Good for the Seoul

By moving towards a free trade agreement and strengthening defence ties, Australia and South Korea are seeking to maximise their influence in a rapidly changing region.

Seoul and Canberra announced a joint security cooperation agreement on March 5 and took a step forward with negotiations on signing a free trade agreement (FTA) during South Korean President Lee Myung Bak’s visit to Australia.

The deals reflect an improvement in both South Korea’s and Australia’s international relationships, as both countries continue to adjust to changes in trade patterns and US security ties in the region.

In recent years, Seoul has sought to expand its FTAs to increase its economic competitiveness, particularly in the face of continued competition from Japan and more recently, China. South Korea signed an FTA with Chile in 2003, another one with the Association of Southeast Asian Nations (ASEAN) in 2006, and more recently one with the United States, even though South Korea is bogged down with interest group politics in both countries. Seoul is also seeking an FTA with the European Union, New Zealand and Canada.

During the visit, Lee and Prime Minister Kevin Rudd agreed to begin the formal phase of FTA negotiations in May. According to the Australian trade ministry, the two countries’ total trade was about $22.8 billion in 2007-2008, with Australian exports accounting for $16.1 billion worth of crude oil, coal, iron ore, beef and aluminium, and Korea providing the rest in cars and electronics. The Australian trade ministry estimates that an FTA with Korea could increase Australia’s gross domestic product (GDP) by $22.7 billion over the next 14 years. For Seoul, Australia serves not only as a trading partner, but a nearby supply of natural resources to feed South Korean industry.

Free trade deals are never easy, given the difficulty of striking a deal that satisfies the governments and industries involved. Frequent public opposition and the current economic climate also complicates an FTA, and raises the spectre of protectionism. But in East Asia, FTAs have been very popular tools for both synching up intra-regional trade to lessen the impact of changes in consumption in North America and Europe, and to gain preferential access to emerging markets. Not long before Lee’s visit to Canberra, Australia and New Zealand agreed to an FTA with ASEAN, suggesting such deals are not being hampered in the region at this time.

In addition to the economic talks, Lee and Rudd signed an agreement on defence cooperation. Both Seoul and Canberra are key US allies in the Asia-Pacific region, and both have been urged by Washington to step up their own in regional security. Seoul has already shifted its defence procurement and research to allow for a more independent and robust military capability, as Washington reduces its direct role on the Korean peninsula and prepares to give South Korea primary responsibility for its defence against North Korea. And Australia is looking to ensure its ability to influence security and stability in its near abroad, particularly in Indonesia.

Both countries are also cautious about the direction of Washington under the new administration. Seoul is worried about having reduced influence in Washington’s talks with Pyongyang, and Canberra is concerned that US relations with China could sour under a Democratic administration, placing Australia in an awkward spot between the two. While both countries will remain firmly within the US alliance structure, and neither has any interest in opposing the United States, they both recognise that there are areas – namely regional security and trade – where they can assume a greater role in determining their own actions.

Stratfor provides intelligence services for individuals, global corporations, and divisions of the US and foreign governments around the world.

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