1. Bilateral FTA between Korea and Australia: from Korean Perspective
HanSung Kim
Korea Institute for International Economic Policy

2. I. Introduction FTA between KOR and AUS Summit meeting in May 2000
Prime Minister John Horward proposed a bilateral FTA between Korea and Australia
APEC meeting at Busan in Nov 2005
Prime Minister John Horward suggested to President Roh Moohyun of having a bilateral FTA between the two countries again
President Roh Moohyun responded that FTA with AUS could bring negative impact on Korean Agricultural sector  Too early to launch a bilateral FTA negotiation
Feasibility Study (2007)
FTA Feasibility Study is on-going (KIEP and ITS Global participate)
Round table negotiation will be followed

3. II. Economic Relation between KOR and AUS
Bilateral Trade: Korean Exports/Imports
Bilateral Trade between Korea and Australia (Units: Million US$, %)
Year
Export
Import
Bilateral Trade
Trade Surplus
Amount
Change (%)
1990
956 
-4.9
2,589 
15.4
3,545 
-1,633 
1995
1,569 
27.4
4,897 
29.5
6,466 
-3,328 
2000
2,606 
7.4
5,959 
27.5
8,565 
-3,352 
2001
2,173 
-16.6
5,534 
-7.1
7,707 
-3,361 
2002
2,340 
7.7
5,973 
7.9
8,313 
-3,634 
2003
3,272 
39.9
5,916 
-1.0
9,188 
-2,644 
2004
3,378 
3.3
7,438 
25.7
10,816 
-4,059 
2005
3,812 
12.8
9,859 
32.6
13,671 
-6,047 
2006
4,692 
23.1
11,309 
14.7
16,001 
-6,617 
Bilateral trade between Korea and Australia has increased dramatically since the mid-1990s, reaching US$16 billion in Australia was the 14th largest export market for Korea in 2006, exporting US$4.7 billion, while it was the 7th largest importing country in 2006 with US$11.3 billion.
Source: KITA 3 3

4. II. Economic Relation between KOR and AUS
Bilateral Trade
The Share of Korean Exports/Imports from Australia
The share of exports to Australia in Korea’s total exports has maintained levels about 1.5%, except in 1998, the year of Asian Financial Crisis, which it rose to 2.1%, and the share of imports from Australia has been around 4.0% of Korea’s total imports. The share of bilateral trade with Australia in Korea’s total trade has comprised about 2.5%. Korea’s imports from Australia have exceeded Korea’s exports to Australia and the gap has widened from US$1.6 billion in 1990 to more than US$6.6 billion in 2006. 4 4

5. II. Economic Relation between KOR and AUS
Bilateral Trade: Korea’s Major Exports to AUS (Unit: Thousand US$) HS
Products
2005
2006
Amount
Change
Total
3,812,063
12.8
4,692,086
23.1 1 87
Vehicles and parts thereof
915,163
37.3
1,064,711
16.3 2 85
Electrical Machinery and parts thereof
1,007,038
-4.3
954,984
-5.2 3 27
Mineral Fuels․Oils․Waxes
278,854
121.3
712,298
155.4 4 84
Boilers, Machinery and Mechanical Appliances
464,035
-7.1
440,784
-5.0 5 89
Ships, Boats and Floating Structures
553
22.6
217,595
39,277.7 6 72
Iron and Steel
190,809
55.8
178,352
-6.5 7 39
Plastics and Articles thereof
184,745
24.2
177,383
-4.0 8 48
Paper, Articles of Paper Pulp, of Paperboard
145,855
14.1
139,821
-4.1 9 40
Rubber and Articles thereof
102,508
1.6
125,462
-22.4 10 74
Copper and Articles thereof
57,463
51.1
95,466
66.2
Sub-total of Top 10 Products (Proportion of Top 10 Products)
3,347,023
87.8%
4,106,856
87.5%
Table 10 shows Korea’s major exports to Australia in Categorized in HS 2 digits, Korea’s major exporting products include automobiles (HS 87), electronic devises (HS 85), machinery (HS 84), ships (HS 89), steel (HS 72), etc. The top 10 products comprised 87.5% of total exports to Australia in 2006. 5
Source: KITA 5

