Carmakers to benefit most from FTA

Car and machinery manufacturers are expected to benefit most from the Korea-Australia free trade agreement (FTA), which was signed Tuesday, while hardest hit will be agricultural sector, according to experts.

“Like Korea’s FTAs with the U.S. and Canada, the FTA with Australia will benefit export-oriented goods, such as cars, components, oil products and IT products. These are the sectors in which Korea has a competitive edge,” said Choi Seong-keun, senior researcher at Hyundai Research Institute.

Trade, Industry and Energy Minister Yoon Sang-jick signed a bilateral FTA with Australian trade minister Andrew Robb in Seoul after a series of negotiations that lasted almost five years.

It is Korea’s 11th FTA deal. Korea has signed FTAs with 48 countries, or 57.3 percent of the global market in terms of GDP.

Australia is the world’s 12th-largest economy, with the sixth-highest per capita income of $67,556. Bilateral trade has been growing explosively, to $30.3 billion last year from $18 billion in 2007.

Korea has been relying heavily on Australia for natural resources, importing 72 percent of its iron ore, 44 percent of coal and 77 percent of aluminum ore from Australia.

As Australia is an active trade partner of Asian countries and has already signed free trade deals with a number of ASEAN countries, the competition is expected to become fiercer among Asian exporters to grasp the Australian market.

“Japan has agreed to sign an economic partnership agreement (EPA) with Australia. If we hadn’t signed this FTA, Korean firms could have been in disadvantageous positions,” Choi said.

He added that the effect of the FTA is “proved” considering the Korean exporters benefiting from the Korea-U.S. FTA.

Kim Hyung-joo, a research fellow at LG Economic Research Institute, said that manufacturers will gain most from the deal.

“Cars and machineries will benefit most. Australia is relatively weak in manufacturing and they import cars,” Kim said.

“As Australia has free trade pact with Thailand, Japanese cars enter the Australian market via Thailand, while Korean cars have been paying tariffs. With the Korea-Australia FTA, our cars will be free from tariff like Japanese cars,” he added.

Under the pact, the two countries will eliminate import duties on most products within 10 years. The 5-percent tariff will immediately be removed on small and medium-sized gasoline cars, Korea’s major export items. Cars account for 20.5 percent of Korea’s export to Australia.

Major research institutes here estimated that the Korea-Australia FTA will boost Korea’s GDP by 0.14 percent and create added values worth $1.6 billion for consumers.

Kim said that the pact with Australia is especially meaningful as it is a member of the Trans-Pacific Partnership (TPP), which Korea is considering joining. “As Australia is a TPP member, the FTA will be a boost for us in participating in TPP,” he said.

Hyundai’s Choi said the pact will change the paradigm of Korea-Australia trade.

“Australia is a developed country with huge market potential, an economic powerhouse with high purchasing power. While Australia was considered mostly as a natural resource supplier for Korea, the FTA has set up a basis for us to expand exports and investments, opening a new market,” Choi said.

However, Korea’s agricultural sector is expected to suffer.

The Australian beef is already popular in Korea, accounting for 55.6 percent of the imported beef market. The tariff on this beef will be slashed little by little each year, being totally scrapped after 15 years. A research in Australia estimated its export of agricultural goods to Korea will increase by 73 percent for the next 15 years following the FTA.

Experts advised that the government should prepare measures to enhance the competitiveness of the Korean beef.

“The beef is coming from diverse countries. The Australian beef will gain a competitive edge in the market following the FTA, but it will be limited,” Choi said.

He said the competition of diverse beef is likely to pull consumer prices, increasing the consumer benefit, but it can be a blow to local farmers in the long run.

“The government should prepare measures to enhance the competitiveness of the Korean beef. There certainly are consumers who prefer the Korean beef. Farmers won’t need to worry too much if they set up a system to produce quality beef,” Choi said. By Yoon Ja-young, Park Ji-won The korea times