South Korea’s Trade, Industry and Energy Minister Yoon Sang-jick and Australia’s Trade Minister Andrew Robb signed a bilateral free trade agreement (FTA) in Seoul on April 8. The pact will take effect from 2015, if it is ratified by the Australian Parliament and Korea’s National Assembly in the latter half of this year. After the deal is ratified by both countries, the Committee on Outward Processing Zones is scheduled to determine specific conditions on the scope, items, and standards of recognizing products manufactured at Kaesong Industrial Complex (KIC) as Korean-made goods.
With the conclusion of the trade deal, Korean companies are expected to benefit from the expansion of demand from the Australian market, and their resource development projects are likely to gain momentum. In addition, KIC products will be recognized as Korean goods in future bilateral trade, which will create new opportunities for local firms to export their products. Unlike the US or the EU, Australia is expected to impose less strict conditions on giving tariff benefits to KIC goods. Therefore, more KIC products are likely to be recognized as Korean-made products.
Under the FTA, Australia will eliminate its tariffs on nearly all traded goods (99.5 percent based on the number of items, 100 percent based on imports) within five years of the implementation of the deal. Korea, on the other hand, is planning to abolish its tariffs on most items (94.3 percent and 94.6 percent) within 10 years.
In particular, Korean autos, the country’s main export item, are projected to be the main beneficiary of the agreement, since Australia’s 5 percent tariff on gasoline-fueled mid-sized cars (1500 to 3000cc) and gasoline-fueled compact cars (1000 to 1500cc) will be removed immediately. Its 5 percent tariff on household appliances, electronic devices, and machines will also be abolished without delay. On the other hand, the country’s 23.4 percent tariff on other imported vehicles and the 5 percent tariff on auto components will be eliminated within three years.
In contrast to the manufacturing sector, however, the local agricultural and fishing industries are expected to suffer. Australia will abolish its tariffs on most agricultural products, but Korea will eliminate its 61.5 percent tariff (based on the number of items) within 10 years. In particular, Korea’s tariffs on 509 sensitive agro-fishery products including beef will be removed over 10 or more years. As tariff barriers on Australian beef, which dominates Korea’s import beef market with a 56.9 percent share, are going to be reduced, many in the industry think that local stock farmers will suffer as a result.
In response, the Korean government is planning to establish various kinds of measures to minimize the effects of low-priced imported agricultural and marine products by considering the sensitive nature of the local agro-fishery market. For instance, those imported products are going to be excluded from the concession list. In addition, an agricultural safeguard mechanism is going be created, and seasonal duties are going to be imposed. On top of that, a system of tariff-rate quotas is going to be created. In particular, the government decided to gradually lower its tariffs on imported beef by 2 to 3 percent per year after the implementation of the deal, and to completely remove those tariffs 15 years after implementation.
Woo Tae-hee, assistant minister of the Office of FTA Negotiations at the Ministry of Trade, Industry and Energy, said, “The Korean government is currently working to establish measures to enhance the competitiveness of the livestock industry and other sectors and to stabilize rural household incomes by considering not only the trade deal with Australia, but also the recently-signed free trade deal between Korea and Canada.” He added, “The government will soon create complementary measures in coordination with relevant government agencies such as the Ministry of Strategy and Finance, the Ministry of Trade, Industry and Energy, the Ministry of Agriculture, Food and Rural Affairs, and the Ministry of Oceans and Fisheries.”
“Once the FTA is implemented, our trade with Australia and our investment in the country will expand, since Australia’s tariffs on automobiles, which account for 25 percent of our total imports, will be removed. Moreover, our exports of home appliances and machines to the nation will increase. Koreans will also be exempt from the examination procedure for an investment of less than US$1 billion,” said President Park Geun-hye during the joint press conference. The president added, “Australia will become the largest supplier of LNG to our country within five years.”