After being disappointed by New Zealand’s trade agreement with South Korea nearly a decade ago, the dairy and deer velvet industries are hoping for better treatment second time around.
Prime Minister Christopher Luxon and his South Korean opposite number Yoon Suk Yeol recently announced the two countries would explore upgrading the 2015 agreement although did not set out a timeframe for doing so.
“I look forward to continued growth in our trade relationship and was pleased to announce that we will explore the possibility of an upgrade to our bilateral free trade agreement,” Luxon said.
Five years of often testy negotiations concluded with an agreement in November 2014, entering into force a year later after being ratified by Korean lawmakers in December 2015.
Kiwifruit had been the major winner with tariffs of 40% eliminated in six years, compared to the nine years major rival Chile had achieved in its 2003 deal with the Koreans.
Beef exporters were also reasonably content, achieving the same 15-year phasing-out of tariffs as Korea’s deals with competitors in the European Union, Canada, Australia and the United States.
The same could not be said for the dairy industry.
While hefty tariffs on butter, cheese and infant formula were to be phased out over a respectable 15 years, the Koreans were harder to budge on NZ’s key milk powder exports.
The Koreans conceded an initial tariff-free quota of a mere 1500 tonnes per year, equivalent then to three days’ production at Fonterra’s Edendale factory. This was to rise by a paltry 3% each year to a maximum of 1957t after 10 years. For all other milk powder exports the existing tariff of 176% was to remain.
But in 2015 hopes were high South Korea’s imminent application to join the TransPacific Partnership (TPP) would allow NZ to use its leverage as a foundation member of the 11-country trade agreement to gain more than the Koreans had been willing to give up in bilateral negotiations.
Fonterra’s director of global stakeholders affairs Simon Tucker said the withdrawal of the United States from the TPP by Donald Trump on his first day as United States president in 2017 dashed those hopes.
“When the US pulled out there was a bunch of those that had been around the table and those who were candidate countries who reassessed [joining].”
Tucker said the dairy industry welcomed the agreement being re-examined.
He said NZ exporters had been disadvantaged by not having the same market access as European and US rivals had achieved through their countries’ own trade deals.
“The Europeans are the biggest dairy exporters and the US and NZ are second and third.
“We all have market access deals into Korea so it is a pretty competitive market and obviously we would like to have the best possible access and where it is not as good as what our US and European competitors [have] we would like at least equivalent so we could compete on a level playing field.”
Deer Industry NZ chief executive Rhys Griffiths said when negotiations concluded the deer velvet industry had been disappointed at the outcome for tariffs for its single largest market.
While tariffs had been reduced on dried velvet, the 20% tariff on unprocessed velvet was left untouched.
At the time unprocessed velvet made up 75% of NZ’s velvet exports to Korea.
However Griffiths said the gradual reduction in tariffs on dried velvet coincided with a sharp increase in demand from Korean contemporary health food companies for the product.
Velvet exports to Korea had since increased from $20 million to $40m, with much of that growth in exports of the dried variety.
“It came just as we were beginning to engage with these healthy food companies that preferred the velvet dried in NZ just because of our regulatory system.
“Of course we said we were disappointed that we did not get unfettered market access but in reality having that outcome put us in a very good position to add more value here.”
Griffiths said the agreement as it stood took 15 years for tariffs to be fully phased out for dried velvet.
“It would be really helpful if we got that rate of [tariff] decrease increased or got free access as soon as possible and for consumers over there too.”
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