Last week’s signing of a free-trade agreement (FTA) between South Korea and the United States marked a new strand in the global spaghetti bowl of trade agreements, [1] marking the demise of the World Trade Organization (WTO) as much as the success of bilateral arrangements. The Korean agreement has a strategic perspective, in that it makes it easy for the country to benefit from a direct reunification with North Korea, thereby capitalizing on the 20 million or so impoverished but educated workers that the frozen North is supposed to possess.

Indeed, it makes it easier for South Korean companies to expand production of sub-assemblies in the special economic zones next to the border, in turn gainfully employing more North Koreans. The timing of the agreement, which came quickly after the multilateral agreement over North Korea’s nuclear-weapons and missile program, suggests that coincidence is not a distinct possibility, especially given the scale of compromises between the two sides.

Away from all the accolades surrounding the agreement, it is interesting to note that the United States has gained the right to sell South Korea primary products, in the main. A bulk of Korean concessions revolve around US agricultural products, including soybeans and corn feed, while the Korean side gained the right to sell automobiles free of duty to the US. The contrast between the concessions – one focused on the farming lobby and the other on the manufacturing side – would have been unthinkable a few years back, but they better represent the future of today’s Group of Seven as agricultural economies.

The battle over rice

Rather than the beleaguered US Secretary of State Condoleezza Rice, my reference here is to the food staple that was not included in the FTA, but kept on the standby for a later date. The inclusion of rice was attempted at many stages by the US government, if only because of the powerful Texas farming lobby. Still, the Korean side proved most obdurate.

This is of course no simple matter, as Asian economies ranging from Japan to China and Vietnam are fully aware. With vast acreage, better seeds and excellent fertilizers, the US commands a strong competitive advantage in rice cultivation, even allowing for the temperate weather pattern over much of the country. The reason then for Asians to reject the import of rice from the United States starts becoming apparent here, especially given the large amounts of farm labor in Japan and South Korea that depend on this crop.

Even so, a strategic assessment by richer or bigger Asian countries is necessary for their own survival in future. At the heart of this matter is the gap between yields in these countries versus those such as Thailand, Cambodia and Vietnam. On average, Japanese and South Korean farmers secure about 7 tonnes per hectare of rice cultivation, compared with 3 tonnes or less in South and Southeast Asia. [2] In comparison, the US achieves more than 7.5 tonnes.

China has made impressive leaps in rice cultivation, matching and then beating India’s surging yields in wheat cultivation over the 1960s and 1970s. The country has embraced modern cultivation techniques quicker than most others, and has been an enthusiastic proponent of genetically modified crops. China has noted that such crops provided 10% increases in yields.

Pork barrels full of rice

It is perhaps well accepted by now that Americans cannot produce cars or any other mass-market item with sufficient compromises among design, quality and price to entice Asian buyers. Their record on agricultural production is, however, much better, thanks to the frequent munificence bestowed by the US Congress.

In both South Korea and Japan, farmers occupy the most powerful lobbies in the halls of government, singularly responsible for the maintenance of political parties in power. They are virtually untouched by reform initiatives and political parties remain in their thrall, as typified by the habitual kowtowing of the Liberal Democratic Party in every Japanese election. One of the key tenets of nihonjinron is that the Japanese cannot digest rice produced in any other country, as their enzymes are incompatible. [3] Similar echoes of jingoism resonate through the farmers’ lobbies of other Asian countries, albeit much toned down in a creative sense at least.

Still, behind all the theatrics lie some grim truths, namely that Japan’s rice farmers are increasingly old, and therefore unlikely to continue as a major lobby in 20 years’ time. Their children have been urbanized, and moved to the main cities a generation ago. Much the same truism can be put at the doors of the Americans and Europeans, except that the demographics of city dwellers are usually worse than rural folks’ in those cases.

The policies developed in Japan after World War II were designed to prevent shortages, and yet ironically may help to deliver the next round of such events. Food production in Japan will likely decline in coming years, even as its city-dwelling population remains steady. That dichotomy will inevitably increase Japan’s dependence on imports. Much the same phenomenon is at work in South Korea, and increasingly, parts of China where farm labor has been sent to work in the cities.

Making a choice

Rather than letting a powerful farm lobby dictate the terms of an FTA, the governments of China, Japan and South Korea must work together to ensure food security in the context of both changing demographics and the rapid urbanization. Over the next 20 years, this suggests vast increases in food prices that may help to push the quality of life down across the region. In contrast, their ability to continue producing goods of a higher value addition – ie, manufactured items including cars and consumer electronics – is likely to remain undiminished for a while.

The first order of business for these large rice consumers is then to enter food FTAs with Asian countries, particularly the poorer ones in Southeast Asia. In return for full trade and technology access, Southeast Asian countries can be encouraged to provide capital access for large buyers from Japan, South Korea and China. Eventually, all these countries will find themselves forced to import from all surplus producers in any event. These countries will find it advantageous to negotiate better terms now rather than in a few years when they are forced to.

Notes
1. “Spaghetti bowl” is a term first coined by Jagdish Bhagwati in The Dangerous Drift to Preferential Trade Agreements, AEI Press, 1995.
2. International Rice Research Institute (www.irri.org).
3. Nihonjinron roughly means “about the Japanese”, but is often used as shorthand to explain how they are different fundamentally from other peoples.

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