Effects of Tariff Reduction on Welfare in Korean Orange Market

This paper analyzes how tariff reductions on fresh oranges by the KOR-US FTA have changed each economic player's welfare. By reviews on the characteristics of Korea's orange market, we first detect that a small number of US exporters have relatively much stronger market power than Korean importers, implying imperfect competition. Second, we theoretically explain and empirically examine that exporters may adjust exporting prices based on the size of tariff reduction. Finally, we employ the Equilibrium Displacement Models to estimate each economic player's welfare and discuss the implications on the changes in the welfare under imperfect competition, compared to perfect competition. This paper provides the evidence that the tariff reduction affects the price decision of the U.S. orange exporters. The main results furthermore suggest that under imperfect competition, import price in Korean market is higher and consumer welfare is lower than under perfect competition.