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.