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Free Trade Agreements

23 December 2019

High tariffs and other trade barriers were once standard defensive trade mechanisms used by countries around the world to protect their domestic markets. Governments imposed tariffs to raise revenue, protect domestic industries, or exert political leverage over another country. Up until 1986, the effective tariff rate on items of clothing being imported into Australia was as high as 178%.

Movement towards trade liberalisation in Australia began over 40 years ago and is today based on a series of unilateral, bilateral and multilateral trade agreements. The outcome of this reform agenda has been Australia’s successful integration into the global economy, particularly in Asia.

Shared prosperity through trade in Asia matters to Australia. According to the Department of Foreign Affairs and Trade (DFAT), Australia’s $105 billion two-way trade with ASEAN exceeds our trade with Japan and the United States, our second and third largest trading partners.

Trade with Korea has been enabled by the Australia-Korea Free Trade Agreement (KAFTA) which came into force at the end of 2014. It is a comprehensive agreement that reduces both tariff and non-tariff trade barriers, with the exception of some agricultural products that have special phasing arrangements. According to the DFAT, more than 99% of Australia’s goods exports to Korea are eligible to enter duty-free or with preferential access. The agreement extends to Australian services suppliers as well. A mutual recognition arrangement signed between Engineers Australia and the Korean Ministry of Science in 2015 guarantees market access in Korea.

Korea is the fourth largest economy in Asia and the 13th largest in the world. It is a global industrial giant with an advanced manufacturing economy, a highly educated workforce and democratic government. In pursuit of economic growth, the Korean government prioritised manufacturing development through Free Trade Agreements – Korea policy initiatives, tax incentives and investment.

The race for technology has seen the formation and growth of R&D centres working on composite materials in universities (KAIST, Seoul National Univ., Postech, Gyeongsang National Univ.), research institutes (KIMM, KARI), and companies (Hankuk Fiber, DACC). Their activities cover a broad range of research and development in composite materials: design and fabrication; processing technology; structural analysis; characterisation of composite materials; NDE; fibre optic structures; damage detection; health monitoring; smart structures and so on. These technologies will be increasingly used in various fields and play an important role in future industries.

Like Australia, the Korean government has joined with the Korean industrial conglomerate Hyosung Corporation to invest in a “Carbon Valley” in its Jeollabuk-do Province to nurture the country’s capability in carbon fibres, artificial graphite, and carbon polymers.

KCTECH (Korea Institute of Carbon Convergence Technology), located in the centre of the Carbon Valley, specialises in carbon technology and has a global network of 13 institutes in eight countries. KCTECH’s aim is to become a global research institute for composites industry, most notably through its key fundamental technologies and commercial applications.

In August this year, Hyosung announced it will invest A$1.2 billion by 2028 to expand its carbon fibre production capacity, in a quest to become the third largest carbon fibre producer in the world.

The investment should be seen through the lens of the trade war between the US and China that intensified last year. There are mixed perspectives on what Korea stands to gain or lose from the trade war, but there is no doubt that global companies with manufacturing and trade interests in China and the U.S. are hedging exposure by relocating some manufacturing and assembly processes to other parts of Asia.

This also applies to Korean companies which are increasingly seeking access to other markets, significantly in Australia. One such company is the global manufacturing and trading conglomerate – the Hanwha Group which specialises in explosives, defence, trading, and machinery. Hanwha was founded in 1952 as an explosive company, and has had a footprint in the Australian mining sector for some time. The company is currently positioning itself to develop a production facility – said to be located in Geelong – to supply the Australian Army with updated infantry fighting vehicles as part of the Phase 3 of the LAND 400 Project that will be confirmed by the Department of Defence in 2022.

The synergies between Australia and Korea are encouraging. Across Australia are a number of sister city relationships. According to the Department of Education, Korea is one of Australia’s priority countries for science and innovation collaboration and Australia is one of the top 10 collaboration countries for Korea. Furthermore, Australia’s international student enrolments from Korea of around 23,000 annually are creating a strong alumni in Korea that will sustain our nations’ ongoing relationships into the future.

But the universal quest for tech has further complicated the once straight forward process of selling a product, service or technology across borders. As with all international markets, cultural paradigms and unrealistic assumptions and perspectives on the ownership of intellectual property creates an environment fraught with uncertainty and risk. Australian exporters should approach all international markets with a well-considered IP strategy that includes Patents and Trademarks that protect and prevent IP infringements and/or outright theft.

There are many agencies that can assist companies looking to do business in Korea. The Australian Trade Commission– Austrade – is Australia’s leading trade and investment agency. It has offices in every state and over 80 offices around the world that provide the ‘in-country’ advice.

Most states have Business Development Agencies such as the Victorian Government which  has a Trade and Investment (VGTI) office located in Seoul.

Independent organisations such as Asialink Business often have a rich body of resources such as the Korea Country Starter Pack – an informative app that can be easily downloaded  at this link: https://asialinkbusiness.com.au/country-starter-packs


An edited version of this article first appeared in:

Connection Magazine

Issue 51: December, 2019

Author: Kerryn Caulfield

For this and more stories, please download the latest copy of our Connection magazine.