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Free-trade deal given shot in arm

New Zealand Herald, Auckland

Free-trade deal given shot in arm

By Fran O’Sullivan

31 July 2013

Smart political footwork by Prime Minister John Key has put the South Korean free-trade agreement back on the agenda.

Key left Seoul late last week with a firm commitment from President Park Geun-hye to pick up the baton her presidential predecessor Lee Myung-bak dropped three years ago. The success of Key’s important foray in Seoul last week was due to careful preparation.

It’s a marked contrast with 2012, when Key returned home from a South Korean trip without gaining a firm date from Lee for the resumption of negotiations. Nothing happened.

South Korea also had current negotiations under way with a raft of other countries including Canada and Australia which, like New Zealand, had also had their own talks shelved while Seoul negotiated with more strategically important players like China.

This time the Prime Minister had well-placed allies in the Korean business sector before he got to Seoul and made sure to leverage the visit by the New Zealand veterans of the South Korean war to create an obligation on Park to ensure the free trade deal is finalised, so that our exporters don’t suffer further economic losses due to the lower tariffs that competitor companies from nations with FTAs (like the US and Chile) have already achieved.

The most notable ally is Han Duck-soo - a former Prime Minister of South Korea who also served as his country’s minister of finance and the economy, and was ambassador to the United States during the complex negotiations on the Korea-US free trade deal (Korus).

Han recently visited New Zealand as a prime ministerial fellow, meeting with key politicians, including the PM, and holding in-camera discussions with key figures on how to get the stalled talks moving again.

Within South Korea, Han is known as the leading proponent of free trade.

He is also chairman of the Korean International Trade Association (KITA) - an umbrella group with 65,000 members which is focused on assisting its companies leverage the opportunities from FTAs.

Importantly, Han is confident that South Korea will muster the political will to bring the deal to a conclusion. KITA can be expected to champion the upside for Korean companies from the deal and the efficiency gains to the Korean agriculture economy from the phasing out of tariffs.

Negotiations towards an FTA with Korea were announced during Lee’s visit to New Zealand in 2009. But negotiations stalled after the fourth round of talks.

The Ministry of Foreign Affairs and Trade reports that initial offers for the elimination of goods tariffs were exchanged in September 2009, and initial services, investment and government procurement market access offers were exchanged in June 2010.

The fact that offers are already on the table means the only real issue standing in the way of a successful conclusion is political will and the willingness to carve sensible trade-offs.

MFAT reports that although good progress has been made in many areas, tariff elimination on agricultural products still remains a challenge. New Zealand is working hard to address Korean perceptions about the impact of an FTA on its domestic agricultural sector.

Because New Zealand provides only about 3 per cent of Korea’s total agricultural imports, does not produce rice, is counter-seasonal, does not export fresh milk to Korea, and produces grass-fed beef, we do not compete with sensitive Korean production.

The problem New Zealand faces is that South Korean farmers are a well organised lobby.

When South Korean activist Lee Kyung-hae stabbed himself to death at the 2003 World Trade Organisation Summit in Cancun, media comment focused on the banner he had unfurled saying "WTO kills farmers". At the next WTO Ministerial meeting in Hong Kong two years later, the South Korean farmers turned up en masse to the International Convention Centre where director-general Pascal Lamy was endeavouring to form a consensus on the Doha Round.

Moves under the WTO to liberalise rice imports was the source of the farmers’ discontent.

Not beef. Not dairy. Nor kiwifruit - the major products which New Zealand exports.

New Zealand would benefit from tariff savings from a successful FTA. New Zealand exporters pay tariffs of $195 million each year to Korea. Some examples of the Korean tariffs include : 89 per cent on butter, 45 per cent on kiwifruit, 40 per cent on beef, 8 per cent on cosmetics, and up to 11 per cent on processed wood products.

There is strong complementarity between the two nations’ agriculture sectors. New Zealand does not produce rice and had only a small portion of grain-fed beef - which was a sticking point for South Korean farmers in the US deal.

The influential Hyundai Research Institute predicts food crises as a result of world population increases in developing countries. The institute has suggested the Korean Government should try to secure overseas food in preparation for such crises.

Korea imports 70 per cent of its needs and sees the prospective FTA with New Zealand as helping to secure reliable food supplies for Koreans - a challenge that eludes its own agricultural sector. It is notable that South Korea is New Zealand’s fifth-largest bilateral trading partner. In 2012 total trade was valued at $3.36 billion and was broadly balanced between imports (NZ$1.81 billion) and exports (NZ$1.55 billion). Korea is also New Zealand’s second-largest source of foreign students and seventh-largest source of overseas visitors.

Importantly, New Zealand has the opportunity to be part of the long-term solution to Korea’s food security concerns, a factor negotiators can play up to New Zealand’s advantage.