South Korea-New Zealand FTA: New Direction in Trade

New Zealand and South Korea signed their 13th bilateral free trade agreement (FTA) on March 8, cutting trade duties by approximately $65 million in its first year. South Korea and New Zealand have engaged in more than five years of negotiations on lowering trade barriers between the two nations, nations as the bilateral trade reached a net worth of US $3.26 million in 2014.

From an economic and international commerce standpoint, there are multiple reasons to believe that South Korea and New Zealand have made a wise decision by rectifying this FTA. South Korea is one of the most outstanding players in free trade and export in the Far East. The Asian Tiger leads the world in many high-tech industries and is also known for consistently exporting its heavy manufacturing products, especially automobiles and automotive apparatuses. South Korea has traditionally enjoyed partnerships with a myriad of trade partners all over the globe, maintaining time-tested trade relationships with world trade hubs like China, the United States, Turkey, and the EU.

However, despite South Korea’s active role in global trade, the country is geographically small, and its production capacity cannot be compared to the sheer volume of economic output of neighboring China and Japan. The Korean Peninsula’s mountainous terrain has historically limited the size of the ROK’s agriculture industry, despite marvelous improvements in South Korean agriculture efficiency.

New Zealand seems like a direct opposite, and a perfect trade partner for South Korea. A small island nation with a modest population that was once under the dominion of the British Empire since 1907, New Zealand has traditionally depended on global trade with nearby Australia as well as the EU and the UK. Despite its limited size, the land of New Zealand is fertile thanks to its geographical conditions, which fosters a robust agriculture industry, with its dairy industry renowned for producing the world’s richest milk. In contrast to the ROK, New Zealand imports a great portion of its heavy industrial goods, such as steel from China and cars from Japan.

Considering the industrial structures of both nations, it is no surprise that this new Korea-New Zealand FTA is heavily focused on Korean auto products and New Zealand dairy produce. The FTA’s timeline schedules to remove most of the tariffs on South Korean and New Zealand products  by 2022, as both Korea’s famed automotive and electronics sectors and New Zealand agriculture sector are likely to benefit significantly. While this FTA is economically beneficial for both sides, there is little evidence that it is dramatic or revolutionary.

Both South Korea and New Zealand have been actively exporting their famous products for decades. China, for instance, have been importing New Zealand dairy products long before South Korea and at a higher volume, while the South Korean automaker Hyundai has been shipping their vehicles all around the globe since the beginning of last decade.

So does this FTA in fact hold any significance beyond its apparent economic value?

The answer to this question can perhaps be found in the slow, but nonetheless occurring rise in importance of the “forgotten” Oceania region in the media. While the dynamics in East Asia attracts attention from international media,, it often overlooks the South Pacific region.

In November, 2014, Chinese president Xi Jinping went on his Pacific Islands tour, reviewing the fruits of Chinese investment in areas such as Polynesia. At that time, Chinese investment in the South Pacific was surprising high, to the extent that China had become primary trading partners with countries such as Fiji, ahead of other smaller nations in the region. Xi expects that Chinese investment in the South Pacific will soar to $1.25 trillion in the next decade.

The significance of this FTA between South Korea and New Zealand is this gradual growth in connections between East Asian countries the South Pacific. For South Korea, extending its trade network to a mutually-complementing agriculture counterpart like New Zealand will be beneficial for its industries, as well as creating a tie in the region. As for New Zealand, inviting Asian investments and strengthening ties through trade may be the new tide.

Needless to say, East Asian economies are turning their attentions to opportunities in the South Pacific, which will likely augment trade traffic between Oceania and East Asia.