Posted November. 17, 2004 23:06,
The Korean government has recently announced the intermediary results of the ongoing rice negotiations between nations including the United States, China, and Australia, among others. The major negotiators on the table have agreed to extend the grace period regarding the imposition of tariffs (market liberalization through high tariffs) of up to ten years. There is a catch, however: the Korean government must gradually raise the compulsory import rate of 4 percent (in overall domestic rice consumption) to 8.0~8.9 percent within the coming decade, as well as extending its sales to the general consumer. A number of rice-exporting countries are even calling for intermediary inspections on the tariff application procedure during the grace period.
Much seems to be at stake here. The initial goal of the Korean delegates has been to maximize favorable conditions while retaining the primary line of policy: that of extending the grace period. Research results indicate, however, that the current strings attached to the extension of the grace period renders the situation even more unfavorable than outright liberalization.
Studies issued by the government-sponsored Korean Rural Economic Institute clearly delineate the costs and benefits associated with opening up of the rice market. Though external factors including the currency rate, international rate of rice costs, and the developing trends of the Doha Development Agenda may all serve in some extent to influence the amount of imports restricted by tariffs, the recent negotiations are on average projected to be roughly equal to extending the import limit to 6.3~6.4 percent. This, in effect, is lower than the 8.0~9.0 percent rate as called upon by the major negotiators in exchange for extending the grace period up to an additional 10 years.
Of course, chances that rice costs may fall drastically do exist, should currency rates and rice costs experience a plunge when the rice markets undergo liberalization. It is also true, however, that there is a 95 percent success rate when liberalizing the rice market completely, when compared to extending the grace period and raising the mandatory import rate to 7.1~7.5 percent. Even factoring in the safety costs, it simply seems to make more fiscal sense at this point to import foreign rice with a tariff rate of 400~500 percent, starting from next year, rather than maintaining the current conditions of 7.5 percent in compulsory rice imports.
The government should therefore flex its bargaining muscles and strive to curb the demands set forth on the table. It should also envision policies for the agricultural industry in order to featherbed any repercussions that might arise in a worst-case scenario.