Korea trade pact sealed with seven-year itch

AUSTRALIA has sealed a free trade agreement with South Korea, promising more opportunity for car-parts makers looking to win new business outside Australia.

The Department of Foreign Affairs and Trade this week announced that after four years of talks, exports from Australia’s beleaguered car-parts industry would benefit from lower costs of access to the major global car-making nation.

The department said under the new free-trade agreement, Korea would eliminate tariffs on car parts within seven years, creating opportunities for exports of components such as gearboxes and engines.

Under the former regime, South Korea imposed tariffs of up to 13 per cent on a range of Australian-made products.

Australian car exports earned the nation about $2 billion during 2012 – with one in five sales going to the Middle East – according to Department of Innovation data. By comparison, the value of car imports added up to a staggering $26 billion.

The data shows Australian car-parts makers earned more than $1.6 billion in exports, while imports cost us $8.1 billion.

South Korea was the fifth-largest car importer in Australia by value last year, accounting for about $2 billion in imports. In contrast, the value of Australia’s automotive exports to South Korea earned about $183 million.

All up, car-related exports earned us about $3.7 billion last year, while the total value of imports hit almost $34 billion.

“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,” DFAT said in a statement announcing the end of the trade talks.

“This impact will be in line with the progressive liberalisation already underway in the Australian economy.”

According to DFAT, the economic benefits of the free trade agreement with South Korea was last year worth $31.9 billion.

The South Australian government’s submission to the trade talks hit out at South Korea for having what it said was “the most closed automotive market of any of the world’s major auto-producing countries”.

“The share of imports in the overall automotive market in Korea is less than three percent compared to, for example, a 37 percent import share in the United States market,” the submission reads.

“At the same time, any lowering of tariffs on Korean-origin automotive imports into Australia would obviously increase their price competitiveness in the Australian market, adversely affecting the South Australian automotive industry, particularly given the large share of the automotive market already enjoyed by imports.” All three Australian car-makers made submissions to the review panel looking into the shape of the new agreement, however, none were released for public scrutiny.

The Australian government is said to be close to sealing a free trade agreement with Japan.

However, a sticking point is believed to be the trade-off between beef exports to Japan and the five per cent import tariff levied on Japanese-made cars imported to Australia.