Korea's FTAs and their implications for the Korean wine market

Tim BealVisiting Fellow, KIEP

Victoria University of Wellington, NZLecture at Hankuk University of Foreign Studies, Seoul, 19

October 2010

Tim Beal: Korea’s FTAs and wine market 2

Outline• Free Trade Agreements• Korean wine market• Effect of FTA – Case of Chile• Implications

Tim Beal: Korea’s FTAs and wine market 3

But first...• Something about me• Something about you– Or your parents..........

Tim Beal: Korea’s FTAs and wine market 4

http://www.vuw.ac.nz/~caplabtb/wine_project_site/

Tim Beal: Korea’s FTAs and wine market 5

Cluttered alcohol market

Tim Beal: Korea’s FTAs and wine market 6

Country of origin very importantBut sometimes they get it wrong!

Tim Beal: Korea’s FTAs and wine market 7

Infuencers• Customers are influenced by– Media– (specialist) retailers– Distributors– Importers– Sommeliers (wine waiters)

• In countries where wine is not traditional these are cultural intermediaries

Tim Beal: Korea’s FTAs and wine market 8

Media: Kami no Shizuku,/Les Gouttes de Dieu/Drops of God

Tim Beal: Korea’s FTAs and wine market 9

Specialist retail

Tim Beal: Korea’s FTAs and wine market 10

Distribution channels are key

Tim Beal: Korea’s FTAs and wine market 11

Role of importers

Tim Beal: Korea’s FTAs and wine market 12

Sommeliers – cultural intermediaries

Conference – Budapest, Hungary, September 2010

• Michel Rod (Carleton University, Canada)• Tim Beal (Victoria University of

Wellington, NZ) • Nick Ellis (University of Leicester, UK)

26th IMP Conference 2010Business Networks – Globality, Regionality, Locality

AGENTS OF GLOBALITY: THE ROLE OF CULTURAL INTERMEDIARIES IN THE WINE MARKETS OF JAPAN AND SINGAPORE

Tim Beal: Korea’s FTAs and wine market 14

Customers seek knowledge

Tim Beal: Korea’s FTAs and wine market 15

Researchers seek knowledge

Tim Beal: Korea’s FTAs and wine market 16

Analysing wine can be hard work

Tim Beal: Korea’s FTAs and wine market 17

But sometimes we have fun

Tim Beal: Korea’s FTAs and wine market 18

FTAs• Free trade area is a type of trade bloc, a

designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods and services traded between them. Countries choose this kind of economic integration form if their economical structures are complementary.

Tim Beal: Korea’s FTAs and wine market 19

Multilateral FTAs• ASEAN Free Trade Area (AFTA)• Central American Integration System (SICA)• Central European Free Trade Agreement (CEFTA)[1]

• Common Market for Eastern and Southern Africa (COMESA)• G-3 Free Trade Agreement (G-3)• Greater Arab Free Trade Area (GAFTA) - June 1957[2]

• Gulf Cooperation Council (GCC)• North American Free Trade Agreement (NAFTA)[3]

• Southern African Development Community (SADC)• South Asia Free Trade Agreement (SAFTA)[4]

• Trans-Pacific Strategic Economic Partnership (TPP)[5]

Tim Beal: Korea’s FTAs and wine market 20

Bilateral FTAs• Many hundreds, eg• People's Republic of China has bilateral agreements with the following

SARs, countries and blocs: – ASEAN ASEAN–China Free Trade Area– Chile– Hong Kong Mainland and Hong Kong Closer Economic Partnership Arrangement

(CEPA)– Macau Mainland and Macau Closer Economic Partnership Arrangement (CEPA)– Pakistan China – Pakistan Free Trade Agreement– Peru China–Peru Free Trade Agreement– New Zealand New Zealand – China Free Trade Agreement– Thailand– Singapore– Taiwan Economic Cooperation Framework Agreement

Tim Beal: Korea’s FTAs and wine market 21

Korea’s FTAs

• FTAs in effect• - Korea-Chile FTA• - Korea-Singapore FTA• - Korea-EFTA FTA• - Korea-ASEAN FTA• - Korea-India CEPA

• Concluded FTAs• - Korea-U.S. FTA• - Korea-EU FTA• - Korea-Peru FTA

• FTAs under negotiation• - Korea-Canada FTA• - Korea-Mexico FTA• - Korea-GCC FTA• - Korea-Australia FTA• - Korea-New Zealand FTA• - Korea-Colombia FTA• - Korea-Turkey FTA

• FTAs under consideration• - Korea-Japan FTA• - Korea-China FTA• - Korea-China-Japan FTA• - Korea-MERCOSUR TA• - Korea-Russia BEPA• - Korea-Israel FTA• - Korea-SACU FTA

Tim Beal: Korea’s FTAs and wine market 22

Wine source countries in Korea’s FTA pipeline

D: Under consideration

• Argentina

C:Under negotiation

• Australia• New Zealand

B: Concluded

• EU - France, Italy, Germany, etc.

• US

A: In effect

• Chile

Tim Beal: Korea’s FTAs and wine market 23

Wine and Korea’s FTAs• Tariff on wine is 15%– Liquor tax: 30%– Education tax:10%– Value added tax: 10%

• Complementarity– No substantial domestic wine production so no

opposition to imports

Tim Beal: Korea’s FTAs and wine market 24

You and wine• (Grape) wine is new to Korea• What is your experience/ perception?• What about your parents, grandparents?

