That the market was going to open at that was inevitable, since international regulators and most other nations were once again opening their markets to U.S. beef. However, the Korean government, which had promised domestic farmers that it would keep tariffs high to protect the local industry, set about rapidly removing those tariffs when the Free Trade Agreement was reached (Hankyoreh, 2007).
The response was swift. With a dramatic increase in supply imminent, beef prices began to decrease. Korean beef farmers began trying to unload their cattle at market, but found few buyers. The price of a female calf dropped from 3.2 million won before the Free Trade Agreement 2.3 million won after. Korean cattle farmers, who had seen their industry grow under the ban and protectionist tariffs were now facing a crisis.
For its part, the general public had other concerns. Fueled by inflammatory media reports that contained gross distortions of the facts, the Korean public began to protest in the streets of Seoul over the prospect of being exposed to American beef. The protests spanned months and the issue became a major political football for Korea's leader. Allowing American beef into Korea represented the removal of a key obstacle to the Free Trade Agreement that is set to bolster trade between the U.S. And South Korea by $20 billion per year. South Korea's leadership was seen by the public to have sold their health for the sake of the trade agreement. As the protests grew in intensity, South Korean President Lee Myung-bak was forced to make multiple beef-related apologies to his people. Poll numbers suggested that people viewed his actions as a betrayal of their faith and demonstrated lack of understanding with regard to public sentiment (Harden, 2008).
Exacerbating the issue was a miscommunication between U.S. And Korean officials. The U.S. had promised in 2005 to tighten regulations on the use of downer cattle as feed, but never followed through. The Koreans misunderstood some U.S. communications with regard to this, and felt that U.S. beef had become safer, which was not the case. The public felt betrayed by this "miscommunication" as it was used as justification for the capitulation.
It is difficult to discern with certainty the exact reason for the trade dispute. There is a compelling case to be made for the protectionist argument, and an equally compelling case for the health argument. The protectionist argument stems from the condition of the Korean beef industry before the ban, during the ban and after the ban. The industry was suffering for many years from the effects of the 1997 financial crisis. South Korea's beef farmers were getting out of the business. Aside from a slump during the crisis, demand for beef in Korea was increasing rapidly. The industry was just starting to turn the corner to recovery when the ban on American beef went into effect. The positive impacts of this ban on the state of the Hanwoo industry could not have been lost on the Korean government.
Koreans view such protectionism as perfectly reasonable. The nation's rapid economic growth was the result of heavy government intervention in the economy. The intervention was direct and it was also indirect, as Korea fostered the chaebols -- large conglomerates given favorable status for many years. Koreans are accustomed not only to government intervention in the economy, but to government protection from outsiders. The Korean people have been faced with a multitude of foreign invaders over the years, from the Japanese to the Americans. As a result, the Korean public expects their government to afford them some protection from outsiders. Trade protection is just one component of that.
The Korean government's protection of its domestic beef industry was at first inadvertent. The country was one of dozens that banned American beef after the BSE discovery. However, the ban allowed the Korean industry to re-grow. Consumption dipped in the aftermath of the BSE discovery, in part due to public fear but also in part because prices increased significantly. However, demand for beef in Korea is relatively price inelastic, so demand began to pick up even though prices remained high. The result was a strong increase in domestic cattle production, augmented by increased purchases from Australia and New Zealand.
With high prices and high demand, the Korean beef industry began to flourish. When other nations began allowing American beef back onto the market, Korea failed to follow suit. On a scientific basis, South Korea had no more reason to fear American beef than did any other country. That said, the fears about feeding practices in the U.S. beef industry are not unfounded -- many American consumers have given up beef or switched to grain-fed beef as a result of the threat of BSE. In the U.S., however, such choices are made by free will -- it is not viewed as the government's role to limit the market. The market will set the limits itself.
Koreans, however, believe that the role of government does involve protecting the public. The government still protects the Korean automobile industry -- another bone of contention in U.S.-Korea trade talks. The actions of President Lee further illustrate the Korean view of government intervention in the markets. He was forced to apologize for not bowing to public sentiment. Koreans view that if they do not want to eat American beef, the government should ban it. Many Koreans therefore do not take the view that they are subject to free will, and can choose not to eat American beef.
In the United States, the role of the government in markets is seen differently. Protectionism is still rampant -- particularly in agriculture -- but the government is also expected to open markets for American products around the world. In this case, American beef producers were frustrated that the Koreans had stood alone is continuing to ban their beef.
The Korean move to end the prohibition on American beef caused such protest in Korea in part due to sensationalistic reports in the new and on the Internet, but also in part because the public felt that their safety was being undermined for the sake of trade. South Korea's ban on Canadian beef, for example, remains to this day. The differences between the U.S. And Canadian bans provide some clues as to the underlying motives of the Korean government.
The Korean government lifted the ban on U.S. beef in order to seal a lucrative free trade deal. The lifting of this ban was not based on scientific merit, as evidenced by two facts. The first is that Canadian beef remains banned. Canadian and U.S. feed practices are identical -- if one is unsafe then the other is as well. The second is that U.S. beef feeding practices have not changed. Therefore, the threat to public health from U.S. beef remains, as young downer cattle are still used as feed, including their bones and brains. The lifting of the ban, therefore, and the simultaneous removal of import tariffs, was not made in the interest of public health. South Korea may have brought its policies in line with those of other countries, but in lieu of changes in feeding policies, none of those decisions could have been made on scientific merit.
It could be argued that the ban on Canadian beef is on health merit. After all, Canada is a much smaller trading partner of Korea and only held a 1.6% market share in 2003 (Kim et al., 2009). Korea is clearly not protecting its farmers by maintaining the ban on Canadian beef, as that country's meager market share was never a threat to Korean producers at any point.
Analysis and conclusions
It is difficult to determine whether or not the Korean ban on U.S. beef was the result of health concerns or of economic ones. The ban's development and repeal were influenced by four main factors -- health concerns about BSE, the state of the Korean beef industry, public sentiment, and the larger context of U.S.-Korea trade.
There is no doubt that the ban went into place as a result of the discovery of BSE-infected cattle in the United States. The main issue of contention, therefore, was the length of the ban. Korea banned U.S. beef for far longer than most other countries. The Koreans had reasonable cause to continue the ban on health grounds. Furthermore, continuing the ban on health grounds in congruous with Korean attitudes about the role of government in protecting them from foreigners.
The beef industry in Korea was the beneficiary of the ban. Prior to the ban, the industry was struggling but the ban allowed it to prosper, especially in light of increasing demand, coupled with rising prices. The recovery of the Korean beef industry, even with these favorable market conditions, was far from miraculous. When put into the context of industry health since the mid 1980s when Korea was self-sufficient…