn said.
The agreement would attempt to ease the transition for businesses and employees negatively affected, Dunn explained, as some tariffs on American goods will be phased out over a 15-year period.
But he noted that such well-intentioned plans can stall, citing a part of the North American Free-Trade Agreement allowing Mexican truck drivers to transport their goods into the United States to the final destinations. That provision took 11 years longer than anticipated to enact.
And while some pork industry representatives expect the treaty to increase profits by $10 per hog, Dunn is skeptical of attempts to precisely predict such changes. “Fluctuations in supply, demand and price don’t occur in a vacuum,” he said. “The price of pork affects the price of poultry and beef products — its competitors — as well as complementary goods.
“But in general, our domestic meat industries and the higher-quality products they offer are helped greatly by international trade.”
Korea has limited U.S. beef imports in the past over fears of bovine spongiform encephalopathy, often referred to as mad cow disease. Despite the rigorous food-safety testing developed and implemented after three isolated U.S. BSE cases in 2003, 2004 and 2006 — the only cases in U.S. history – the restrictions were slowly lifted.
Such import restrictions and protectionism are a typical occurrence and are warranted, Dunn noted.
“Industry groups are quick to take up the fight and remind their governments of the biosecurity concerns of importing goods into their countries,” he said. “The question is: Is this card played more often than the facts justify?”
A recent outbreak of foot-and-mouth disease resulted in the culling of more than a third of South Korea’s domestic hog herd, tightening supplies in that country and forcing it to increase imports from many countries, including the United States, Canada, Chile and the European Union.
Dunn said the agreement could negatively affect pieces of South Korean agriculture, but not the entire industry. “They produce some goods that we don’t produce at all, and some goods we produce are complementary to theirs,” he explained. “In fact, South Korea exports products to the United States, mainly specialty and ethnic foods.”
Dunn suggested that the South Koreans stand to gain in their automotive and electronics industries. The transport of automobiles and electronics to the United States and agricultural commodities back to South Korea will require many containers, ships and a lot of fuel.
“It’s easy for an individual to vastly overestimate the transport costs, the fuel used and the inefficiencies inherent in transporting goods globally,” he said. “Cargo ships are the most efficient form of transportation.”
One cargo ship carries as much freight as a double-stack container train stretching from State College to Harrisburg, Dunn pointed out. “In fact, transport is most inefficient when the goods travel from the store to the home,” he said.
The growth in free trade has contributed to the global increase in standard of living, according to Dunn. “The notion that money spent on distantly produced goods doesn’t help the local economy is false,” he said.
“Purchasing same-quality goods produced for a lower price from a distant source frees money for other local purchases. While there are always some losers, I believe the world is better off with free trade.”
Jeff Mulhollem, Penn State University