Fran O'Sullivan on business

Business analysis and comment from Herald columnist Fran O'Sullivan

Fran O'Sullivan: Key needs to get tough over trade deal

24 comments
Prime Minister John Key attends a meeting with the South Korean president. Photo / Getty Images
Prime Minister John Key attends a meeting with the South Korean president. Photo / Getty Images

Prime Minister John Key will be disappointed to leave Seoul without a firm commitment from Lee Myung-bak to finalise the bilateral free trade negotiations before the South Korean President leaves office this year.

Lee formally launched the FTA talks when he visited Auckland three years ago. Back then the businessman-turned-politician presented himself as a free trade rock star; a force for trade liberalisation at a time when there were fears of rising global protectionism and an important ally for New Zealand as the world put the global financial crisis behind it.

But Lee has proven to be a disappointment: there have been too many false dawns during these long but erratic bilateral talks. The cold reality is that Lee has not (yet) been prepared to spend sufficient of his own political capital to get the New Zealand-South Korean deal across the line.

Importantly, Key and Lee have not publicly set a negotiating deadline to conclude the deal. Until they do, they are simply shadow-boxing.

It must be infuriating for Key to have to put on his "smiley face" in Seoul yet again to ramp up pressure to get the Korean FTA on track.

After his 2010 official visit, Key claimed New Zealand was within touching distance of cementing a lucrative deal. The two leaders had agreed their countries would look at areas for co-operation such as greentech and broadband technologies.

Two years on, precious little has happened and agriculture remains a sticking point.

In Seoul this week, Key warned the Kiwi Chamber, whose members comprise businesses from both sides, that NZ and Korean companies faced trade displacement from competitors from countries which already had preferential deals.

Exporters such as Fonterra and Zespri would face higher tariffs than their competitors as other countries finalised their deals. Samsung and Hyundai would face similar competitive displacement from rivals from China or the Asean nations which had FTAs with New Zealand.

The Kiwi Chamber is a useful network.

But to get real cut-through Key needs the overt backing of the Korean International Trade Association, Korea's largest economic organisation which represents more than 65,000 trading companies, and, support from the powerful Korean FTA Alliance.

It was the Korean FTA Alliance which supported the Lee Government's push to negotiate free trade deals with as many influential countries as possible (including New Zealand).

It has much more clout than the chamber and could usefully nudge Seoul to finish the deal in the same way the US Chamber of Commerce lobbied the White House to join the Trans-Pacific Partnership.

It is worthwhile remembering that when Lee came to Auckland in early 2009, Seoul was in the vanguard of its Korea Global strategy.

Talented negotiators led by then-South Korean trade minister Kim Jong-Hoon were pursuing deals with many partners including India, the EU, Australia (and New Zealand) and various Latin American countries.

Seoul was also pursuing a deliberate strategy to "encircle America with FTAs" as former South Korean foreign minister Yu Myung-hwan frankly admitted to me.

The South Korean pincer movement was designed to rapidly create competitive pressure on US companies as South Korea and its FTA partners created preferences for each other.

The upshot was powerful lobbies such as the US Chamber of Commerce turned up the heat on the Obama Administration to ratify the Korean United States FTA which had been stuck in the Congress. The deal is now in place and Lee's failure to strongly push the NZ talks through to their conclusion makes it look as if New Zealand was simply a pawn in a bigger play.

To avert this perception, Key could also usefully resort to harder-nosed megaphone diplomacy and call Lee out on South Korea's intransigence.

Using the blunt language that businessmen respect, Key could tell Lee that New Zealand wants more out of its relationship with South Korea than to be treated as a pawn in the larger player's international trade strategy, that New Zealand came to South Korea's rescue when it was invaded by its northern neighbour in what became known as the Korean war, that New Zealand is prepared to play a role in supporting South Korea's "middle power diplomacy" and that New Zealand is prepared to help South Korea achieve its strategic imperative to ensure food security for its citizens.

Adopting a more hard-nosed approach might just tip the balance.

The NZ International Business Forum has done an enormous amount of work to assist in building a domestic constituency in Korea for the FTA.

Leading players across this country's industry, agribusiness and service providers have attended seminars in Seoul with their Korean counterparts to build a way forward. This business-led diplomacy comes at a cost for NZ firms but they have trekked up to Seoul to press the case.

In truth there is strong complementarity between the two nations' agriculture sectors. New Zealand does not produce rice and had only a small portion of grain-fed beef - which was a sticking point for South Korean farmers in the US deal.

The influential Hyundai Research Institute predicts food crises as a result of world population increases in developing countries. The institute has suggested the Korean Government should try to secure overseas food in preparation for such crises.

Korea imports 70 per cent of its needs and sees the prospective FTA with New Zealand as helping to secure reliable food supplies for Koreans - a challenge that eludes its own agricultural sector.

The level of food self-sufficiency is low because of the lack of arable land. On a per capita basis there is only 0.04 hectares per person - much smaller that the 1.5ha in the US. The Korean dairy industry is substantially comprised of small holdings and is not on New Zealand's industrial scale.

The potential sticking problem from the New Zealand end is that South Korea also wants to achieve this through the proposed investment chapter in the FTA.

This would point the way for Korean companies to co-invest in the dairy sector here (and buy farms) - something that may not be popular in New Zealand right now.

From a Korean standpoint the gains from a reduction of New Zealand tariffs are not huge.

Apart from securing long-term food supply it also wants to use the negotiating process to drive a closer relationship to clear the way for more Korean investment in resources here such as forestry and energy.

Getting the talks back on to these strategic imperatives is more useful than playing up to Lee. There is long-term value to be had.

- NZ Herald

Have your say

We aim to have healthy debate. But we won't publish comments that abuse others. View commenting guidelines.

1200 characters left

Sort by
  • Oldest

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_a5 at 22 Aug 2014 02:15:31 Processing Time: 286ms