New Zealand and South Korea have inked a free trade agreement following talks in Seoul last month, cutting tariffs for exporters to New Zealand's fifth-largest trading partner.
"New Zealand has completed the free trade agreement with Korea," Prime Minister John Key said on the sidelines of the G20 Leaders' Summit in Brisbane. "It has been a long, hard agreement to reach."
South Korea aims to conclude free-trade agreements with China, Vietnam and New Zealand before the end of the year as it seeks to expand its presence overseas. Key is seeking to encouraging free trade for New Zealand to give the small country access to big international markets, and this agreement marks his first bilateral deal since being elected leader.
South Korea is New Zealand's fifth-largest trading partner, with total trade last year worth $3.59 billion, according to the Ministry of Foreign Affairs and Trade. It is the country's fourth-largest source of foreign students and seventh-largest source of overseas visitors.
New Zealand exporters pay an estimated $229 million in Korean tariffs each year, and the talks begun in 2009 have previously stalled amid Korean concern about the impact of New Zealand agricultural exports, according to MFAT. Australia and Canada, both of which compete with New Zealand to export agricultural products to Korea, have recently concluded FTA's with Seoul.
"It's a good deal. It's very, very similar in reality to the Australian, Canadian deal," Key said. "Korea is a big market. I think there will be a lot of New Zealand businesses quite happy with the deal. Like any FTA there is always a bit of give and take."
Key said he expected New Zealand farmers and broader industry would be happy with the deal, which would see a $65 million reduction in tariffs in the first year.
"The vast overwhelming bulk of categories see an elimination of tariffs over about a 10-year period. It's broadly a very, very good deal. There at the margins might be one or two areas where either they are not of significance to New Zealand or probably it wasn't possible for us to get any more than we have and I think those sectors might be slightly disappointed but overall people will be pretty happy."
Further details will be announced at a press conference in Brisbane later today.
MFAT had previously said tariff elimination on agricultural products was a challenge with New Zealand arguing that it doesn't compete with sensitive Korean production, given the country provides only about 3 percent of Korea's total agricultural imports, doesn't produce rice, is counter-seasonal, doesn't export fresh milk and produces grass-fed beef.
An FTA between the two countries would be complementary, adding US$4.5 billion to New Zealand's GDP and US$5.9 billion to South Korea between 2007 and 2030, according to a report by the New Zealand Institute for Economic Research and the Korean Institute for International Economic Policy.
The agreement now has to be approved by the Korean parliament.
"The next big challenge is to go through the technical scrubbing process of the deal and the ultimately for it to be ratified by the Korean parliament and that won't be easy because a significant part of what we have agreed involves agriculture and agriculture is always a sensitive issue.
Still, New Zealand's agreement is on the same terms as the US, Canada and Australia which should make it easier for lawmakers to pass.
"In principal, this is a good one," Key said adding there were other free-trade agreements New Zealand wants to conclude, including with the gulf states and the Trans Pacific Partnership.
Key said New Zealand would use the opportunity to talk to some of the leaders he hadn't had an opportunity to talk to at recent APEC or East Asian Summit gatherings.
He singled out Saudi Crown Prince Salman bin Abdulaziz as New Zealand seeks to progress the Gulf states free trade agreement and the European Commission chair Jean-Claude Juncker about the free trade agreement New Zealand is looking to progress with Europe.
However he said a free-trade agreement with Russia wasn't on the current agenda.
"We were really within millimetres of signing a free trade agreement with Russia and we stopped that. That's on hold. The Russians have been wanting to progress that and New Zealand has been saying no.'"
"New Zealand's approach is that we are standing strong with our partners and until we saw a point at which they saw sanctions being removed and a general change in flavour, New Zealand's position won't change."
Even though New Zealand companies aren't officially part of the trade sanctions, companies such as Fonterra Cooperative Group haven't been taking advantage of the trading opportunity at the request of the New Zealand government, Key said. New Zealand law doesn't currently allow such trade sanctions and the opposition Labour party favours such sanctions having the backing of a UN mandate so wouldn't support a law change, he said.
"There would be great opportunities for our dairy companies, particularly Fonterra obviously, to exploit that, and our dairy companies aren't doing that," Key said. " We are taking a voluntary approach."
Meanwhile, Key said leaders at the G20 would likely have a "pretty broad ranging economic discussion" focused on global growth and how to make sure the global economy is more robust.
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