SHANGHAI – On November 15th, New Zealand and South Korea concluded negotiations on a bilateral free-trade agreement (FTA). The announcement was made on the sidelines of the G20 Leaders’ Summit in Brisbane, Australia.
Talks over the agreement first began in 2009 but were impeded by concerns over the impact New Zealand agricultural exports might have on the Korean market. These issues were resolved in February 2014 with the decision to slowly phase out New Zealand’s tariffs, providing an incubation period for domestic producers.
New Zealand’s Prime Minister John Key has affirmed the importance of New Zealand’s economic relationship with South Korea. As of June 2014, South Korea is New Zealand’s sixth largest export destination for goods and services and its eighth largest import source. The total value of bilateral trade is $3.2 billion.
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The FTA will initially eliminate tariffs on 48 percent of New Zealand’s exports, which is currently valued at $230 million per year. This means the deal will result in a total tariff cut of $65 million in the first year alone. The final draft seeks to completely eliminate duties within 15 years. In addition, the FTA will cover rules of origin, customs procedure, and mechanisms to address non-tariff measures such as allowing self-declaration on the origin of goods.
Specific New Zealand exports slated for change include:
- 45 percent rate on kiwifruit;
- 5 percent on sheep meat;
- 40 percent levy on beef;
- 89 percent tariff on butter.
New Zealand failed to reach an accord with South Korea to erase milk powder tariffs, primarily due to high Chinese demand and South Korea’s competitive position, but New Zealand managed to strike a deal on cheese and infant formula exports.
Squids are also excluded in the FTA, with New Zealand’s fishing industries required to pay a 22 percent tariff to export squid to South Korea. A total of 199 items will be exempt from the FTA, including rice, natural honey, apples, pears and garlic.
As for South Korea, tariffs will be eliminated on 48.3 percent of its imports and 96.5 percent of its import tariffs within 20 years. Further benefits include the establishment of an offshore processing zone committee to better administer products manufactured in the Kaesong Industrial Complex located in North Korea. Additionally, the South Korean working holiday quota will be increased from 1,800 to 3,000 persons a year, and temporary employment entries will increase to 200 a year.
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A nation-wide joint study conducted in 2007 calculates that the FTA will boost New Zealand’s economy by $4.5 billion and South Korea’s by $5.9 billion over the next two decades, with the majority of immediate value coming from tariff savings. The treaty will also encourage further exports of electronics, automotive parts, and other manufactured goods from New Zealand.
New Zealand Trade Minister Tim Groser stated he is confident that New Zealand’s exports will expand significantly in the upcoming decade. He asserts that the FTA is a key step for both countries to become proactively involved in the global market.
The final draft of the agreement is expected to be signed later this year upon legal verification and translation. The FTA is written in the same legal language and terms as South Korean FTAs with the US, Canada and Australia, which is expected to expedite the process.
“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,” Prime Minister Key stated in Brisbane.
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