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MLA forum: Aus beef awaits Korea FTA ratification

James Nason, 29/04/2014

For the past decade South Korea has been the ‘quiet achiever’ of Australia’s export beef industry, a solid and steady market that has consistently taken between 120,000-140,000t of Australian beef each year.

However events in the next eight months are set to shape how well Australian beef can compete in the market over the next 10 years.

The Korean market attracts fewer headlines than the bigger markets of Japan and the US, or the bright new emerging stars on the export horizon such as China and Indonesia, but for more than a decade it has quietly retained the mantle of Australia’s third largest export market.

Korean beef imports were traditionally dominated by US product until a BSE detection in 2003 saw American beef shut out of the market for five years.

Australia gained a solid foothold during that time, and has continued to maintain a roughly 50pc share of the export beef market since the US re-entered the market in 2008.

US exports to Korea have grown considerably since re-entry, but the import market has also grown during that time, meaning that Australian export volumes have held relatively firm year-on-year despite the increasing volumes of US product in the market.

Meat & Livestock Australia’s Korea region manger Michael Finucan told a producer information forum in Dalby yesterday that the Korean import market is expected to grow in coming years as demand increases and local Hanwoo beef production comes off a recent peak, which will present a growth opportunity for Australian exports.

However much will hinge on whether the recently signed Free Trade Agreement between Australia and Korea is ratified before December 31.

As has been well documented, the US gained a significant competitive advantage to Australia in the market two years ago when it ratified a Free Trade Agreement with Korea (KORUS) in early 2012.

Prior to that agreement US and Australian beef were both subject to import tariffs of 40pc.

Since the KORUS was ratified in 2012, tariffs on US beef have decreased by 2.66pc per year, and will continue to fall by that amount each year until a 0pc level is reached (that is due to occur for US beef in 2026).

Tariffs for US product in Korea have fallen to 34.7pc this year, giving US beef a 5.3pc advantage over Australian beef, which still remains subject to the full 40pc tariff.

Australia’s beef industry is now facing some urgency to see the recently signed Free Trade Agreement between Australia and Korea ratified before December 31.

Like the KORUS FTA, the Australian-Korea FTA (KAFTA) will see tariffs on Australian beef ease by 2.66pc per year from 40pc to 0pc over a 15 year period.

If the KAFTA can be ratified before December 31, Australian tariffs will drop by 2.66pc to 37.3pc on January 1, at the same time that tariffs on US beef drop by another 2.66pc to 32pc.

If ratification can be achieved before December 31, tariffs on Australian beef will then track at 5.3pc above tariffs on US beef until Australia finally reaches a 0pc tariff situation, likely to occur in 2028.

However, should the ratification process be delayed and drift into next year, Australia will remain at a perpetual 8pc disadvantage to the US in Korea for the next 13 years.

The good news is that the prospects of ratification before December 31, 2014 appear strong, Mr Finucan said, with both countries showing strong public signs of support for the agreement. In Korea, improving foreign trade has been a central plank of Park Guen-Hye’s policy platform as president.

Mr Finucan said it is hoped the formal introduction can be secured at the G20 Summit in Brisbane in November, when President Park is next due to visit Australia.

“If we don’t get this FTA across the line by December 31 we will be stuck with an 8pc differential, so it is very important that it goes through this year,” he told an audience of southern Queensland cattle producers in Dalby yesterday afternoon.

“The view of importers and general trade is that with currency and the product Australia is exporting to Korea, a 5.4pc differential is manageable, but if we start getting into that 8pc range it will have a much bigger effect.”

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