Tim Beal: Korea’s FTAs and wine market 25

Wine – where it comes from• Originally the Mediterranean• >>Old World wine• Transplanted with European settlement to the

New World• >>>New World wine• Also ‘Emerging World wine’– China, India, and other places where wine can be

made

Tim Beal: Korea’s FTAs and wine market 26

World of wine – Old and New

Tim Beal: Korea’s FTAs and wine market 27

Old World versus New WorldWorld wine production 2008

Tim Beal: Korea’s FTAs and wine market 28

Korean wine market• Main source countries in import profile• Wine in Korean alcohol market• Wine as imported alcohol• Imports of wine• Where does it come from?• Chile

Tim Beal: Korea’s FTAs and wine market 29

- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

Argentina

Spain

New Zealand

South Africa

Italy

Chile

France

Germany

Australia

United States

Share of Korean exports in 2009

Main wine source countries in Korea's total imports, 2009

FTA StatusStatus A: ChileStatus B: US, Germany, France, ItalyStatus C: Australia, New ZealandStatus D: South Africa, Argentina

Main wine source countries in Korea’s total imports,2009

Tim Beal: Korea’s FTAs and wine market 30

Shares of main types in Korean alcohol market, 2006-8

Imported 'Fruit wine' Beer Whisky Soju Other0

5

10

15

20

25

30

35

40

45

200620072008

Perc

enta

ge o

f tot

al a

lcoho

l by

valu

e

Tim Beal: Korea’s FTAs and wine market 31

Imported wines and spirits, 2004-9

-

50

100

150

200

250

300

2004 2005 2006 2007 2008 2009

US$

mill

ions

Imported wines and spirits, 2004-9

Wine

Whisky

Other

Wine rises faster than whisky, falls faster

Change 2008-9 (%)Wine: -32.5Whisky: -24.8Other: -4.3Average: -24.1

Change 2004-8 (%)Wine: +187.2Whisky: +21.3Other: +100.0Average: +62.3

Tim Beal: Korea’s FTAs and wine market 32

Wine’s share of imported alcohols, 2004-2009

15

17

19

21

23

25

27

29

31

33

35

2004 2005 2006 2007 2008 2009

%

Wine's share of imported alchohols, 2004-2009

Tim Beal: Korea’s FTAs and wine market 33

Korea’s imports of wine, 1990-2009

0

20

40

60

80

100

120

140

160

180

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US$

m

Korea's imports of wine, 1990-2009

1997 Asian Financial Crisis

Recession

Tim Beal: Korea’s FTAs and wine market 34

Where does the wine come from?• Highly concentrated• Seven countries = 60%• Ten countries= 95-98%• All in the FTA pipeline

Tim Beal: Korea’s FTAs and wine market 35

Shares of top seven wine source countries, 1990-2009

0

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

% sh

are

of t

otal

impo

rts o

f win

e

Shares of top seven wine source countries, 1990-2009

France

Chile

Italy

US

Australia

Spain

Germany

France

Germany US

Chile

Tim Beal: Korea’s FTAs and wine market 36

French and German shares of Korea’s wine imports, 1990-2009

0

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

French and German shares of Korea's wine imports, 1990-2009

France

Germany

Tim Beal: Korea’s FTAs and wine market 37

Korea’s wine imports from selected source countries, 1990-2009, by share

0

5

10

15

20

25

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

% sh

are

of t

otal

win

e im

port

s

Korea's wine import's from selected source countries,1990-2009, by share

Chile

Italy

US

Australia

Spain

US

Australia

Chile

Italy

Spain

Tim Beal: Korea’s FTAs and wine market 38

Korea’s wine imports, by type, 2003-9

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008 2009

US$

mill

ions

Korea's wine imports, by type, 2003-9

Red

White

Tim Beal: Korea’s FTAs and wine market 39

Chile’s share of Korea’s wine imports, 1990-2009

0

5

10

15

20

25

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Chile's share of Korea's wine imports, 1990-2009

December 1999: negotiations beginOctober 2002: negotiations completedFebruary 2003; FTA signed1 April 2004: FTA becomes effective; wine tariffs to be phased out over five years2009: Tariff on Chilean wine finally abolished

Tim Beal: Korea’s FTAs and wine market 40

Chile conundrum• FTA did not bring about a drop in prices of

Chilean wine• But imports went up• What is happening?• Tariff reduction over five years– No great incentive for importers/ trade to lower

prices

Tim Beal: Korea’s FTAs and wine market 41

Government and industry• Chilean government and industry target Korea– Heavy promotion of Chilean wine

• Korean wine importers get better returns from Chilean wines– Push Chilean wines

• Korean government happy that wine is a ‘success story’

Tim Beal: Korea’s FTAs and wine market 42

Customer perception• Chilean wines perceived to be better value for

money ‘because no tariff’• Endorsement effect – Korea is endorsing

Chilean products• Wine becomes ‘representative product of

Chile’

Tim Beal: Korea’s FTAs and wine market 43

Effect of future FTAs• EU comes in July 2010– US when?

• Will increase competition, pressure on prices• Effects uncertain• Chile cannot be repeated• Wine industry is complex, future difficult to

predict• But...........

Tim Beal: Korea’s FTAs and wine market 44

Wine is about enjoyment