Australia and South Korea: Seoul mates

As the G20 approaches in Brisbane, it is important to recall that the G20 leaders meetings were the initiative of South Korea and Australia, when Kevin Rudd was Prime Minister and the world was facing the biggest economic crisis since the Great Depression in the Global Financial Crisis (GFC). The leaders acted swiftly and the G20 arrived as a major international economic institution.

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But it wasn’t the first time Australia has had help from Seoul on the world stage. In fact, South Korea has played an important role in Australia’s economic and diplomatic history.

"Australia clearly sees Korea as an important economic partner and leader in regional economic reform."
Tim Harcourt, Fellow in Economics, UNSW Business School

It was in Seoul 20 years ago, in 1989, that the Australian Prime Minister Bob Hawke launched the Asia-Pacific Economic Cooperation (APEC) concept following key work by Australia and the Republic of Korea to build the foundations of an Asia-Pacific community.

Hawke launched the APEC concept in a speech in Seoul in January and the first ever APEC meeting was held in Canberra in November that same year.

When the Airport Economist interviewed Hawke he paid tribute to the efforts of the Republic of Korea in helping set up an Asian-Pacific community “in response to the global economic tensions resulting from the end of the cold war.”

Hawke believed there was some fear at the time the United States,“unable to resolve its trade problems with Europe or Japan would potentially retreat into economic isolationism and that this would result in the formation of three major trading blocs based around the world’s three leading currencies”.

The former PM said both the Australians and the Koreans decided to develop APEC as a consensus-based organisation to help “strengthen the world economy and promote economic co-operation and freer trade.”

Since then, the Republic of Korea and Australia have not only been important partners in international diplomacy but have also become important trading partners. With both nations having endured the GFC, being close trading partners committed to openness and regional co-operation matters like never before.

South Korea, from being a closed ‘hermit kingdom’ 20 years ago, is now consistently one of our top-four trading partners.

Better times ahead

On one recent visit to Seoul, speaking with Matt Gurr and Jaewon Rim, Rio Tinto’s representatives in Seoul, I got the feeling there is some life being breathed back into the steel sector after a tough year for durables.

Gurr expected better times ahead from POSCO, Hyundai and the other Korean chaebols after some steel-price slashing. A high proportion of Australia’s resources action is in ferrous metals (supplied by Rio Tinto) and LNG (led ably by Sean Rodrigues in Seoul) so recoveries in industrial production will help Australian exports in those key sectors.

Of course, in agribusiness, beef is one of the key commodities in the Australian-Korea trading relationship. On one of the Airport Economist’s many visits to Seoul, the anti-US protests during the Mad Cow Disease crisis had boosted Australia’s beef exports to Korea. Australia still maintains a remarkable 61 per cent of the imported beef market in Korea.

According to Jim Lim, Korea’s regional manager for Meat and Livestock Australia at the time, “We’ve maintained our market share as we’ve been able to campaign on the fact that Australian beef is ‘clean and safe’ and we have a reputation as a supplier for being reliable and trustworthy.”

Lim warns it will be tough to keep up that share once US supplies return to normal although he does see room for expansion.

“Korea still only eats around one-fifth of the amount of beef that Australia eats on a per capita basis,” he says.  “There’s plenty of room to move, especially as Koreans in rural areas, move from pork to beef as their incomes improves.”

Lim is a key player for Australia in Korea. A self-described ‘1.5 generation Korean Australian’ (or as Austrade’s Seoul’s Young Yu calls them, ‘Kaussies’), Lim once headed Telstra telecommunications operations in Seoul.

He’s a bit of a ‘Mr Fixit’ for Australian companies looking to crack into the Korean market and he’s had remarkable success working in Korea on behalf of a number of Australian companies. Besides, he likes the challenge of taking on the US in the Korean beef market. “It’s like winning the America’s Cup!’ he quips.

Chance to transform

Two of Australia’s biggest payers in the financial services sector have a significant presence in Korea, including ANZ. Financial services are one of the key topics in recent Australian-Korean trade ties.

Experts in the region believe the GFC gave Korea an opportunity to transform itself, to change from the old ways of propping up inefficient companies.

The experience of both the ‘IMF Crisis’ of 1997-99 (what we call in Australian the Asian Financial Crisis) and the GFC has given Korea more confidence.

And Korea does have a reason to be confident, as like Australia, during the GFC, it avoided a technical recession. It was a compete contrast to the IMF crisis of 1997-99 which hit South Korea very hard.

So for Australian exporters – from resources to beef to financial services and even car parking (Wilson Parking recently set up in Seoul under the stewardship of Henry Louie) – and investors, Korea is going to be an important economic market for Australia in years to come.

The big picture

Whether it’s Hawke with APEC in 1989, Rudd with the G20 in 2008 or for any of our future Prime Ministers, Australia clearly sees Korea as an important economic partner and leader in regional economic reform.

Now in 2014, with Tony Abbott’s Prime Ministership, South Korea has again played an important role in boosting momentum for Australian economic diplomacy. The Abbott Government’s Trade and Investment Minister Andrew Robb signed a long-awaited Free Trade Agreement with South Korea. Agriculture and investment issues were at the forefront.

Robb says the Korea Australia Free Trade Agreement (KAFTA) will “be worth over $5 billion in additional income to Australia between 2015 and 2030 and will result in an annual boost to the economy of around $653 million after 15 years of operation.”

“By 2030 our exports to Korea will be 25 per cent higher than they otherwise would have been, and agricultural goods will be 73 per cent higher than they otherwise would have been,” he says.

“Tariffs of up to 300 percent will be eliminated on key agricultural exports, including beef, wheat, sugar, dairy, wine, horticulture and seafood. Increased exports under the FTA would create 1700 jobs on implementation.”

So, once again, South Korea has ‘beefed up’ with Seoul again playing a role in breaking the deadlock as a good friend and trading partner to Australia.

Australia and South Korea have long proved to be true Seoul mates.

This story is an excerpt from The Airport Economist’s new book, Trading Places – The Airport Economist’s guide to International Business, published by NewSouth Books.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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