Friday, March 29, 2024

Opinion: Korea FTA set to benefit exporters in 2016

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There has been much comment in the international media about the South Korean legislature ratifying the controversial free-trade agreement with China.
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What seems to have gone unnoticed is the fact that Korea’s FTAs with New Zealand and Vietnam were also ratified and the one with Turkey was extended to include services and investment.

Ratification by Korea of the FTA with NZ is significant on two fronts.

Now the agreement is ratified it can enter into force quickly – maybe as early as this week.

The agreement liberalises tariffs on 96.4% of NZ exports to Korea but in some product areas full liberalisation will take 15 years.

On entry into force (EIF), NZ will realise $65.3 million in tariff savings.

That figure will grow further when the year one tariff reductions kick in.

If EIF is in December, year one reductions will occur on January 1. If EIF takes place after January 1, the year one reductions would have to wait until January 1 2017.

I understand Korea assured NZ that EIF would occur in December so long as the legislature agreed to ratify the agreement in late November/early December. That has now happened.

The second reason the NZ and Vietnamese agreements ratification is significant is because Korea seems very keen on joining the Trans Pacific Partnership as quickly as possible.

With the two FTAs ratified and entered into force Korea will have active FTAs with 10 of the 12 TPP members. Only Japan and Mexico will be outside the Korean FTA network.

Having existing FTAs with so many TPP members should make Korean inclusion in the TPP more straightforward.

Existing FTA partners will expected Korea to improve on its bilateral deals as the “price” for agreeing to Korean TPP entry but that will be a much quicker process than a full FTA negotiation.

The United States is signaling it will be asking for Korea to provide some access for rice as part of the TPP admission price. I imagine NZ will be pushing hard for even better dairy access than that achieved in the FTA negotiation.

So keen are the Koreans on TPP membership that 16 officials are in Wellington this week for discussions with NZ counterparts on this subject. Interestingly, a very senior Taiwanese official met Ministry of Foreign Affairs and Trade officials yesterday to discuss Taiwan’s TPP aspirations.

Aside from Korea and Taiwan, Indonesia, the Philippines, Thailand, Sri Lanka and Colombia have signaled interest in joining the TPP.

While NZ could look forward to some improvements in existing FTA outcomes with the first five of these economies, Colombia and Sri Lanka would be very exciting potential memberships for NZ because we do not yet have FTAs with either economy.

Sri Lanka is already an important dairy market and could be important for other goods and services should liberalisation occur.

Colombia is a very large and growing market also offering great opportunity for NZ exporters across the board.

NZ recently announced the opening of an embassy in Bogota, to happen next year, with the achievement of free trade very much in front of mind.

 

Charles Finny is a partner at Saunders Unsworth, a government relations and lobbying consultancy.

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