South Korea & Australia Sign FTA to Increase Economic Cooperation

By Marie DuMond

Minister Andrew Robb of Australia and Minister Yoon Sang-jic of South Korea sign the Korean-Australia FTA (KAFTA) on April 8, 2014 as President Park Geun-hye and Prime Minister Tony Abbott look on. Source: Department of Foreign Affairs and Trade, used under a creative commons license.

Minister Andrew Robb of Australia and Minister Yoon Sang-jick of South Korea formally sign the Korean-Australia FTA (KAFTA) on April 8, 2014 as Prime Minister Tony Abbott and President Park Geun-hye look on in Seoul. Source: Department of Foreign Affairs and Trade, used under a creative commons license.

On April 8, Minister of Trade, Industry and Energy Yoon Sang-jick of South Korea and Minister of Trade and Investment Andrew Robb of Australia signed a bilateral free trade agreement (FTA) between the Republic of Korea and Australia in Seoul. The official signing ceremony for South Korea’s eleventh free trade agreement was attended by President Park Geun-hye and Prime Minister Tony Abbott. The agreement, once in force, is expected to increase South Korea’s gross domestic product by 0.14 percent in the first ten years. According to the ROK ministry of trade, industry and energy, the ROK-Australia FTA could also result in a consumer surplus in Korea of $16 billion within the first 10 years of implementation.

The newly signed agreement, once ratified by legislators in both countries and brought into force, is expected to boast trade and investment between two of the Asia-Pacific region’s larger economies — Australia has the twelfth largest economy in the world while South Korea is the fifteenth largest. While both countries have complementary economies, their bilateral trade has historically not been as large as it could be. In 2013, Australia was South Korea’s sixth largest trading partner and South Korea was Australia’s seventh largest trading partner. Bilateral trade between South Korea and Australia amounted to $32 billion in 2012 and $30 billion in 2013.

Prior to the pact South Korea’s exports to Australia increased 3.4 percent year on year in 2013 and 13.3 percent year on year in 2012. In 2013, Korea’s auto exports to Australia made up 20.5 percent of its total exports to Australia. Iron ore was 29 percent of Australia’s total exports to the ROK in 2013, with coal a close second.

The two countries have been in negotiations since 2009, conducting nine rounds of talks over the five year span. Seoul announced that negotiators had concluded the agreement on December 5, 2013. Under the ROK-Australia FTA, the parties agreed to remove import tariffs on 509 items, including automobiles, auto parts, household appliances, iron ore and petrochemicals, and agriculture, within the first 10 years of the agreement coming into force. The agreement allows for safeguards for sensitive products and exceptions for 169 agricultural products, including rice and fruits. Tariffs on beef will be removed within 15 years of the agreements implementation but there are also safeguards. The FTA also includes provisions on rules of origin, serves and investment, government procurement, and an investor-state dispute settlement mechanism. The investor-state dispute settlement agreement was modeled after the KORUS FTA.

President Park’s government is building upon and continuing the previous administrations’ positioning to make South Korea a hub of FTAs in Northeast Asia. South Korea has had an active negotiation agenda for FTAs this spring, conducting numerous rounds with a wide array of trading partners. On March 11, President Park Geun-hye and Prime Minister Stephen Harper of Canada announced that, after nearly nine years of negotiations, the ROK and Canada have concluded a bilateral FTA which is expected take effect next year, following official signing of the agreement and domestic ratification in both countries. South Korea is the first Asian country to have a bilateral FTA with Canada. On March 25, South Korea and the European Union added provisions for Croatia to the EU-ROK FTA such that South Korea will extend almost all benefits of the pact to Croatia. A sixth round of FTA negotiations with New Zealand was held on March 26-28 in Seoul, discussing issues related to services, investment, customs, and country of origin. The sixth round of FTA talks between South Korea and Turkey on service sectors is also scheduled on April 2 to April 4 in Ankara, Turkey.

In the Asia Pacific, South Korea is in negotiations for a number of agreements.  From March 17 to 21, South Korea and China held a tenth round of bilateral FTA negotiations in Ilsan, Korea. The ROK-China bilateral deal has been in negotiations since May 2012 but the two countries have indicated they hope to finalize the agreement within the year. The fourth round of Regional Comprehensive Economic Partnership (RCEP) negotiations took place in Nanning, China, from March 31 to April 4. The RCEP includes sixteen participating countries from around Asia. The fourth round of talks for a trilateral free trade agreement (FTA) with China, Japan and South Korea were held March 4 to 7 in Seoul with a fifth round of talks expected to take place in China this July. South Korea and Vietnam held a fourth round of bilateral FTA negotiations in Ho Chi Minh City from March 12 to 14. Korea and Vietnam have been in negotiations for an agreement since September 2012, with the third round of talks held in Busan in October 2013.

South Korea is also currently talking with members of the Transpacific Partnership (TPP) to discuss its possible ascension to the multilateral trade deal championed by the United States.

Ms. Marie DuMond is a research associate with the Korea Chair at CSIS. Eunchong Jeon, intern with the Korea Chair, provided research support for this post.


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