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

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

3. Trade Trends  In 2013, the amount of Korea’s bilateral trade with Australia reached 30.35 billion dollars (export: 9.56 billion, import: 20.79 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)

4. www.kiep.go.kr 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 (%) 1332Diesel2,21923.21120Iron5,98428.8 7411Auto1,96420.51322Coal5,17024.9 1331Gasoline8859.31310Crude oil1,7508.4 6152Steel structure6566.9221Beef8624.1 1333Jet fuel3633.86211Aluminum ingot7773.7 7420Auto parts2792.91130Copper7423.6 7251 Heavy construction equipment 1481.51190 Other Metallic minerals 5992.9 2140Synthetic1361.41321Anthracite5122.5 8211Color TV1341.41340Natural gas4512.2 8500Wire1161.2111Grains4332.1 2522Print media1161.2158sugars3981.9

5. www.kiep.go.kr 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 5 2004200520062007200820092010201120122013 FDI From World 12,79611,56611,24710,51611,71211,48413,07113,673 16,28614,548 From AUS (share) 54.751.1923.547.068.5224.57.290.2152.650.5 (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) 541061481435802665641,3822,2342,000 (0.83)(1.46)(1.25)(0.64)(2.42)(1.30)(2.31)(5.01)(8.89)(8.31) (Unit: mil dollar, %)

6. www.kiep.go.kr 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 Immediate8,57786.40%10,288,18175.70%4,55189.00%8,365,55586.20% Within 5 years9,69497.60%13,293,92197.80%5,08099.40%9,706,516100.00% Within 10 years9,87399.40%13,579,58299.90%5,112100.00%9,708,662100.00% Others580.06%11,6110.10% Total9,931100.00%13,591,193100.00%5,112100%9,708,662100% Agricult ure Immediate25416.90%807,96446.50%839100.00%77,286100.00% Within 5 years54135.90%851,64149.10% Within 10 years92661.50%916,03452.80% Within 20 years132888.20%1,708,48498.90% Others17711.80%27,4961.60% Total1505100.00%1,735,980100.00%839100.00%77,286100.00% ‘Others’ contains other categories such as seasonal tariff or excluding concession

7. www.kiep.go.kr 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 2017. 7 (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 Autos9,3943,9432,2511,241.550.9 Machinery2,9615571,74787.91.10.1 Household items1,11193137683.84.51.1 Auto parts52127223129.853.3 Heavy equipment3249913321.940.6 Steel76648426820.24.70.8 Fine Chemicals38621717618.72.50 Electronics54727418010.60.70 Manufacturing19,2889,2409,5261,547.02.40.5

8. www.kiep.go.kr 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/Energy17,860.3603.00.50.3 Auto parts108.6101.380 Non-ferrous metals1,246.386.01.20.5 Fine Chemicals238.367.03.30.7 Machinery119.047.07.51.8 Manufacturing20,354.51025.70.80.3

9. www.kiep.go.kr 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

10. www.kiep.go.kr 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 2013.  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

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