The Korea-Australia Free Trade Agreement (KAFTA) is a comprehensive agreement that substantially liberalises trade with Korea and creates significant new commercial opportunities for Australian businesses.
KAFTA achieves high levels of tariff elimination
- Korea will provide duty-free access on 84 per cent of Australia’s current exports (by value) to Korea from entry into force of the Agreement.
- Increasing to 95.7 per cent within 10 years, and 99.8 per cent on full implementation.
- A small number of products will be subject to other phasing arrangements (including seasonal tariff elimination).
- Korea has insisted that some of its most sensitive products, such as rice, be excluded from any tariff concessions under KAFTA (accounting for only 0.2 per cent of Australia’s current exports to Korea).
- Australia will provide duty-free access on 86 per cent of our current imports from Korea on entry into force of the Agreement.
- increasing to 100 per cent in eight years.
- For certain import sensitive products, Australia’s tariff elimination will be undertaken progressively over transitional periods.
- Products covered by transitional arrangements include certain motor vehicles and parts, steel, chemical, plastics and textile, clothing and footwear products.
- A bilateral safeguard mechanism will also be in place to address any sudden surge in imports over the transitional periods.
KAFTA helps to address non-tariff barriers
- KAFTA creates a review mechanism to address non-tariff measures on a case-by-case basis, providing scope to address existing and future non-tariff measures.
KAFTA seeks to minimise red tape
- A claim for preferential tariff treatment for Australian goods exported to Korea can be made on the basis of either: a certificate of origin completed by the exporter or the producer; or a certificate of origin issued by an authorised body. This approach provides flexibility for traders, particularly small and medium-sized enterprises.
- A claim for preferential tariff treatment will be able to be made post-importation provided certain conditions are met.
- To provide increased transparency and legal certainty, KAFTA provides for:
- advance rulings from customs authorities on the importation of products;
- procedures to appeal the decisions of customs authorities;
- the publication on the Internet of customs and trade related legislation; and
- designation of enquiry points so members of the public can access further information on the customs issues covered by the Agreement.
- To simplify and streamline border procedures, KAFTA includes provisions on:
- risk management, with resources focused on high-risk shipments and facilitating the release of low-risk goods;
- advance electronic submission and processing of documentation to enable prompt release of goods on arrival;
- simplified customs procedures; and
- harmonising customs documentation and data requirements to minimise the administrative burden on importers and exporters.
- The Agreement also establishes mechanisms to facilitate future cooperation between Australia and Korea in the area of geographical indications and common names.
KAFTA Market Access Outcomes – Agriculture
Beef is Australia’s biggest agricultural export to Korea, worth $788 million in 2013. Korea is Australia’s third-biggest export market for Australian beef. Key KAFTA outcomes include:
- Elimination of Korea’s 40 per cent tariff on beef in 15 equal annual stages.
- Korea has the right to apply an agricultural safeguard on some beef products for 15 years.
- This discretionary safeguard can apply only on volumes above the safeguard trigger level set at 154,584 tonnes in year one, increasing by two per cent per annum (compound).
- The safeguard trigger is set above current trade levels.
- Volumes above the trigger level can attract a tariff that will fall from 40 per cent to 30 per cent to 24 per cent in five year intervals.
- Korea will eliminate its 18 per cent tariff on bovine offal and its 72 per cent tariff on processed beef products over 15 years (with no safeguards).
- Australia’s exports of bovine offal to Korea were worth $67 million in 2013.
Korea is Australia’s biggest export market for sugar, receiving almost one third of our sugar exports. Raw sugar exports were worth $383 million in 2013. Key KAFTA outcomes include:
- Elimination of Korea’s three per cent tariff on Australian raw sugar on entry into force.
- Elimination of Korea’s three per cent tariff on molasses over five years.
- Elimination of Korea’s 35 per cent tariff on refined sugar over 18 years in equal annual steps. For 18 years Korea can apply a discretionary safeguard.
- The trigger for the safeguard will start at 946 tonnes, growing at two per cent per annum (compound). This volume is above current trade levels.
