SOUTH KOREA AND JAPAN UNDER THE CUTTING-EDGE AUSTRALIA FREE TRADE

AGREEMENTS [FTAS]: IS IT PROSPERING OR DECLINING?

C HA PT E R I : I N T RO D UC T I O N
1.1 Background
Australia has approximately small open economy which has thickly based its
economic growth on increasing exports, mostly natural resources, agricultural
commodities, and foreign capital. During the last decade, from 2004 to 2014 the
mining boom and Chinas rapid economic growth rendered an unprecedented
economic boost to Australias economic prosperity and high living standards. 1
Concurrently, Australia sought trade policies integrating multilateral, regional, and
bilateral approaches to gain market access opportunities for its exporters.
Consecutive governments have favored trade policies which are open in order to
negotiating regional or bilateral trade agreements which deliver substantial benefits.
In facts, the recent additions are Free Trade Agreements (FTAs) with South Korea
and Japan, which improve market access and strengthen trade flows are a crucial
vehicle to boost bilateral trade relationship and enhance domestic welfare (Dixon
and Rimmer 2010, p.143). These bilateral and regional trade agreements deliver
substantial benefits when the parties are prepared to move faster and undertake
more profound liberalization that what is currently achievable by the WTO
multilateral trading system (Lloyd and Maclaren 2004, Lloyd 2010).
The Abbott government secured the two latest free trade agreements in 2014
with South Korea and Japan, which is Australias second and fourth largest trading

http://www.businessinsider.com.au/charts-australia-is-increasingly-reliant-on-china-for-itsown-economic-prosperity-2015-6. Accessed on 21st April 2016.

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partners. Both of South Korea and Japan are significant destinations for Australias
national resource exports such as iron ores, copper ores, and coal in addition to a
range of agricultural goods. Australia receives a significant proportion of its
manufactured imports from both countries, in return. Given the obvious trade
complementarities, trade economists, and policy makers envisage significant gains
to Australia from these FTAs.2
In this paper, I try to analyze whether new Australias Free Trade Agreements
are giving advantages or disadvantages toward South Korea and Japan.

1.2 Purpose
The purpose why do I make this paper because I would like to determine
whether new Australias Free Trade Agreements are giving advantages or
disadvantages toward South Korea and Japan.

Lloyd, Peter. "Global Economic Integration." Pacific Economic Review 15 (2010): 71- 86.
Accessed on 21st April 2016.

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C HA PT E R I I : D I S C U S S I O N
2.1 Australian Trade Policy on Free Trade Agreements (FTA)
During the last two decades, there has been a world-wide proliferation of
Regional Trading Arrangements (RTAs) which has resulted in numerous trade
agreements. It is estimated that more than half of the world trade now takes place
within RTAs. 3 Australias commitments to a liberalized trade policy have been
closely aligned with the non-discriminatory global trading system promoted by the
WTO. Australia also undertook its own unilateral reforms after 1980s and
supported the creation of Asia-Pacific Economic Cooperation (APEC) and its
initiatives. However, slow progress in the multilateral system especially after the
WTO meetings in Seattle and Doha, the lack of consensus amongst APEC
members, and the rapid progress of RTAs in Asia prompted Australia to move in
the direction of bilateralism as it did in the recent past.4
In 1983, when the Australia-New Zealand Closer Economic Relations
Agreement (CERA) was negotiated, it has become one of the most successful FTAs
and it has contributed to a phenomenal growth in trade between the two countries
since its inception.5 After a period of strong support for multilateralism, Australias
trade policy took a significant turn towards bilateral FTAs. This resulted in a series

Lloyd, Peter, and Donald Maclaren. "Gains and Losses from Regional Trading Arrangements: A
Survey." Economic Record 80 (2004): 445-467. Accessed on 22nd April 2016.
4
Ibid.
5
Amstrong, Shiro. "Australian Trade Policy Strategy Contradictions." The World Economy 35
(2012): 1633-1644. Accessed on 22nd April 2016.

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of preferential trade agreements among Australia and some of its most important
trading partners.
2.2 Australias Trade with South Korea and Japan
It is clearly important to note that Asian trading partners that are within the top
ten account for nearly 50% of Australiss trade and five of them (Malaysia,
Singapore, Thailand, South Korea, and Japan) have implemented FTA with
Australia successfully over the last decade.6 Since Australia has now FTAs with
South Korea and Japan, China remains the next largest trading partners in Asia that
Australia will implement its tenth FTA in the near future. The importance of South
Korea as a trading partner to Australia has also accelerated since 2000 (Table 1.1).
Exports grew briskly over the period under consideration while imports display a
gradual upward trend.
Table 1.1

(Source: Australian Government, Department of Foreign Affairs and Trade http://dfat.gov.au)

Sen, Rahul. Free Trade Agreements in Southeast Asia, Singapore: ISEAS, 2004. Accessed on 22nd
April 2016.

