Korea-Australia free trade agrement: the impacts on the Australian economy

In: http://hdl.handle.net/1885/16105

Open Access

Abstract

This report provides an analysis of the Korea-Australia Free Trade Agreement (KAFTA) by specifically examining the implications for key Australian agricultural exports into Korea and key Korean manufacturing imports into Australia. The method of analysis used in this report include horizontal and vertical trend data, general equilibrium modelling, percentage price change from tariff removal and the change in exports and imports. This report aims to highlight the economic impact of removing barriers to trade in both Korea and Australia that has been agreed upon in KAFTA. As the focus of this free trade agreement has been on Australia's agricultural exports, this report will investigate the impact of the removal of tariff barriers in Korea on the Australian economy. Furthermore, this report will compare the bilateral trade agreements of KAFTA and the Korea-US Free Trade Agreement (KORUS) since both countries are competitors in the Korean agricultural market. Chapter one will provide the necessary background trade relationship between Australia and Korea which has served as the foundation for this agreement. It will also highlight the key tariff outcomes from the KAFTA agreement which will be explored further in the report. Chapter two will simulate the alternative scenarios where both KAFTA and KORUS are in place, and how these agreements will impact Australian merchandise trade with Korea. This simulation on merchandise trade will also be coupled with a simulation on the change in price as a result of the removal of tariffs on merchandise. The final chapter will focus specifically on the impact of the removal of tariffs on specific agricultural commodities (beef and cheese) and how this will benefit Australia. The findings show that Australian beef exports into Korea will see a 58 per cent increase while cheese will see a four-fold increase. This is then followed by a calculation on the cost of lost taxation revenue as a result of removing tariffs on Korean imports. The results found in this report demonstrate that there will be a net benefit to Australia if KAFTA is implemented. Australia's Gross Domestic Product (GDP) is expected to increase by 0.01 per cent as a direct result of implementing KAFTA. While Australia's agricultural exports to Korea are also expected to increase by 3 per cent. On the other hand, the cost to the Australian government will come in the form of lost taxation revenue amounting to $81 million in the first year of implementation. In consolidating all the results from this research, the report finds that there are substantial gains to be made in ratifying the free trade agreement not just for Australian agriculture, but for the Australian economy. As government to government negotiations in the removal of tariffs will have a direct impact on the future growth of an economy, this report supports the implementation of KAFTA as soon as possible.