Australia’s exports of wheat to Korea were worth $317 million in 2013.
- Under KAFTA, Korea will eliminate its 1.8 per cent tariff on wheat from Australia on entry in force of the Agreement.
- Tariffs of 8 per cent on wheat gluten will also be eliminated on entry into force.
Australian dairy exports to Korea were worth $87 million in 2013 despite very high tariffs. The industry will benefit from immediate duty-free quotas for key exports and the elimination of tariffs up to 89 per cent on most other dairy products. Key KAFTA outcomes are:
- Cheese, Australia’s main dairy export to Korea, will enjoy liberalised trade including:
- An immediate duty-free quota of 4,630 tonnes, growing at three per cent per annum (compound); and
- Progressive elimination of the 36 per cent tariff over periods ranging from 13 years for cheddar cheese to 18 years for cream and processed cheese, with all cheese tariffs eliminated after 20 years.
- Butter, dairy spreads and preparations comprising more than 70 per cent butter, another lucrative group of products, benefit from a range of measures.
- Immediate duty-free quota of 113 tonnes for butter, growing at two per cent per annum, with tariffs of up to 89 per cent eliminated within 15 years.
- Elimination of the eight per cent tariff on dairy spreads over three years and the eight per cent tariff on key preparations of butter over 10 years.
- Infant formula will receive an immediate duty-free quota of 470 tonnes, growing at three per cent per annum (compound). Tariffs of 36 per cent and 40 per cent will be eliminated over 13 and 15 years respectively.
- Tariffs on a range of other dairy products, such as milk, cream, ice-cream, yoghurt and whey will be eliminated within three to 20 years.
Malt and Malting Barley
- Korea will provide Australia with a duty-free quota on malt and malting barley of 10,000 tonnes in the first year, growing two per cent per annum (compound) for 15 years. This is in addition to Korea’s WTO tariff rate quota on malt and malting barley of 40,000 tonnes and 30,000 tonnes respectively.
- Korea will also eliminate its out-of-quota tariffs of 269 per cent for malt and 513 per cent for malting barley over 15 years. Korea can apply a safeguard for 15 years. After that period, trade will be completely liberalised.
- Tariffs on Australian corn exports to Korea of up to 328 per cent will be eliminated progressively over seven to ten years.
- Australian corn exporters will also continue to have access to Korea’s WTO tariff rate quota of 6,102,100 tonnes at three per cent tariff.
- Tariffs of between 8 and 30 per cent on rapeseed (canola) oil will be eliminated within five to 15 years. Korean imports from Australia were worth $36 million in 2013.
- Korea will eliminate on entry into force its three per cent tariff on cotton seeds. Australia’s exports were worth $36 million in 2013.
Korea will eliminate its 22.5 per cent tariff on all sheep and goat meat over 10 years. Tariffs on key pork exports of 22.5 to 25 per cent will be eliminated in five to 15 years.
Key products, such as frozen southern bluefin tuna (current tariff 10 per cent) and rock lobsters (20 per cent) will enter duty free after three years.
Australia’s wine trade with Korea is significant, with over $8 million worth of wine exported to Korea in 2012-13. Wine exports currently face a 15 per cent tariff.
- On entry into force, Australian wine – including sparkling wine, red wine and white wine – will enter Korea duty free.
KAFTA will provide quick tariff elimination on most of our horticulture exports to Korea. Key KAFTA outcomes include:
- Tariffs on cherries (24 per cent), shelled almonds (eight per cent) and dried grapes (21 per cent) will be eliminated on entry into force.
- Tariffs on asparagus (27 per cent) will be eliminated over three years.
- Tariffs on macadamia nuts (30 per cent), carrots (30 per cent) and most fruit juices (orange, lemon, lime, pineapple, grape and tomato – which face tariffs of 45-54 per cent) will be eliminated over five years.
- Tariffs on tomatoes (45 per cent) and apricots (45 per cent) will be eliminated over seven years.