6. II. Economic Relation between KOR and AUS
Bilateral Trade: Korea’s Major Imports from AUS (Unit: Thousand US$) HS
Products
2005
2006
Amount
% change
Total
9,859,068
32.6
11,309,398
14.7 1 27
Mineral Fuels․Oils․Waxes
4,400,576
50.6
4,643,773
5.5 2 26
Ores, Slag, Ash
1,539,143
54.9
2,347,511
52.5 3 02
Meat, Edible Meat Offal
552,707
51.4
706,995
27.9 4 76
Aluminum and Articles thereof
462,099
14.4
668,160
44.6 5 17
Sugars and Sugar Confectionery
256,155
23.3
378,195
47.6 6 75
Nickel and Articles thereof
377,365
10.8
331,770
-12.1 7 72
Iron and Steel
353,992
34.5
266,210
-24.8 8 84
Boilers, Machinery and Mechanical Appliances
210,022
9.3
264,020
25.7 9 10
Cereals
209,914
-20.1
235,539
12.2 74
Copper and Articles thereof
127,736
273.9
190,376 49
Sub-total of Top 10 Products (Proportion of Top 10 Products)
8,489,709
86.1%
10,032,549
88.7%
On the other hand, Korea’s major imports from Australia include energy and mineral resources (such as iron ore, alumina, copper and nickel), cereals (HS 10) and meat (HS 02, mainly beef). Like exports, Korea’s imports from Australia depend heavily on the top 10 import products, which comprise 88.7% of total imports from Australia. 6 6

7. II. Economic Relation between KOR and AUS
Investment: KOR  AUS
Cumulative ROK FDI abroad, by top ten destinations, 1968 to 2006
Source: The Export-Import Bank of Korea
Destination
FDI Outflow:
(US$ million)
Share of Total,
2006
(%)
Change
2001 to 2006
China
25,466
24.0
171.3 US
20,670
19.5
53.3
Vietnam
4,978
4.7
257.1
Indonesia
4,780
4.5 20
Hong Kong
4,330
4.1
104.8
Australia
3,042
2.9
29.2
Netherland
2,971
2.8
36.4
United Kingdom
2,787
2.6
33.3
Canada
2,559
2.4
73.3
Bermuda
2,160
2.0
46.7
Total all countries
105,952
100
80.6
Compared to the vibrant trading relationship between the ROK and Australia, bilateral investment flows have not been strong historically. China remains the major destination for ROK’s stock of FDI abroad, comprising over 24 per cent of the ROK’s total outflow of FDI. This is followed by the US (19.5 per cent), Vietnam (4.7 per cent) and Indonesia (4.5 per cent)..Based on cumulative stock of FDI from 1968 to 2006, Australia ranked sixth as a foreign investment destination for the ROK, with investment in Australia accounting for nearly 3 per cent of its total outward FDI. 7 7

8. II. Economic Relation between KOR and AUS
Investment: KOR  AUS
Bilateral investment flows have increased markedly in recent years, reflecting a maturity and sophistication in economic ties between the two countries.
The flow of direct investment from the ROK to Australia has therefore increased substantially over the period 1980 to 2006 (see Figure 1.15.) Outflows of FDI from the ROK to Australia first started in 1980, totalling US$72,000. They grew to US$51 million in 1996, reaching US$142 million in 2006 (See Table 1D.3 in Annex 1D for more detail).
Source: The Export-Import Bank of Korea 8 8

9. II. Economic Relation between KOR and AUS
Investment: KOR  AUS
Among the various sectors in Australia, energy and mineral resources, wholesale and retail, and manufacturing industries have been particularly important for South Korean investment. Many have been aimed at securing a stable supply of energy and natural resources for the ROK. For example, POSCO, a joint venture partner with Australian BHP Billiton, has invested in several projects for mining developments. South Korean companies like Samsung, SK and Ssangyong have also invested in Australia.
Source: The Export-Import Bank of Korea 9 9

