In a trade deal with South Korea, New Zealand may find small is beautiful
South Korea and New Zealand enter into the third round of FTA negotiations next week. Seoul-based freelance reporter Andrew Salmon assesses the prospects of an agreement and concludes that, from a South Korean perspective, a deal with may prosper if New Zealand takes a largely unthreatening stance.
Over the week beginning 14 December 2009, trade negotiators from South Korea and New Zealand will be huddled in Seoul’s Ministry of Foreign Affairs and Trade, hammering out a deal in the third round of Free Trade Agreement (FTA) talks.
Negotiations commenced in June and a second round of talks took place in September. If Wellington can seal a deal with Seoul, the benefits look rosy.
South Korea is not only the world’s 14th largest economy. It has emerged unscathed from the 2008 global financial crisis, being the only OECD nation to see year-on-year GDP growth in the third quarter of this year. South Korea has FTAs at various stages with a range of nations and trade zones. Five deals covering 16 countries have been ratified including ASEAN, Chile, the European Free Trade Area, India and Singapore.
Deals have been signed with the European Union and the United States and are awaiting ratification. According to Seoul’s Ministry of Foreign Affairs and Trade further FTAs are being negotiated with 11 nations – Australia, Canada, the Gulf Cooperation Council, Mexico, New Zealand and Peru.
A joint report by South Korea and New Zealand in November 2007 found that the two countries share a complimentary trade structure: “New Zealand sends raw or intermediate materials (logs, beef and skins, aluminium, dairy, and kiwifruit) to South Korea. South Korea sends finished manufactured goods (electronic goods, cars, and machinery) to New Zealand.
“There is very little in the way of intra-industry trade between New Zealand and Korea. This indicates the two counties are not generally competitors in the same industry.”
Should the FTA come to pass, the report anticipates GDP increases over the 2007–2030 period of NZ$8.3 billion and NZ$6.3 billion for South Korea and New Zealand, respectively.
One side-effect of Korea’s first FTA with Chile was the opening of new opportunities for Chilean exporters. Similarly, a New Zealand deal could uncover new sectors.
“We trust that an FTA will allow Korean consumers to taste a wider range of horticultural products, e.g. high quality berryfruit, or potatoes and potato products,” said Les Edwards, chairman of the New Zealand Chamber of Commerce in South Korea.
In reference to Seoul’s promoting of green growth as a national priority, he said: “Beyond food, we see New Zealand’s capabilities in waste and water management engineering as being of benefit to Korea.”
Edwards added that increased trade in services including education, engineering consultancy and tourism, would be “relatively straightforward gains” from an FTA.
For South Korea, a major exporter of cars, mobile phones, consumer electronics, petrochemicals and ships, the key benefits would be increased market share for manufactured products.
An enhanced exchange of people and knowledge is another priority, said Kim Hae-yong, Director General of the FTA Negotiation Bureau at Seoul’s Ministry of Foreign Affairs and Trade, who specifically noted the benefits of sharing expertise in telecommunications and financial services. The mutual recognition of professional qualifications would be a further plus, Kim added.
The above bodes well for negotiations - as does New Zealand’s positive image in South Korea. Kiwi soldiers fought in the Korean War, which will be remembered in 60th anniversary commemorations next year.
The second largest number of overseas tourists in New Zealand hails from South Korea, with some 80,000 Korean tourists visiting in 2008. In recent years, New Zealand has been the setting for a number of hit films including the 2003 thriller Silmido, at the time the most successful film in Korean history.
New Zealand hopes to finalise a deal within 2010, according to Edwards. Kim, however, was more cautious. “There is no specific target date for the conclusion of the FTA as it depends on when and how the two countries can achieve a balance of interest in the FTA before signing the deal,” he said.
And negotiations will not be entirely plan sailing. New Zealand is a highly efficient agricultural producer. South Korea, with its small land mass, mom and pop farms and recent history of promoting industrialisation, is highly inefficient.
But with a majority of South Koreans just a generation removed from their ancestral farming villages, farm leaders wield considerable influence. Thus, despite their minimal footprint on the economy - studies have found that the sex industry has a larger share of GDP - Korean farmers have a loud political voice, and are among the country’s best organised and most militant demonstrators.
Edwards downplayed New Zealand’s agricultural muscle. “As a southern hemisphere country our seasons for fruit, vegetable and even dairy and meat are non-competitive to, and complementary for, Korea,” he said. “This means for most fresh products we simply don’t compete as we’re in the market at different times of the year.”
Kim, however, was not so bullish. “New Zealand is a significant and very competitive exporter of beef, dairy products, fruit and many other agricultural goods while Korea is not,” he said. “So, yes, I expect some degree of opposition from the domestic farmers in the course of Korea-New Zealand FTA negotiations, which will put pressure on the Korean negotiators.”
Moreover, a source familiar with the EU-Korea FTA negotiations suggests that if the US and EU FTAs which currently awaiting ratification are passed, they will have an impact on Korea’s agricultural sector. A side effect could be political pressure on Korean officials negotiating FTAs to talk tougher on agriculture with smaller nations such as Australia, Canada and New Zealand.
Kim disagreed. “The views that domestic lobby groups will demand the government to win concessions in the smaller FTAs to make up for the allegedly potential losses from the bigger FTAs are not relevant,” he said. “It is important to achieve a balance of interest within every bilateral FTA separately.”
A plus for New Zealand is that it does not export automobiles. Selling cars in South Korea – itself the world’s fifth largest auto maker – is a fraught proposition, as the domestic market is riddled with non-tariff barriers, according to foreign auto manufacturers. Automakers in both the US and EU are key opponents of their respective FTAs with Korea.
In the final analysis, the New Zealand deal may prosper by being largely unthreatening. South Korea, sandwiched between powerful neighbours – China, Japan and Russia - and more recently a client state of the United States, has historically seen herself as “a shrimp between whales.”
This mindset is wired into the national psyche and recent years have seen high-profile public outbursts against China, Japan and the US. However, due to amicable historical relations and a lack of trade or diplomatic disputes in the bilateral relationship, South Koreans hold no animosity towards New Zealand. In Korean eyes, New Zealand’s smallness could be its beauty.
- by Andrew Salmon
Read more
Article uploaded December 2009.