- Tariffs on mangoes (30 per cent), peaches (45 per cent), plums (45 per cent) and peanuts (63.9 per cent) will be eliminated over 10 years.
For some of Korea’s more sensitive horticulture products, seasonal tariff elimination during Australia’s exporting months was achieved.
- Potatoes – tariffs of up to 304 per cent on potatoes (for chipping) will be eliminated on entry into force from December to April each year. For other months, the 304 per cent tariff will be eliminated over 15 years. Australia is Korea’s second major supplier of potatoes for chipping, with exports worth $6 million in 2013.
- Table grapes – the tariff of 45 per cent will almost halve to 24 per cent on entry into force and be eliminated over five years for the months December to April each year.
- Oranges – the tariff of 50 per cent will fall to 30 per cent on entry into force and be eliminated over seven years from April to September each year. Oranges will also have an immediate 20 tonne duty free quota.
- Mandarins – the high tariff of 144 per cent will be eliminated over 18 years for the months April to September each year.
- Kiwi fruit – the tariff of 45 per cent will be eliminated over 15 years for the months May to October each year.
Despite sustained effort by Australia to have all products included, some products were too sensitive for Korea to include in the FTA. These products include: rice, unhulled barley, milk powders, condensed milk, some abalone, ginger, apples, pears, watermelon, walnuts, onions, capsicums, garlic, honey, oak mushrooms, chestnuts, shallots, some berries, green tea, ginseng, sesame oil and frozen pork belly. Korea is not a significant market for these products, which account for 0.2 per cent of Australia’s exports to Korea.
KAFTA Market Access Outcomes – Resources, Energy and Manufacturing
Resource commodities (energy and mineral products) and simply-transformed manufactures (comprising mainly unwrought metals such as aluminium and copper) accounted for over three-quarters of the value of Australia’s merchandise exports to Korea in 2012-13. While many Australian mineral and energy exports to Korea already enter duty free, Korea applies tariffs of up to 8 per cent on a range of priority resource products, and tariffs of up to 13 per cent on manufactured products. Under KAFTA, Korea will eliminate tariffs on manufactures, resources and energy products within 10 years.
- Korea is Australia’s second largest market for crude petroleum, with estimated exports of $1.6 billion in 2013.
- Korea’s 3 per cent tariff on crude petroleum imports from Australia will be eliminated in five years.
- Korea is Australia’s third largest market for liquefied natural gas after Japan and China, with estimated exports worth $465 million in 2013.
- Korea’s 3 per cent tariff on natural gas imports from Australia will be eliminated immediately on entry into force of the Agreement.
- Korea was traditionally Australia’s second largest market for titanium dioxide in the period up to 2011.
- But, following the entry into force of Korea’s FTA with the United States, Australia’s titanium dioxide exports to Korea fell from $64 million in 2011 to $10 million in 2013.
- Korea’s 6.5 per cent tariff on titanium dioxide imports from Australia will be eliminated immediately on entry into force of the agreement.
- Korea is Australia’s second largest market for unwrought aluminium after Japan, with exports worth $706 million in 2013.
- Korea’s 1-3 per cent tariffs on unwrought aluminium imports from Australia will be eliminated immediately on entry into force of the agreement.
Pharmaceuticals (including vitamins)
- Australia exported $531 million worth of pharmaceutical products to Korea in 2013, its second largest market.
- Korea’s tariffs on pharmaceutical products range from 0-8 per cent
- Tariffs on almost 90 per cent of pharmaceutical products will be eliminated immediately on entry into force of the Agreement, with the remainder phased out within three years.
Automotive Parts and Accessories
- Australian automotive manufacturers exported $101 million of gear boxes (for which Korea is Australia’s largest market) and $51 million of engines and engine parts to Korea in 2013.
- Korea’s 8 per cent tariffs on automotive part imports from Australia will be eliminated immediately on entry into force of the Agreement.
- Although Korea’s tariff on sea salt of 1 per cent is low, exports in 2013 were worth $100 million.
- Korea’s 1 per cent tariff on sea salt imports from Australia will be eliminated immediately on entry into force of the agreement.