Within ten years, zero tariffs will cover 95.7% of Australian exports to South Korea and 99.8% vice-versa.
Once KAFTA is fully implemented there will be no tariffs either way, within eight years.
Only goods originating in either country and accompanied by a certificate of origin (COO) will enjoy duty preference. The rules of origin are designed to prevent transhipment, whereby goods from a third country are redirected through either nation to avoid import tariffs.
However, goods from Korea or Australia that are transhipped through a third nation, for instance Singapore, won’t lose their originating status if they do not undergo any changes and are only stored, repackaged, relabelled, or divided for transport.
These goods must remain under Customs control through the duration of their journey.
Goods that are not in compliance with the rules of origin are subject to the general rate of duty instead of the preferential rates under KAFTA.
Basically, if a good is wholly obtained or produced entirely in either Korea and/or Australia, it will qualify.
If a good is manufactured in either country using parts from other countries but meets certain product specification rules, then again it will qualify.
Andrew Hudson and Viv Lister of Gadens Lawyers, Melbourne explain that agreeing to kick-start KAFTA before the year’s end will result in exporters and importers benefitting from ‘year 1’ and ‘year 2’ tariffs reductions in quick succession.
“Export to Korea of some products such as unwrought aluminium, titanium dioxide, crude petroleum, natural gas, cherries, some types of tuna and asparagus for example will be immediately ‘tariff free’.
Australian beef, dairy, seafood and some fruit and vegetable producers in particular will benefit from two stages of tariff reduction in quick succession,” Mr Hudson said.
It is important for importers, exporters and service providers to assess export-readiness to take advantage of reduced tariffs and improved market access, he said.
This will require a review of the form of COO, which should be prepared by the exporter or the producer or obtained from an authorised body such as the Australian Chamber of Commerce and Industry or the Australian Industry Group.
The way in which goods can be shipped without losing preferential status should be assessed by any affected importers and exporters and it is important, Mr Hudson believes, to ensure they keep up to date.
Complying with product labelling, safety standards and phytosanitary requirements is also essential, he said.
On December 3, Australia’s ambassador in Seoul and Korean government representatives exchanged diplomatic notes confirming all requirements had been met and agreed on December 12 as the commencement date for KAFTA.
Federal trade and investment minister Andrew Robb said KAFTA is expected to result in an annual boost to the economy of close to $650m when fully implemented and is projected to create “many thousands of jobs over the next decade”.
Korea is Australia’s fourth-largest trading partner – with bilateral trade worth over $34bn in 2013/14.