Korea-Australia FTA and Business opportunities Vice President Heung chong Kim Korea Institute for International Economic Policy

Contents 1. Bilateral Economic relations 2. Trade opportunities 3. Services, Investment, and Government Procurement 3. Services, Investment, and Government Procurement 2

Trade Trends  In 2013, the amount of Korea’s bilateral trade with Australia reached billion dollars (export: 9.56 billion, import: billion)  Australia is Korea’s 6 th largest trade partner  Korea is Australia’s 4 th largest trade partner  Korea’s trade deficit has been decreasing since 2011  Korea’s imports from Australia is decreasing and exports are gradually increasing 3 (unit : million dollar)

Major Trading Products  Major exports from Korea to Australia include manufactured products such as diesel oil, automobiles, steel, etc  AUS is an oil-producing country but exports crude oil while importing diesel and gasoline because of production costs  Korea’s major imports include minerals, meats, and grains  Import of minerals such as iron ore, coal, zinc, aluminum constitute the main source of Korea’s trade deficit 4 Major exporting products (MTI 4digit)Major Importing products (MTI 4digit) codeproduct amount (mil dollars) share (%) codeproduct amount (mil dollars) share (%) 1332Diesel2, Iron5, Auto1, Coal5, Gasoline Crude oil1, Steel structure Beef Jet fuel Aluminum ingot Auto parts Copper Heavy construction equipment Other Metallic minerals Synthetic Anthracite Color TV Natural gas Wire Grains Print media sugars3981.9

Bilateral Investment  KOR FDI to AUS most active in the mining sector  In 2012, about 93% of KOR FDI went to the mining sector  FDI to the service sector increasingly focused on finance/insurance  In 2013, Finance/Insurance and Real Estate/Leasing accounted for 9.1% and 8.9% respectively FDI From World 12,79611,56611,24710,51611,71211,48413,07113,673 16,28614,548 From AUS (share) (0.43)(0.44)(8.21)(0.45)(0.58)(1.95)(0.06)(0.66)(0.94)(0.35) ODI To World6,5217,23911,81322,31623,92920,42024,46827,59125,11924,054 To AUS (share) ,3822,2342,000 (0.83)(1.46)(1.25)(0.64)(2.42)(1.30)(2.31)(5.01)(8.89)(8.31) (Unit: mil dollar, %)

Tariff concession  Improved market access expected from high-level liberalization  Manufactures: KOR and AUS to reduce tariffs by 97.8% and 100%, respectively, in manufacturing within 5 years  Agriculture: KOR to reduce tariffs by 52.8% within 10 years; AUS to eliminate tariffs immediately 6 Tariff concession under AKFTA (Unit: mil dollars) concession categories KoreaAustralia # of product shareImport valueshare # of product share Import value share Manufa cture Immediate8, %10,288, %4, %8,365, % Within 5 years9, %13,293, %5, %9,706, % Within 10 years9, %13,579, %5, %9,708, % Others580.06%11, % Total9, %13,591, %5,112100%9,708,662100% Agricult ure Immediate %807, % %77, % Within 5 years %851, % Within 10 years %916, % Within 20 years %1,708, % Others %27, % Total %1,735, % %77, % ‘Others’ contains other categories such as seasonal tariff or excluding concession

Exporting opportunities  Increases in Korean auto exports to AUS expected  In the manufacturing sector, the average annual increase in exports expected to be about 1.55 billion dollars overall.  In particular, Korea is expected to secure an advantageous position in terms of competition with Japan in the Australian auto market; additional increase in auto exports expected, as automobile production in Australia is due to be discontinued after (unit: mil dollars, %) Effects of AKFTA on manufacturing exports AUS import fromExpected annual increase in exports Current tariffs (%) Tariffs after 1 year of implementation (%) JapanThailandKorea Autos9,3943,9432,2511, Machinery2, , Household items1, Auto parts Heavy equipment Steel Fine Chemicals Electronics Manufacturing19,2889,2409,5261,

Importing opportunities  Increase in imports centered on Minerals/Energy, Beef, Barley  Annual imports in manufacturing expected to increase by 1.03 billion dollars; increase in imports of minerals/energy viewed as positive due to much need and lack of domestic production in Korea  Annual imports by Korea in agriculture to increase by an estimated 40 million dollars. In particular, imports of beef expected to increase due to elimination of tariffs, which currently stand at 40%, over the next 15 years. 8 (unit: mil dollars) Effects of AKFTA on manufacturing imports Imports from AUS Expected annual increase in imports Current tariffs (%) Tariffs after 1 year of implementation (%) Minerals/Energy17, Auto parts Non-ferrous metals1, Fine Chemicals Machinery Manufacturing20,

Service / Investment  Service  Australia's service industry accounts for over 70% of GDP; with very large financial and wholesale/retail sectors  Expansion of trade in communications, audiovisual, distribution, trade, and environmental services expected.  Communications sector is relatively open and fast-growing. No reserve list save for restrictions on shares of Telstra.  Bilateral coproduction will become more active as a result of the audiovisual coproduction agreement, facilitating cost sharing and pooling of revenues.  Distribution to be completely open except for tobacco, wine, etc; all areas of environmental services to be open  Investment  Korea actively invests in the mining sector of Australia  Inclusion of ISD provisions will likely reduce the uncertainty, and protect investments against political risks and direct/indirect expropriation 9

Government procurement  Improve market access to procurement market of Australia, a non- participant of WTO GTA  The size of procurement market is about 39.3 billion AUS dollars, with 68 thousand cases, in  AUS an English-speaking country with relatively transparent operating system  Concession includes central and local governments, public corporations, and private financing businesses.  Barriers to entry are removed by prohibiting discriminatory action, which constitutes the greatest obstacle for Korean firms in the Australian government procurement market. 10 KAFTA and Government procurement KoreaAustralia Central government (AUS 70, KOR 45) Goods/service130 thousand SDR construction5 million SDR Local Government (AUS 8, KOR 16) Goods/service200 thousand SDR355 thousand SDR construction15 million SDR5 million SDR Public corporation (AUS 18, KOR 17) Goods/service450 thousand SDR construction15 million SDR 1 SDR(Special drawing Rights) is about 1.7 Australian dollars and 1560 Korean won