Australian agribusinesses, law firms, accountants and telecommunications companies are likely to receive a boost from the signing of a free trade agreement with South Korea, but rice farmers and car manufacturers will receive the short end of the stick.
The release of an 1800 page document detailing the agreement today anticipates a $653 million a year boost to the economy.
Trade with South Korea is expected to lift by 23% by 2030 and agricultural exports are predicted to be up by 73% come 2030.
The boost to Australian agribusinesses comes as the FTA will see import tariffs removed on the majority of agricultural exports, with the exception of rice.
Australian telecommunication companies will be able to have much greater control over South Korean service suppliers and Australian financial service suppliers will be able to open in South Korea.
It will also be easier for South Korean companies to invest in Australia, with the foreign investment review threshold to be increased from $248 million to $1.078 billion, the same amount for New Zealand and the United States.
The founder of export consultancy firm Dearin and Associates, Cynthia Dearin, told SmartCompany there will be cultural challenges for Australian businesses new to doing business in South Korea.
“It will be a good thing for Australian businesses because it allows them to compete with their US and European counterparts who are already competitive in South Korea,” she says.
“But culturally it’s very different to Australia and that is going to pose a challenge. It’s essentially dealing with a new culture and a whole different way of doing things with different societal values. Australian businesses won’t necessarily be equipped to dealing with those.”
Dearin says the South Korean environment tends to be more “conformist”.
“People who do business in South Korea say it can be a challenge and find the Korean approach quite alien. They have hierarchical lines of management and are quite regimented and the concept of people’s honour is given very high importance.”
But despite the challenges she says there will be a number of opportunities for businesses, especially law firms and agricultural companies.
“I think the legal services industry is very interesting because Korea imports 90% of its energy needs. They’re always in need of lawyers to deal with energy matters, so if you do energy law and you’re in legal services, this is a very exciting opportunity,” she says.
“Agribusiness will also be one of the key sectors to benefit. Because we’ve been facing tariffs, Australia hasn’t been as competitive, but we have a reputation worldwide as a safe food source and now we’ll have the opportunity to compete with other exporters.”
Dearin says even beef tariffs are due to be phased out over the next 15 years, but rice farmers are unhappy because tariffs will remain on their products.
Another Australian sector disadvantaged by the deal is car manufacturing.
“When you do an FTA it’s a trade-off. In order to reach an agreement both parties can live with there has to be some compromises. It’s just like any partnership,” Dearin says.
“Had the government kept pushing for there not to be a tariff on rice, it might not have reached an agreement so quickly. Equally, South Koreans are very happy because we have removed tariffs on auto-imports, which makes South Korean cars more affordable, but it’s not good news for the Australian car manufacturing sector which is struggling.”
Dearin says the value of the FTA with South Korea to Australia will depend on how quickly and how many businesses take up the new opportunities.
“It’s tipped to generate about $5 billion in value in the next 15 years. So you’d expect to see a few million dollars in the next year, but it depends on how aware businesses are of the agreement and how many have it factored into their exporting strategy,” she says.