The paper presents an economic analysis of the effects of tradeliberalization on a processed industry focusing on the effects of processedgoods on raw material markets. We develop a partial equilibrium modelallowing for measuring such indirect effects. The model is applied to analyzethe effects of Korea-U.S. FTA on dairy industry in Korea. The simulationanalysis provides useful insights on the impacts of Korea-U.S. FTA whenmeasuring the effects trade liberalization on a processed industry is ofinterest.