Will free trade deal drop the price of Oregon canned blueberries in South Korea?

U.S. Sen. Ron Wyden held up a can of Oregon Fruit Products blueberries at the Oregon Business Summit last week as an example of the state’s market expansion abroad. The berries are picked in the Willamette Valley, packed in light syrup and, according to Wyden, will be less costly for South Koreans thanks to a recent trade agreement.

"Because of the Korean free trade agreement, South Koreans who want Oregon blueberries are gonna see their prices go down because we will be getting rid of a 45 percent tariff on this Oregon product," he said. "That's what I mean when I'm talking about expanding trade."

As we’ve previously noted, sometimes we check a statement because it strikes us as wrong. Other times, we just want to learn more. And in this case, we just wanted to know more about the trade agreement and how it might affect Oregon products, in this case, our plump, nutritious, not-too-sweet blueberries.

The pact, years in the negotiating, should make it easier to sell U.S. products to 49 million consumers in South Korea. Tariffs imposed on U.S. goods will be phased out or eliminated outright. So, the 40 percent tariff on U.S. muscle beef will be eliminated over 15 years. Fresh cherries, with its 24 percent tariff, will be duty-free as soon as the pact is in effect. The same goes for dried apricots, wine and grape juice.

The tariff on canned blueberries is now 45 percent, as Wyden said. Unlike the tax on fresh cherries, the tax on canned blueberries will be phased out to zero over a decade. In 2012, the tariff will drop to 40.5 percent and in 2013, the tariff will be 36 percent. In 2016, the tariff will be 22.50 percent and in 2021, zero percent.

It’s not clear when the new tariff rate will kick in. Dalton Hobbs, assistant director of the Oregon Department of Agriculture, says that while the pact technically is in effect now, practically speaking it’s not. "People who were waiting for this are probably going to sit on the sidelines for another few weeks until all of the mechanisms are fully in place for products to move," he said.

South Korea is Oregon’s fifth largest export market, accounting for nearly $1 billion in sales last year. Hobbs estimates that Oregon producers will see an increase in sales in the $50 million to $100 million range over the next 12 months. That should increase significantly, Hobbs said.

We asked Joseph Peterson, the president of Oregon Fruit Products, whether he anticipated a cost reduction for South Korean consumers. He explained that his sell price will stay the same, because the burden of the tariff is borne by the importer, and eventually the consumer.

"As that duty goes away, the importer's cost will be less," he said. The price reduction "should go all the way to the consumer."

We called the Office of the United States Trade Representative to see how eliminating a tariff over the longer term usually affects the price of the commodity.

"Tariff reductions should lower prices of those goods receiving the tariff reductions," Carol Guthrie, an official at the office, said in an e-mail. "The price reduction may not equal the tariff reduction on a one-to-one basis (the issue of whether companies fully pass through the savings to the final consumer).

"If consumer prices have gone up due to inflation, etc over the phase in period, then these prices would have been even higher if the tariffs were not reduced."

Already, 2011 has been a landmark year for Oregon blueberries in South Korea. In a separate move, food officials there have authorized for import the first ever fresh blueberries from the United States. Of course, they will come from Oregon. By next summer, our blueberries should join berries from British Columbia and Chile in Korean markets.

"Korea is just wild for blueberries, dermal cream, food products, it’s in other items as well, blueberry shampoo, all manner of consumer goods," says Bryan Ostlund, executive director of the Oregon Blueberry Commission in Salem.

But we digress.

In a printed version of the speech circulated by Wyden’s office, the senator was supposed to hold up the can of blueberries and say that "South Koreans who want Oregon blueberries are now paying 45 percent less per can."

It’s a good thing he didn’t end up saying that. Such a statement would have been False. But what Wyden said is fairly accurate.

It makes sense that South Koreans who want canned blueberries from Oregon should see prices go down -- or not increase as much -- over time, because the tariff on the product will decrease. But the tariff is going to be phased in slowly, so the full savings are still a ways off. We think Wyden’s statement needs that clarification.

Based on our findings, we rate the statement Mostly True: accurate but needing additional information.

Let us know what you think, by heading over to OregonLive and leaving a comment.

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John Kitzhaber

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