Time matters for Kafta

Korea and Australia signed the Korea-Australia Free Trade Agreement (Kafta) in April when Australian Prime Minister Tony Abbott visited Korea. Australia passed implementing legislation for Kafta on 1 October. The Korean Government submitted the Kafta bill to the National Assembly on 16 September and is awaiting ratification.

We strongly believe that Kafta is a well-balanced, win-win deal. This is because Korea and Australia have one of the most complementary trading relationships in the world. As an example of this, in May this year, Australia made its very first shipment of our table grapes to Korea. Four months later this was reciprocated by Korea’s first shipment of grapes from Hwaseong to Australia. Owing to the counter-seasonal nature of our agricultural production, consumers in both nations are now able to enjoy grapes at a time of year when they are not grown in their own country.

Of course, this kind of mutually beneficial relationship extends beyond agriculture. Korea imports from Australia raw materials and energy supplies needed for industrial production, while Australia imports from Korea finished products such as automobiles and electronics. Therefore, the two countries can be referred to as “the most ideal trading partners” for each other. Especially given that bilateral trade grew almost four-fold over the past ten years, it is regrettable that Kafta didn’t get concluded earlier.

Amid intensified competition around trade in the global economy today, each nation is utilizing FTAs and global supply chains to boost price competitiveness and improve productivity. Korea has FTAs with some of the major economies in the world including the United States, the EU, India, Chile, and Asean. Australia also has a range of FTAs in place including with the United States, Asean, Chile and New Zealand. Recently, both Korea and Australia have been undertaking negotiations with China, the largest trading partner for both Korea and Australia.

Amid such intensified global competition, the conclusion of FTAs is important, but also crucial is taking advantage of the first-mover effect. Whichever country enjoys the benefits of tariff reductions first would get to obtain a competitive edge in the other market, and therefore enjoy the economic benefits of FTAs. If Kafta is ratified before the end of 2014, one tariff cut will be made this year with another reduction soon to follow on January 1, 2015. In this regard, Kafta’s early ratification is essential for both Korea and Australia.

Australia concluded the Japan-Australia Economic Partnership Agreement following Kafta’s conclusion, and is close to concluding the China-Australia FTA. Similarly, Korea recently concluded the Korea-Canada FTA following Kafta’s conclusion, and is close to concluding negotiations with New Zealand. Interestingly, many of Korea and Australia’s FTA negotiations have been with each other’s trade competitors. Korea competes with Japan and China over the Australian market for manufactured goods, while Australia competes with the United States, EU and New Zealand in the Korean market for agriculture and livestock products and services.

Given that from 2017 Australian domestic production of automobiles is scheduled to stop, competition between Korea, Japan, and the EU in the Australian car market, worth one million vehicles per annum, is expected to intensify even further. Competition between Korea, China and Japan over other manufactured goods such as consumer electronics is also predicted to increase. Australian exports are competing against U.S. beef and European and Chilean wine in the Korean market but Australia is currently at a disadvantage owing to Korea’s FTAs with the United States, EU and Chile. Exporters are not the only ones affected, however. Consumers in both countries are losing opportunities to enjoy high-quality automobiles, electronics, beef and wine at more affordable prices. Therefore, in order to maximize the benefits of Kafta for both exporters and consumers, we think it is most crucial that Kafta is ratified as soon as possible.

Kafta will enable our mutually beneficial bilateral economic relationship - so far focused on automobiles, electronics, raw materials and agricultural products - to expand into new areas such as financial and legal services as well as investment in infrastructure, thereby allowing for our mutually beneficial economic partnership to grow. Australia will be able to access the Korean market for services, and Korea will be able to utilise Australia’s know-how from its highly developed services sector. Moreover, as a result of its high foreign investment screening thresholds and increased protections for foreign investors, it is expected that Kafta will significantly boost Korean investment in Australia.

Korean companies renowned for their infrastructure and plant development skills can participate in the Australian market for infrastructure supported by the Australian Government’s $125 billion commitment to develop domestic infrastructure. Furthermore, greater Korean investment in Australian agriculture and food processing presents real opportunities for the two countries to partner together utilizing Australia’s high-quality agriculture and livestock goods and jointly enter China’s huge food market. There are many reasons why Kafta needs to be ratified quickly.

Over the last year, both nations’ governments and businesses have cooperated very closely to prepare for the new era of Kafta, including through the recent joint meeting of the Korea-Australia/Australia-Korea Business Councils. Kafta will lead to closer economic cooperation between Korea and Australia and clear benefits for both countries by boosting economic growth and employment. On a broader level, Kafta will take our bilateral relationship to a new level and expand people-to-people-links to allow for more exchanges and friendship. We sincerely hope for the quick ratification of Kafta by the National Assembly so this new era can begin as soon as possible.

*H.E. William Paterson is Australian Ambassador to the Republic of Korea and Kim Bong-hyun is Korean Ambassador to Australia.

by Kim Bong-hyun,H.E. William Paterson