Fran O'Sullivan: Farmers should be grateful

John Key had talks with the South Korean leader over the trade deal. Photo / File

Trade deal with South Korea was result of painstaking diplomacy by NZ officials

The headline over Federated Farmers' press release on the South Korean free trade deal - "better than nothing" - was remarkably ungracious.

To be fair, the Feds' president William Rolleston did go on to acknowledge the "$65 million reduction in tariffs in the first year is meaningful to our primary industries".

But the headline demonstrated a lack of realism when it comes to assessing just what gains are possible through bilateral trade deals for agricultural outside of the WTO; this was underscored by Rolleston's comments that what was achieved through the FTA was an "absolute bottom line for the quality of outcomes for further agreements".

Everyone pursuing this difficult free trade agreement (FTA) has been doing the hard yards: John Key with his personal diplomacy with President Park Geun-hye by emphasising the role that New Zealand played coming to South Korea's defence in the Korean War; Trade Minister Tim Groser with his counterpart Yoon Sang-jick; MFAT chief trade negotiator David Walker and more.

Let's introduce some realism here.

The South Korean side was in no hurry to cut a deal.

Their diplomats put the word about there was little in a trade deal with New Zealand from their point of view. Particularly, as this country had liberalised its economy decades back and had removed tariffs from most manufactured goods entering New Zealand.

Their diplomats suggested if there was not a substantial quid pro quo for South Korea it would be difficult to get support within the Korean parliament to pass the relevant trade legislation.

The upshot was that New Zealand had to make a very skilful case -- assisted by pain-staking diplomacy -- to get the FTA to conclusion.

For instance, it was due to be announced at the East Asia Summit in Myanmar. But Key told us the announcement was deferred -- at President Park's request -- to the meeting in Brisbane. That is because the South Korean president did not want to have attention drawn to the NZ deal at a critical time in getting parliamentary support in Seoul for the Australian and Canadian deals that are already signed.

New Zealand's deal still needs to be legally verified; signed off; a national interest case made and agreed in our Parliament -- and of course it will have to get through the Korean political process.

This is not plain sailing.

At the weekend the TPP protester and law professor Jane Kelsey could not find one good thing to say about the Korean agreement. But the respective agricultural lobbies -- dairy, beef and lamb, and kiwifruit -- do see some real gains coming.

It's important to note here the contribution made by the NZ International Business Forum whose chairman Sir Graeme Harrison and CEO Stephen Jacobi led some careful business diplomacy to help create a supportive constituency within South Korea for the FTA.

Sir Graeme was right on the button when he noted that Korea is a significant trading partner for New Zealand and a number of key export sectors including dairy, meat and kiwifruit stood to be severely disadvantaged if NZ could not achieve a more level playing field with its key competitors in the Korean market, notably Australia, Canada, the European Union and the United States, all of whom have already concluded FTAs.

The negotiation had been difficult and all that New Zealand might have wished is unlikely to have been achieved.

"While we still need to analyse the content of the FTA, we are confident that officials were fully aware of New Zealand interests and have done the very best they can. Korea's growing interest in joining the Trans Pacific Partnership (TPP) provides us an opportunity to seek stronger outcomes in those areas where our full ambition may not have been realised," said Sir Graeme.

The gains are considerable: Tariffs on the vast majority of dairy tariff lines will be eliminated over reasonable periods. For cheese, there will be a transitional quota of 7000 tonnes growing at 3 per cent per year until elimination. For butter, there will be an 800-tonne quota increasing at 3 per cent per year until elimination. The agreement also includes a permanent quota on milk powder which begins at 1500 tonnes and then increases at 3 per cent per annum until year 10.

Kiwifruit growers are upbeat. Over the past year Zespri growers have paid approximately $20 million in tariffs into this important market. "It is hugely satisfying that the industry can focus on building sales in the South Korean market, which will benefit both New Zealand and South Korean growers, as well as South Korean consumers," says Zespri CEO Lain Jager.

"With volumes of our new SunGold variety increasing to over 50 million trays by 2018, this gives us a strong platform to build sales in this market."

Korea is New Zealand's fourth-largest beef export market by volume, taking nearly $110 million of beef exports last year. However, the trade volume has dropped significantly in recent years, at least in part due to the tariff advantage enjoyed by US beef exporters under that country's 2012 FTA with Korea.

New Zealand beef currently faces a 40 per cent tariff when it enters the Korean market, but the FTA will remove that tariff over a 15-year period. The Korean tariff on US beef is at 32 per cent and is also being phased out over 15 years.

New Zealand's beef exporters were at risk of losing their competitiveness in the Korean market due to previous deals with the US and Australia. But now they are in the game.

Next time the Feds frame a press statement on a trade deal they should use just one word: "Thanks."

• Fran O'Sullivan is a business columnist for the NZ Herald and Alexander Speirs (right) is a business journalist for Herald Business Reports