10. II. Economic Relation between KOR and AUS
Investment: AUS  KOR
Table 1.3: Stock of Australian investment abroad, by top 12 destinations, as at end of 2006
Source: ABS, International Investment Position, Australia: Supplementary Country Statistics, Cat No , 2006
Destination
2006
(A$ billion)
Share of Total
(%)
Change
2001 to 2006 (%)
United States of America
320.8
38.4
45.4
United Kingdom
133.3
16.0
77.2
New Zealand
65.3
7.8
140.6
Japan
39.8
4.8
55.9
Netherlands
31.2
3.7
104.2
Canada
26.1
3.1
262.0
Germany
23.8
2.9
180.6
France
21.7
2.6 --
Hong Kong (SAR of )
1.9
27.5
Singapore
14.3
1.7
37.8
Switzerland
14.0
98.0
Korea, Republic of
6.9
0.8
247.1
Total
835.6
100.0 65
As a foreign investment destination for Australia, the ROK ranked twelfth overall and fourth in Asia, behind Japan, Hong Kong and Singapore. The major destinations for foreign investment by Australia are the US (which had 38 per cent of Australia’s total stock of foreign investment at the end of 2006), the UK (16 per cent) and New Zealand (8 per cent)
The stock of Australian investments in the ROK totalled A$6.9 billion — or US$5.7 billion at the prevailing exchange rate — at the end of The majority of this stock was held as portfolio investments, which accounted for about 60 per cent of the total stock.
Most of the recent annual flows of direct foreign investment (FDI) by Australia to the ROK have gone into the services sector, with the rest concentrated in manufacturing.
In 2001 the ROK ranked 18th as a destination for Australian investment abroad, with a stock of around A$2 billion invested. Since then the annual flow of Australian investment into the Republic has accelerated. So much so, the stock of Australian investment had more than tripled in value by the end of 2006 — thereby out performing the growth in all of the top twelve destinations for Australian investment, with the exception of Canada 10 10

11. III. KOR-AUS FTA??
Factors Blocking the FTA between KOR and AUS (KOR Perspective)
1. Sensitivity in Agricultural Sector
Beef, Dairy products
Exported “Rice” to Korea (WTO quota)
2. Small Economic Size and Isolated Location
Even though AUS is a developed country with high per capita income, 20 million is not attractive enough
Different situation from Canada case
At the KOR-AUS business councils at Perth last year, I had a presentation for the same topic, KOR-AUS FTA. At that time, I pointed out 4 major factors that impeded a bilateral FTA between KOR and AUS.
The first reason, of course, is the sensitivity in Agricultural sector. The bilateral FTA between KOR-AUS could have negative impact on Korean agricultural sector, who has already experienced difficult times. Beef, dairy and fruits imported from AUS
3. Major Imports are Natural Resources  Small Consumer Gains
4. No Serious Demand from Business Sector 11 11

12. III. KOR-AUS FTA?? What Has Been Changed?
1. Conclusion of KORUS FTA/ Effectuation of AUS-US FTA
Australian imports may simply replace the imports from the US (Diversion effect)
Increased competition in imported agricultural market
AUS-US FTA  Possibility of sudden exploration of agricultural imports decreases
2. CHN-AUS FTA/ JPN-AUS FTA Negotiation, Thailand-AUS-NZ FTA
Direct impact on Korean exports to AUS
Demand for FTA with AUS from business sector increases
3. Securing Resources
“How to produce with WHAT resources” must be considered prior to decide “what to product”
Question is how to relate having FTA with securing resources 12 12

13. III. KOR-AUS FTA?...! Korea’s Perspective
Korean government never said “no” to FTA with AUS
What matters is “WHEN”
Recent changes in Korea and Australia should be carefully taken into account
Target
High Quality
Securing Natural Resources
Economic Cooperation (in Service and Agricultural Sector, for example)
Expanding GIC
Middle Power Alliance
Settle Down Trade Related Disputes such as Anti-Dumping on Korean Products
Accession to Australian Government Procurement Market 13 13

14. IV. Conclusion
Feasibility Study (2007) by KIEP and ITS Global will be reported to the both governments at the end of this year
Purely economic consideration?
Need to consider other non-measurable factors as well 14 14