Korean beef safeguard to trigger this week
Ken Wilcock, North Queensland Register (AU)
17 Nov 2020
TRIGGERING the Korean beef import safeguard has become a final-quarter ritual for Australian beef exporters with this year's tariff-impacting mechanism set to trigger any day now according to latest advice from MLA.
The casual observer might wonder how that could be when this year's safeguard is set at 174,087 tonnes and Department of Agriculture progressive statistics for the calendar year to October show just 127,900t exported.
The answer to that riddle lies with the fact that the figures that matter are those compiled by the Korean authorities on cleared product entering the country.
Any product cleared through Korean customs on January 1 would have been exported in the latter part of the preceding year so immediately there is going to be a difference between one country's export figures and another's count of cleared imports.
The other factor is that once safeguard is triggered, any carry-over product is counted against the following year's safeguard allocation.
With Australia triggering safeguard each year since KAFTA (Korea-Australia FTA) came into effect, the addition of this carry-over product together with increasingly strong trading volumes has caused the trigger date to creep forward despite increases each year in the safeguard volume.
In 2015 safeguard was triggered in November and each year from 2016 to 2019 it crept forward into October.
This year tonnage has generally been down by 5-6 per cent so that has served to push the trigger back into November.
Once triggered, the current-year 21.3pc tariff reverts to 30pc until December 31, 2020.
That is an 8.7pc price hike which importers must either accommodate in their downstream trading or pass back to Australian exporters. Alternatively at this late stage of the year, they may also consider holding product in bonded storage until January 1, 2021 when the tariff rate resets to 18.6pc.
But of course Australia does not enjoy the Korean market in isolation.
Major competitor the United States has a 5.3pc tariff advantage because they got their FTA into place two years earlier than Australia. The current relative disadvantage vis-à-vis the US once safeguard is triggered is therefore 14pc.
Unfortunately this relative disadvantage does not improve over the remaining time frame of the gradual wind down to zero tariff in 2028 under KAFTA. In fact it gets substantially worse.
Australia remains at risk of triggering safeguard because the trigger level increases by only 2pc per year which effectively caps exports at 180,000-200,000t for the next eight years.
In contrast the US is unlikely to ever trigger safeguard because of the much higher trigger level (318,000t in 2020) established under the Korea-US Free Trade Agreement (KORUS).
While there may be a tendency to think the US trade negotiators may somehow have been better at their task than their Australian counterparts, the reality is that essentially the same formula for establishing safeguard was applied to both trade deals.
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