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Australia has maintained a steady trade surplus with South Korea throughout
the period 1980-2013, which showed a sudden increase since 2006. This is a clear
evidence of a growing bilateral trade relationship between these two countries that
provides a promising foundation for FTA.
In addition, the bilateral trade between Australia and Japan from 1980 to 2013
was a substantial growth in trade appeared to have taken place due to following
trends, for over 33-year period (Table 1.2).
Table 1.2

(Source: Australian Government, Department of Foreign Affairs and Trade http://dfat.gov.au)

Exports of merchandise to Japan have increased rapidly from 2000 onwards

whereas imports of merchandise from Japan have shown a gradual growth.
Consequently, Australias merchandise trade balance with Japan has experienced a
significant surplus since 2000 and it has shown a sharp upward trend in recent years.

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2.3 The Japan Australia Economic Partnership Agreement (JAEPA)

Australia and Japan enjoy one of the most significant economic partnerships in
the east Asian region. The Japanese-Australian relationship has developed on the
basis of strong complementary interests and co-operation in a wide range of areas.
JAEPA now signifies a deepening and broadening of that historic trading
relationship. As at April 2014, Australia and Japan have reached substantive
agreement on the text of the JAEPA, but have not yet formally finalized the JAEPA
text.7 Both nations expect to formally sign the concluded text of the JAEPA in the
coming months. As the text of the JAEPA is not yet publicly available, the
following information is a summary of what is currently known.
2.4 The Korea Australia Free Trade Agreement (KAFTA)
South Korea is Asia's fourth-largest economy with a population of some 50
million people. Australias trading profile with South Korea is very similar to
Japan. Australia and South Korea have one of the strongest and most
complementary trading relationships in the Asia-Pacific. The public text of the
KAFTA was released in February 2014 and adopts an approach similar to that of
other FTAs that Australia has recently entered into. We expect that the text of
JAEPA and KAFTA should be very similar. The Australian Department of Foreign
Affairs and Trade has estimated that KAFTA will deliver over AUD 5 billion in
additional income to Australia between 2015 and 2030.

http://ris.dpmc.gov.au/2014/09/03/non-compliance-with-the-australian-governments-bestpractice-regulation-requirements-japan-australia-economic-partnership-agreement-jaepadepartment-of-foreign-affairs-a/. Accessed on 23rd April 2016.

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2.5 Does the Removal of Bilateral Tariffs give impact?

Removal of bilateral tariffs is also beneficial to both South Korea and Japan as
demonstrated by increased real GDP and welfare. In the absence of domestic
protection, cheaper agricultural and food products from Australia make consumers
better off in both markets and many industries which use raw material imported
from Australia can improve their competitiveness due to reduced production cost.8
At the sectoral level, South Korea appears to gain more than Japan as its pre-tariff
structure is more unfavorable to Australian exports which what exists in Japan.

Siriwardana, Mahinda. "Australia's Involvement in Free Trade Agreements: An Economic

Evaluation." Global Economic Review, 35 (2006): 3-20. Accessed on 23rd April 2016.

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AGREEMENTS [FTAS]: IS IT PROSPERING OR DECLINING?

C HA PT E R I I I : C L O S I N G
3.1 Conclusion
From the discussion, it can be concluded that new Australias Free Trade
Agreements (FTAs) give opportunity to improve partnership among South Korea
and Japan. Benefits from free trade come to all three countries. I might say, there is
a tendency to experience prosperity when these two Free Trade Agreements (FTAs)
are fully operated. I can see that both of South Korea and Japan appear to be
contributing more to it than Australia.

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B I B L I O GR A P HY
Amstrong, Shiro. "Australian Trade Policy Strategy Contradictions." The World
Economy 35 (2012): 1633-1644. Accessed on 22nd April 2016.
Lloyd, Peter. "Global Economic Integration." Pacific Economic Review 15
(2010): 71- 86. Accessed on 21st April 2016.
Lloyd, Peter, and Donald Maclaren. "Gains and Losses from Regional Trading
Arrangements: A Survey." Economic Record 80 (2004): 445-467. Accessed
on 22nd April 2016.
Sen, Rahul. Free Trade Agreements in Southeast Asia, Singapore: ISEAS, 2004.
Accessed on 22nd April 2016.
Siriwardana, Mahinda. "Australia's Involvement in Free Trade Agreements: An
Economic Evaluation." Global Economic Review, 35 (2006): 3-20. Accessed
on 23rd April 2016.
http://www.businessinsider.com.au/charts-australia-is-increasingly-reliant-onchina-for-its-own-economic-prosperity-2015-6. Accessed on 21st April 2016.
http://ris.dpmc.gov.au/2014/09/03/non-compliance-with-the-australiangovernments-best-practice-regulation-requirements-japan-australia-economicpartnership-agreement-jaepa-department-of-foreign-affairs-a/. Accessed on
23rd April 2016.

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