Posts tagged ‘Australia’
As anticipated, on 22 November 2011, the National Assembly passed legislation to implement the Korea-United States (KORUS) Free Trade Agreement (FTA). The relatively peaceful passage of the legislation marks a significant step towards defusing the potential political impact of the FTA on the ruling Grand National Party (GNP) in the lead up to key elections in 2012. However, there remain several potential challenges.
President Lee Myung-Bak’s visit to Hawaii for the APEC Leaders’ Summit 2011 will involve some awkward moments. However, these moments may also reflect a sign that South Korea is about to lose the momentum it has gained in trade liberalisation.
On 25 August 2011, Canadian Heritage Minister, James Moore, announced that Canada would decline the invitation to participate in the 2012 Yeosu Expo, citing budgetary pressures and the desire to focus on key domestic priorities. Read more
On 14 February 2011, the state-owned resources company, Korea Resources Corp (Kores), and POSCO controlled Daewoo International Corp, announced that they had submitted a non-binding offer to purchase Australian coal miner, Whitehaven Coal Ltd.
Whitehaven Coal, valued at USD3.5 billion, produces coking and thermal coal from four open-cut and two underground operations in the state of New South Wales. Australia is the globe’s largest exporter of coal, with relative proximity to North Asia, political stability, regulatory transparency, and continuing strong demand pushing foreign interest in the sector.
However, like other resource exporting states, Australia has experienced an increase in resource nationalism. The reliance of the ruling Australian Labor Party (ALP) on rural-based independents means that resource nationalism is increasingly translating into direct political pressure.
The Australian Foreign Investment Review Board (FIRB), which regulates foreign investment, has started to pay closer attention to the sector, with state-owned foreign investment coming under particular scrutiny. Whitehaven is one of only three top-tier coal exporters that remain predominantly locally-owned and will attract substantial scrutiny by the FIRB.
As expected, January 2011 core inflation figures were above the Bank of Korea’s target range, with the consumer price index rising 0.9 percent month-on-month, and 4.1 percent year-on-year.
Food prices have been a particular concern with fresh food products rising 30.2 percent year-on-year. Raw produce speculation across the region and the lead-up to Lunar New Year have contributed to food price rises. Extraordinary contributing factors also continue unabated with foot-and-mouth disease, avian influenza, and now substantial sugar price rises expected from recent weather events in Australia, furthering price pressures. Inflation and food prices in particular, carry an inherent political risk.
The Lee Myung-Bak administration has to date demonstrated that it considers inflation as a priority and is poised to take further measures. In a televised interview on 1 February 2011, President Lee stated that the government was currently considering reductions in taxes and import tariffs on food and energy. The public focus accorded to the issue substantially reduces high-impact political risk factors associated with food price inflation but will inevitably add to wider public dissatisfaction.
Free Trade Agreement (FTA) negotiations with Australia are now in their final stages. Both sides would like to announce the completion of negotiations during 2011, which marks the 50th anniversary of diplomatic relations.
A tentative visit by Australian Prime Minister Julia Gillard to Seoul planned for March 2011 presents an ideal opportunity for an agreement to be announced. Both sides are aware that a final deal depends to a degree on the progress of the Korea – United States (KORUS) FTA through the National Assembly and the United States Congress.
The KORUS FTA was an important driver in both sides willingness to negotiate and may prove to be equally important in the final stages.
However, the KORUS FTA may ultimately prove to be detrimental to the Korea-Australia FTA. An important aspect of any FTA is the ‘head-turning’ effect, which is thought to contribute to the expansion of trade as the increased degree of media attention exposes new and existing opportunities. The timing of the Korea-Australia FTA may mean that any head-turning effect will be quickly eclipsed by the more newsworthy KORUS FTA.
On 5 January 2011, the Ministry of Strategy and Finance (MOSF) stated that food will be included in the price control measures to be announced on 13 January 2011.
In 2010, Korea’s average inflation rate remained within target levels at 2.9 percent, however, food prices reached 16-year highs in the second half of the year. The price rises in basic commodities in December 2010 and the ongoing impact of Foot and Mouth Disease (FMD), are now beginning to flow through to consumers, with substantial price rises expected as Lunar New Year approaches.
The rapid rise in food prices is not unique to Korea. The United Nations Food and Agriculture Organization (FAO) has stated that the global food price index for December 2010 was at its highest level since records began in 1990. Concerns regarding rapid food price rises have already prompted government action in China, India, Indonesia, Singapore and Taiwan. Measures have included direct control over prices, the release of government stockpiles and the encouragement of private production.
The Lee Myung-Bak administration has strongly promoted its efforts to fight inflation and the price control measures to be announced on 13 January 2011 have attracted substantial media interest. This presents a risk that the administration will be perceived as ineffective as prices continue to rise due to external conditions.
On 27 December 2010, the Korean Ambassador to Indonesia signed a USD600 million bilateral framework agreement between the two countries, which will provide loans to Indonesia to aid in the financing of information and communication technology (ICT), infrastructure ‘green’ projects between 2011 and 2013.
The amount provided is a significant increase from the USD149.9 million development funding provided between 2007 and 2009. South Korea–Indonesia ties have been developing rapidly in recent years. Indonesia has become a key target for South Korea due to its economic growth; labour, natural, food and energy resources; and its investment climate, which has proven to ideally suited to Korean business.
However, the substantial growth in strategic and defence ties has drawn increased regional concern with the two countries now closely cooperating in the production and supply of fighter jets, training aircraft, submarines, armoured personnel carriers and strategic infrastructure.
The Finance Ministry has announced that South Korea will seek further Free Trade Agreements (FTA) in 2011, particularly with trading partners in the Africa and Latin America regions.
South Korea currently has FTAs with 16 states and is in negotiation with 12 further states. However, current negotiations underway are experiencing varying degrees of success. Three factors are driving the expansion of South Korea’s FTA load.
Firstly, the continuing lack of consensus towards multilateral trade liberalization leaves bilateral and plurilateral trade liberalization as acceptable second-best options. South Korea currently has no viable plurilateral options.
Secondly, South Korea’s increasingly alarming trade reliance on China has set in motion concern regarding China’s politico-strategic influence over Korea. This was clearly demonstrated in the recent quiet capitulation of South Korea in the collision of a Chinese fishing vessel and South Korean Coast Guard vessel.
Finally, and most importantly, South Korea now views FTAs as viable vehicles to improve medium-term energy, raw-material and food security. The continued expansion of South Korea’s FTA will inevitably place a burden on MOFAT resources but will ultimately improve South Korea’s economic security.
