Free Trade Agreements (FTAs) are one of the important challenges in the Korean Cheese industry. According to FTAs, the imported cheese products become more price competitive and domestic cheese products become less competitive as a result. Among FTAs,...
Free Trade Agreements (FTAs) are one of the important challenges in the Korean Cheese industry. According to FTAs, the imported cheese products become more price competitive and domestic cheese products become less competitive as a result. Among FTAs, the major dairy products exporting countries such as the USA, the EU, Australia, and New Zealand are considered in this study.
The objective of this study is to identify economic impacts of FTAs on the domestic cheese market in Korea using an EDM model which uses various elasticities estimated by LA/AIDS model.
The first difference LA/AIDS model is estimated to get demand elasticities of cheese products as well as to consider the substitution relationships among the competitive rivalries of exporting countries.
The results show that the US’s price elasticity of demand for imported cheese is much more elastic than other countries. Also, imported cheese from the USA is in competition with imported cheese from all other countries. One the other hand, imported cheese from Australia are in complementary relation with that of New Zealand.
This study analyzes the economic impacts of FTAs on domestic cheese market using a simulation equilibrium displacement model. For this, I collect much information about market data such as imported quantity, production quantity, price data of cheese, tariff schedules for FTAs and so on. Furthermore, I incorporated various tariff schedules and recalculated weighted tariff schedules for various kinds of cheese products for each trade partner respectively. I performed a comparative static analysis comparing the year of 2016 as a base year and the following years until 2033.
This study finds that the benefits of consumers caused by major FTAs amounts to almost 48 billion won per year or 772 billion won for 17 years when elasticity of supply is assumed as 0.49. Also, the damage of domestic cheese makers is almost 8.5 billion won per year or 145 billion won for 17 years when elasticity of supply is 0.49.
For the comparison, I also assume price elasticity of supply as 0.22 that is more inelastic than 0.49. Under this scenario, the benefit of consumers is almost 51 billion won per year or 822 billion won for 17 years, which is slightly larger than that of first scenario. Also, the damage of domestic cheese makers is almost 11 billion won per year or 189 billion won for 17 years, which is also slightly greater than that of first scenario.