Jeffrey Robertson, Foreign Affairs, Defence and Security
Australia is currently in Free Trade Agreement (FTA)
negotiations with China, Japan and South Korea, which in 2009
together accounted for 49 per cent of Australian merchandise
exports and 33.3 per cent of Australia’s total trade.
Depending on progress, negotiations towards the Korea-Australia
(KorAus) FTA are likely to be completed in time for an announcement
in 2011, which has been designated as a bilateral Year of
Friendship, commemorating 50 years of diplomatic ties between
Australia and Korea.
North Asia in the FTA debate
Opinion has always been divided on the benefits of FTAs.
Opponents contend that FTAs reduce participant interest in
multilateral liberalisation, reduce efficiency through trade
diversion, endanger cultural diversity and primarily serve
non-economic interests. Supporters contend that FTAs prepare
participants for multilateral liberalisation, create trade through
‘head-turning’ effects and benefit consumers through
Recent studies highlighting the disparity between the estimated
benefit to economic well-being set out in government feasibility
studies, and the actual results, has buttressed opposition to FTAs.
Supporters contend that these studies are based on models, which
cannot be expected to account for external changes (such as the
global financial crisis) and that without an FTA, bilateral trade
may be affected even further.
Joint feasibility studies commissioned or undertaken by the
Department of Foreign Affairs and Trade (DFAT) estimate that the
achievement of comprehensive FTAs in North Asia could substantially
add to Australia’s economic well-being:
- China—joint feasibility study undertaken
in March 2005 estimated that a comprehensive FTA could contribute
A$24.4 billion over the period 2006–15.
- Japan—joint feasibility study published
in December 2006, estimated that a comprehensive FTA could, at the
lower end of the range of Australia’s potential GDP gains,
equate to A$39 billion in net present value terms.
- South Korea—joint feasibility study
published in April 2008, estimated that a comprehensive FTA could
contribute up to US$22.7 billion in the period 2007–20.
However, in the context of FTAs with North Asia, another factor
is becoming increasingly relevant— competitive
liberalisation. This occurs when a country is forced to enter into
an FTA in order to avoid competitive disadvantage due to a trade
rival’s market access obtained through another FTA.
Australian beef in the South Korean market is a good example.
Australia currently holds a historically high 58 per cent of the
Korean beef import market, after consumer fears regarding Bovine
Spongiform Encephalopathy (BSE, or ‘mad cow disease’)
in US beef led to a substantial decline in US imports. In June
2007, Korea and the United States signed an FTA (KORUS FTA). When
(and if) implemented, Korean tariffs on beef imports will decline
from the current 40 per cent to zero in 15 equal annual reductions.
Accordingly, Australia needs to obtain an FTA which provides an
equivalent degree of market access in order to avoid competitive
Current status of negotiations
Australian and Chinese negotiators undertook the 15th round of
negotiations towards an FTA in Beijing from 28–30 June 2010.
FTA negotiations with China have been particularly slow, with both
sides demonstrating a degree of frustration at the lack of
progress. Negotiations are now in their fifth year. There remains a
large number of difficult and sensitive issues, with significant
progress in the short-term unlikely, unless the negotiations
attract a greater degree of political interest in China.
Australian and Japanese negotiators undertook the 11th round of
negotiations towards an FTA in Canberra from 19–23 April
2010. Progress has remained steady since the commencement of
negotiations in April 2007. However, the current economic and
political situation in Japan has reduced the willingness of its
government to face the increased opposition that would result from
an FTA with Australia.
FTA negotiations with Japan are particularly difficult due to
the political influence of its rural sector. Australia, in
particular, is perceived as a threat. While the Australian
Government continues to emphasise the complementary nature of
Australia’s rural exports, there remains a widespread
perception that Australia presents an inherent risk to the rural
sector’s viability. In addition, the decision to address the
whaling issue at the International Court of Justice has attracted
criticism from key coastal rural districts.
A political boost to FTA negotiations with Japan may come from
the meeting between the Japanese Prime Minister and the Australian
Prime Minister at the November 2010 APEC Leaders’ Summit in
Australian and South Korean negotiators undertook the fifth
round of negotiations towards an FTA in Canberra from 25–28
May 2010. Progress has been steady with a strong degree of
political support demonstrated by both sides.
The KorAus FTA is likely to be the first North Asia FTA under
consideration by the new parliament. Both sides have clearly stated
their desire for a rapid conclusion to negotiations.
In addition to the economic benefits, there are also a wide
range of non-economic benefits that will accrue from a KorAus FTA.
- Head-turning effect—perhaps because of
its complementary nature and overall success, the Australia-Korea
relationship has long suffered from a degree of complacency and
disinterest on both sides. The media attention that could result
from an FTA would potentially increase public and ultimately
political interest in the relationship.
- Multilateral cooperation—Australia and
Korea are widely considered to share a degree of interest as
regional middle-powers. FTAs provide for ongoing interaction
through annual reviews and consultation. This can increase
understanding and facilitate further cooperation on wider
multilateral issues, such as multilateral trade liberalisation,
regional financial cooperation and economic regionalism.
Competitive liberalisation also plays a role in achieving
Australia’s aims. The implementation of an FTA with Korea
could provide an impetus for Australia’s negotiations with
China and Japan. Similarly, an FTA with Australia would aid Korea
by placing further pressure on US lawmakers to pass the KORUS FTA,
which is currently stalled in the US Congress.
Library publications and key documents
Department of Foreign Affairs and Trade,
Composition of Trade Australia 2009, Commonwealth of
Australia, Canberra, May 2010.
M Priestley, Australia’s Free Trade
Agreements, Background Note, 2008–09, Parliamentary
Library, Canberra, 2008,
J Robertson, Time for an Australia-South
Korea FTA?, Research Note, no. 31, 2005–06,
Parliamentary Library, Canberra, 2006, http://www.aph.gov.au/library/pubs/rn/2005-06/06rn31.pdf