Free trade agreement with South Korea signed: Beef producers have plenty to gain, but auto market will be tough to navigate

Meat exporters and agricultural producers have the most to gain from the new free trade agreement between South Korea and Australia, but the federal government has foreshadowed pain for auto manufacturing.

The agreement must be signed off in cabinet, and by the South Korean government. South Korea is Australia’s fourth largest trading partner; two-way trade came to nearly $32 billion worth of goods and services in 2012 – more than 5% of Australia’s total international trade.

The agreement will be phased in between 2015 and 2030 and the Department of Foreign Affairs and Trade states it will be worth $5 billion to Australia over that time.

The agreement has benefits for other small business industries. It delivers some firsts in the treatment of the law and film and television industries.  

The FTA lets Australian law firms to set up South Korean offices to access the legal consulting services market. It also allows “new commercial opportunities” for film and television under the Audiovisual Co-production Agreement.

Australian Institute of Export general manager Peter Mace said, “I think it makes it much more open market for Australian companies.”

South Korea suffers from low productivity in the services sector, and economists welcomed the involvement of Australian firms. “There is a belief local firms need to be exposed to foreign ideas — but scepticism of foreign investment remains at the highest levels of the Korean government,” wrote Crikey editor Jason Whittaker following a recent trip to South Korea.

One of the stumbling blocks for the former Gillard government in signing the FTA was that it was not willing to grant Korean companies the right to sue for breaches of the agreement. The agreement signed yesterday includes this provision.

Mace says that in other FTAs, like the one between the US and Australia, such provisions were blocked, because, for example, US tobacco companies could use it to kill off plain packaging laws.

He says under the FTA with South Korea, “carve-out” provisions exclude certain types of legislation from this, such as those related to public welfare, health and the environment.

But in the troubled automotive manufacturing sector the deal has sparked fears of an easier run for South Korean car makers, who already dominate the global auto sector. Hyundai is fourth in the ranks of sales by car brand in 2012, rising 5.2% while Holden in second place fell 9.1%.

Under the heading ‘sensitive sectors’, DFAT’s fact sheet on the FTA states: “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.”

Professor Roy Green, dean of the University of Technology Business School says that in the past, Australia’s FTA partners have not always kept to the agreements, and maintained tariffs while Australia eliminated its trade industry protection. “In general they have not helped Australian manufacturers,” he said.

“The agreement with Thailand, for example, we’ve lowered our tariffs in manufacturing or eliminated them all together, but our so-called partners have found ways of maintaining tariffs.”

Meat exporters stand to gain though, said Mace, citing that the FTA between South Korea and the US puts lower tariffs on American beef in South Korea than Australian beef.

“The FTA will put Australian meat exporters on an equal footing with providers from the US market where they currently have a free trade agreement.”