National Business Review, New Zealand
G20: NZ, South Korea sign free-trade agreement
By Tina Morrison
16 November 2014
New Zealand and South Korea have concluded a free-trade agreement that’s expected to cut into export tariffs in the nation’s sixth-largest export market that currently run to about $230 million a year.
The deal, which was announced on the sidelines of the G20 Leaders’ Summit in Brisbane, will initially eliminate tariffs on 48 percent of current New Zealand exports, with duties largely eliminated within 15 years.
South Korea has said it also aims to conclude FTAs with China and Vietnam before the end of the year, after agreeing recent deals with Australia and Canada. New Zealand is actively seeking such agreements after trade with China soared since an FTA was inked in 2008. The Korean FTA marks Prime Minister John Key’s first bilateral deal since being elected leader.
The Korean talks, begun in 2009, have previously stalled amid Korean concern about the impact of New Zealand agricultural exports on domestic producers.
"It has been a long, hard agreement to reach," Key told reporters in Brisbane. "It’s a high quality deal. It was always going to be a tough negotiation but we have got ourselves now back into a level playing field with those countries that compete heavily in the Korean market and I think a lot of New Zealand industry will be happy about the outcome."
Two-way trade between the countries is worth about $4 billion and the agreement will reduce tariffs on New Zealand exports by $65 million in the first year.
Tariffs slated for elimination include a 45 percent rate on kiwifruit, 22.5 percent charged on sheep meat, a 40 percent levy on beef and an 89 percent tariff on butter.
"You will see a very significant expansion of New Zealand exports in the next 10 years," said Trade Minister Tim Groser. "We are laying the foundations for a very, very good future for New Zealand exporters in the world’s emerging markets."
New Zealand didn’t succeed in eliminating tariffs on all milk powders, conceding that other countries had also failed to secure such a deal and the country can’t currently keep up with Chinese demand, Groser said.
However tariffs will be eliminated on infant formula and cheese, he said.
An FTA between the two countries would be complementary, adding US$4.5 billion to New Zealand’s GDP and US$5.9 billion to South Korea between 2007 and 2030, according to a report by the New Zealand Institute for Economic Research and the Korean Institute for International Economic Policy.
The agreement now has to be signed and approved by the Korean parliament, expected in the first quarter of next year.
"The next big challenge is to go through the technical scrubbing process of the deal and the ultimately for it to be ratified by the Korean parliament and that won’t be easy because a significant part of what we have agreed involves agriculture and agriculture is always a sensitive issue," Key said.
Still, New Zealand’s agreement is on the same terms as the US, Canada and Australia which should make it easier for lawmakers to pass, he said.
"In principal, this is a good one," Key said adding there were other free-trade agreements New Zealand wants to conclude, including with the gulf states and the Trans Pacific Partnership.
The deal with Korea could be improved as part of a TPP, Groser said.
Key said New Zealand would use the opportunity at the G20 to talk to some of the leaders he hadn’t had an opportunity to talk to at recent APEC or East Asian Summit gatherings.
He singled out Saudi Arabia Crown Prince Salman bin Abdulaziz as New Zealand seeks to progress the Gulf states free trade agreement and the European Commission chair Jean-Claude Juncker about the free trade agreement New Zealand is looking to progress with Europe.
Key said he may visit the Crown Prince early next year following an invitation at today’s meeting.
"We are really close with the Gulf states deal and there’s a lot of opportunities there," Key said. "The signs we are seeing from the officials are positive."
However he said a free-trade agreement with Russia wasn’t on the current agenda.
"We were really within millimetres of signing a free trade agreement with Russia and we stopped that. That’s on hold. The Russians have been wanting to progress that and New Zealand has been saying no.’"
"New Zealand’s approach is that we are standing strong with our partners and until we saw a point at which they saw sanctions being removed and a general change in flavour, New Zealand’s position won’t change."
Even though New Zealand companies aren’t officially part of the trade sanctions, companies such as Fonterra Cooperative Group haven’t been taking advantage of the trading opportunity at the request of the New Zealand government, Key said. New Zealand law doesn’t currently allow such trade sanctions and the opposition Labour party favours such sanctions having the backing of a UN mandate so wouldn’t support a law change, he said.
"There would be great opportunities for our dairy companies, particularly Fonterra obviously, to exploit that, and our dairy companies aren’t doing that," Key said. " We are taking a voluntary approach."
Meanwhile, Key said leaders at the G20 would likely have a "pretty broad ranging economic discussion" focused on global growth and how to make sure the global economy is more robust.
Topical issues such as Ebola, ISIS and climate change would likely also come up for discussion.