Another year, another setback for Australia in its competitive position against beef export rival, the United States, in the Korean export beef market.

January 1 saw the next phase of tariff wind-back for US beef exporters trading into Korea, under the terms of the Korea-US Free Trade Agreement struck in 2011. Each year, the tariff paid by the US under the KORUS agreement declines by any additional 2.67 percent, across the 15 year term of the agreement, until the tariff reaches zero.

Meanwhile, Australia, which to this point has been unable to come to terms with Korea over its own FTA, languishes on the original 40pc rate of tariff into Korea. This year, that means the US pays a tariff rate which is 5.34pc below Australia’s.

As illustrated in the accompanying graph, the adjustment means Australia is increasingly being disadvantaged against US competitors in the Korean imported beef market.

While importers and market stakeholders say that last year’s first-stage 2.67pc tariff differential did not have a ‘noticeable’ bearing on trade flows, that is likely to change from this year as the gap widens.

Unless Australia can move quickly to complete its own FTA deal with Korea, the tariff differential will widen to almost 8pc next year.

Korean importers say that by the time the US tariff rate reaches that level, the differential will be clearly reflected in the price of US and Australian imported beef at the consumer level, through retail pricing.

Australian Meat Industry Council’s representative on the Korean market industry working group, Stephen Kelly, said in terms of Australia’s prospect of progressing an FTA with Korea, much of the discussion had ceased last year as Korea went into election mode.

“Now that that is completed, with a new Government in place, it should allow the two parties to re-engage. But Australia is not necessarily a priority -Korea is now also discussing FTAs with China, Canada and a number of other countries,” Mr Kelly said.

“It’s fair to say that Korea may perceive the reluctance of the Australian Government to include the Investor-State Dispute Settlement clause in any proposed FTA as a reason to put any agreement with Australia in the ‘too hard’ basket, and move on to others where there is more prospect of reaching agreement,” he said.    

ISDS is a provision in international trade treaties that grants investors with a right to initiate dispute settlement proceedings against foreign governments in their own right under international law.

So far the Australian Government has refused to budge on the inclusion of an ISDS in any Korean trade agreement, on the basis that it is against Labor Party policy. From Korea’s viewpoint, an ISDS provision is fundamental to any agreement with Australia, because it is already a part of the country’s FTA with the US.   

The Australian industry working group tasked with finding a way through the standoff includes representatives from Cattle Council, Australian Lotfeeders Association and the Australian Meat Industry Council.

The group continues to engage with both Government and Opposition ranks, pointing out that while it is understood that there are issues surrounding the ISDS provision, the absence of any agreement is going to have a serious impact on the beef industry – far more than any other sector – because of what the US has been able to achieve.

“We’re not saying the beef industry has a solution to the problem. What we’re saying is that Australia, as a whole, needs to find a solution, otherwise we’re going to slowly lose a large export market currently worth $750 million a year,” Mr Kelly said.

“Meat exporters know from experience what happens when product from one country is moved aside and replaced by product from another country. It’s very hard to turn that around once it occurs, and a lot of work that has gone into promoting Australian beef in Korea, particularly at retail, could be jeopardised, if it is replaced or substituted with US beef.”

“It’s very hard to swing consumers back,” Mr Kelly said.

A trade delegation will visit Korea in early March, during which attempts will be made to keep the awareness and dialogue between both Australian and Korean Governments going. A Korean delegation may also visit Australia early this year, for the same purpose.  

Asked whether Australia might consider winding-back its marketing expenditure in Korea this year because of the declining price competitiveness due to the tariff, Mr Kelly said he took an opposing view.

“This was the time when arguably, we need to spend money in Korea to keep Australia’s image at the forefront of Korean consumers’ minds. It’s important to offset some of that attraction for a cheaper US product by reinforcing Australia’s clean, green message,” he said.

“But if the tariff gap continues to wide in future years, I agree that message may become somewhat futile, if the Korean consumer can buy a considerably cheaper product from the US under the tariff adjustments .”   

Asked whether the forecast for high rates of domestic kill in Korea this year was likely to dilute any impact of the tariff gap, Mr Kelly thought not.

“The domestic Korean beef kill is still relatively small in comparison with the amount of imported beef, so it is unlikely to have a great deal of influence,” he said.

“Secondly, the Korean domestic supply is mostly Hanwoo beef, in a different market segment to most Australian imports. The two issues do not really overlap.”

Despite this year’s widened tariff disadvantage, Meat & Livestock Australia expects Australian beef exports to Korea in 2013 to remain on par with 2012, at about 125,000 tonnes.

Competition from domestic product is likely to remain high and uncertainties around US supplies are anticipated to continue. Indeed, the US will have some competitive advantages, with the currency forecast to remain weaker than the A$, as well as the tariff advantage.

These will be offset, somewhat, by increased US production costs and the effects of US drought, MLA says.

Korea’s total beef and veal imports for 2012 reached 264,000t, with Australia’s share at 52pc, while the US slipped marginally to 36pc, after shipping 95,000t.

Korean domestic cattle slaughter finished 2012 at the highest level in over a decade, up 20pc year-on-year, with 2013 slaughter likely to remain at this level, if not higher, MLA’s recent Projections said.

The Korean government announced its intention to reduce the nation’s 3.3 million head herd (as at April 2012) down to a more sustainable 2.6m head by the end of 2013.

As a result,  total Korean beef imports contracted 14pc last year, with Australian shipments slipping 10pc year-on-year and the US, 18pc.