Korea is Asia's fourth-largest economy with a population of 50 million people. It is Australia's third-largest export market and our fourth-largest trading partner. The Korea-Australia Free Trade Agreement (KAFTA) will benefit Australian exporters, importers, workers, consumers and investors by opening markets and freeing trade and investment between Australia and Korea. With one in five Australian jobs linked to trade, this agreement will provide an important boost to Australia's economy.
Securing Australia's competitive position in Korea
The FTA secures Australia's competitive position in this major market, where our competitors – such as the United States, European Union and ASEAN countries – are already enjoying preferential access. Independent modelling shows the impact on Australia from the US and EU's FTAs with Korea would be significant, reflecting Korean importers' choice to source beef, sugar and dairy products from these markets. If we do not proceed with an FTA, our exports to Korea would be 5 per cent lower by the time the US and EU's agreements are fully implemented (by 2030). Korean imports of Australian agricultural goods would decline by 29 per cent by 2030, with mining and manufacturing exports also declining, by 1 and 7 per cent.
Benefits of KAFTA
The results of independent modelling show the FTA will be worth over $5 billion in additional income to Australia between 2015 and 2030 and will result in an annual boost to the economy of around $653 million after 15 years of operation.
- After 15 years of the FTA's operation – by 2030 – our exports to Korea would be 25 per cent higher than they otherwise would have been.
- By 2030, exports of agricultural goods to Korea would be 73 per cent higher than otherwise, contributing to a total 5 per cent increase in Australia's total agricultural exports. Mining exports to Korea would be 17 per cent higher and manufacturing exports would be 53 per cent higher.
- Increased exports under the FTA would create over 1,700 jobs on implementation.
The FTA will make a difference at the farm gate. From mango exporters, to macadamia nut growers to potato farmers, Australia will enjoy improved access to the Korean market. Tariffs of up to 300 per cent will be eliminated on key Australian agricultural exports, including beef, wheat, sugar, dairy, wine, horticulture and seafood.
- Australia's beef exporters will be big winners from the FTA. Australia is the largest supplier of beef to Korea but our major competitor, the US, is already benefiting from beef tariff cuts from its 2012 FTA with Korea. In beef, it currently has a 5.4 per cent advantage. The KAFTA will help Australian exports compete on a more level playing field and will enable Australian beef producers to capitalise further on Koreans' growing taste for Australian beef.
- Australian cheese producers will gain duty-free access to Korea's growing and middle class market. Australian cheese exports currently face Korean tariffs of up to 36 per cent.
- Australian sparkling, red and white wines are currently subject to a tariff of 15 per cent but wine from the US, EU and Chile enter duty free. The FTA will provide a boost to the wine industry, whose exports to Korea were 30 per cent lower in 2012 than in 2007. With this deal, Australian wines have the best chance to take advantage of a growing market.
- Korea is already Australia's biggest export market for sugar and exporters will enjoy immediate elimination of Korean tariffs on commencement of the agreement.
- Other key beneficiaries of the FTA include Australian wheat growers, potato farmers and cherry, table grape and mango producers.
The FTA will provide significant new market openings for Australian service suppliers, particularly in education, telecommunications, financial, accounting and legal services. This agreement represents some of the best services outcomes Australia has secured in any FTA.
- For example, the agreement will allow Australian law firms access for the first time to Korea's legal consulting services market by permitting Australian firms to establish representative offices in Korea and Australian lawyers to advise on Australian and public international law. Within two years, Australian law firms will be permitted to enter into cooperative agreements with local law firms, and within five years to establish joint ventures, and hire local lawyers.
- An Audiovisual Co-production Agreement will deliver new commercial opportunities for our creative industries with an audio-visual co-production agreement – facilitating film and television collaboration.
Energy and minerals
Energy and minerals products, including simply-transformed manufactures accounted for around three-quarters of the value of Australia's merchandise exports to Korea in 2012 (approximately $16 billion). While many Australian mineral and energy exports to Korea enter duty free, Korea applies tariffs of up to eight per cent on a range of priority resource products. Under KAFTA, Korea will eliminate tariffs for all resources products over time (10 years).
Some of the resources products that will benefit from KAFTA include:
- Crude petroleum
- Natural gas
- Unwrought aluminium
- Sea salt
- Unwrought lead
- Cobalt mattes and articles
- Titanium dioxide
Korea applies tariffs of up to 13 per cent on a range of manufactured products. Under KAFTA, Korea will eliminate tariffs for all manufactured products (not including energy and mineral resources or forestry products) within 7 years.
Some of Australia's key manufacturing exports that will benefit from KAFTA include:
- Pharmaceuticals, including vitamins
- Motor vehicle parts such as gear boxes
- Floating structures (tanks, coffer-dams, landing stages, buoys and beacons)
- Electrical switchboards
KAFTA provides improved access and protection for Australian investors and investments in Korea. Australian investors are already active in Korea's financial and infrastructure sectors, among others. Australia is open for business and welcomes further Korean investment. Korean investment has helped build Australia's economic capacity in key industries. For example:
- Korea Zinc's investment in Townsville helps us to export zinc to the world.
- Korean cutting edge technology is being used to construct the multi-million dollar North West Shelf floating LNG processing plant.
The FTA includes an investor-state dispute settlement mechanism. The Government has ensured the inclusion of appropriate carve-outs and safeguards in important areas such as public welfare, health and the environment. This will provide new protections for Australian investors in Korea as well as Korean investors in Australia, promoting investor confidence and certainty in both countries.
It is true that some sectors may face increased competition from imports of Korean products and services, such as motor vehicles, automotive parts, steel products and textiles, clothing and footwear. This impact will be in line with the progressive liberalisation already underway in the Australia economy.
Snapshot of the Australia-Korea trade relationship
Total two-way trade reached $31.9 billion in 2012 – more than 5 per cent of Australia's total international trade. In 2012, Australian exports to Korea were valued at $21.6 billion, accounting for over 7 per cent of all Australian exports. Total goods exports were valued at $19.8 billion. Korea is Australia's largest market for sugar ($496 million). Total services exports were valued at $1.8 billion, comprising mostly education-related travel services ($754 million) and recreational travel services ($664 million).
Australia imported $10.3 billion of total goods and services from Korea in 2012. Of this, goods imports accounted for $9.9 billion. Services imports were valued at $455 million, including transport services of $218 million.
Growing bilateral investment
Bilateral investment between Australia and Korea is modest, but has grown significantly over the past decade. At the end of 2012, total Korean investment in Australia was $12.0 billion, up from $637 million in 2002. Over the same period, Australian investment in Korea increased more than three-fold, from $3.0 billion in 2002 to $10.4 billion in 2012.