Seoul mates: Korea, Australia and ‘The Great Recovery’

Seoul has played an important role in Australia’s economic and diplomatic history. In fact it was in Seoul 20 years ago, in 1989, that the then Australian Prime Minister, Bob Hawke launched the APEC concept following key spadework by Australia and the Republic of Korea to build the foundations of an Asia Pacific community.

Hawke launched the APEC concept in a speech in Seoul in the January 1989 and the first ever APEC meeting was held in Canberra in November of that year.

When I interviewed Bob Hawke recently, he paid tribute to the efforts of the Republic of Korea in helping to set up an Asian-Pacific community, “in response to the global economic tensions resulting from the end of the cold war”. Hawke believed that “There was some fear, that the United States, unable to resolve its trade problems with Europe or Japan would potentially retreat into economic isolationism and that this would result in the formation of three major trading blocs based on the world’s three leading currencies. Hawke said both the Australians and the Koreans decided to develop APEC as a consensus based organisation to help “strengthen the world economy and promote economic cooperation and freer trade.”

Since then, the Republic of Korea and Australia have not only been important partners in international diplomacy, but have also become important trading partners as well. And with both nations having had to endure the GFC, being close trading partners committed to openness and regional cooperation matters like never before.

Bilateral merchandise trade between the two nations remains strong despite the GFC. In 2008-09, trade was AUS$25.7 billion, up 26% on the previous financial year. While Australian exports did fall sharply in the first quarter of 2009, they have recovered to around 2008 first half levels. Services trade was worth around AUS$2.4 billion in 2008, which is slightly up on the previous year.

On a recent visit to Seoul, the airport economist got a better feel of Australia’s trading relationship with Korea than can be gleaned from the raw data alone. Speaking with Matt Gurr and Jaewon Rim, Rio Tinto’s representatives in Seoul, I got the feeling that there is some life being breathed back into the steel sector after a tough year for durables. After all, the GFC has been tough on all countries that focus on consumer durables and industrial production – with Singapore, Japan, US, and Korea all suffering – and stocks have been run down. But Gurr expected better times ahead from POSCO, Hyundai and the other Korean chaebols after some steel price slashing. A high proportion of Australia’s resources action is in ferrous metals (supplied by Rio Tinto) and LNG (led ably by Sean Rodrigues in Seoul) so recoveries in industrial production will help Australian exports in those key sectors.

Of course, in agribusiness, beef is one of the key commodities in the Australian-Korea trading relationship. On the airport economist’s last visit to Seoul, the anti-US protests during the BSE crisis had boosted Australia’s beef exports to Korea. While things should be returning to normal as US imports return to Korea’s shores, Australia’s still maintaining a remarkable 61% of the imported beef market in Korea.

According to Jim Lim, Korea’s regional manger for Meat and Livestock Australia, “we’ve maintained our market share as we’ve been able to campaign on the fact that Australian beef is ‘clean and safe’ and we have a reputation as a supplier for being reliable and trustworthy.”

But Lim warns that it will be tough to keep up that share once US supplies return to normal although he does see room for expansion. “Korea still only eats around one-fifth of the amount of beef that Australia eats on a per capita basis. There’s plenty of room to move, especially as Koreans in rural areas, move from pork to beef as their incomes improves.”

Lim is a key player for Australia in Korea. A self-described ‘1.5 generation Korean Australian’ (or as Austrade’s Seoul’s Young Yu calls them, ‘Kaussies’), Lim once headed Telstra telecommunications operations in Seoul. He’s a bit of a ‘Mr Fixit” for Australian companies looking to crack into the Korean market. But can a business representative move from two seemingly different industries as diverse as telecoms and beef? It seems that Jim Lim can, as he’s had remarkable success working in Korea on behalf of a number of Australian companies. And besides, he likes the challenge of taking on the US in the Korean beef market. “It’s like winning the America’s Cup!’ he quips.

In the financial services sector both ANZ bank and Macquarie Bank have a significant presence in Korea. Financial services are one of the key topics concerning the Trade Minister Simon Crean’s visit to Seoul.

According to John Walker at Macquarie Bank, the GFC is giving Korea an opportunity to transform itself. “Modern Korea’s first economic phase in the 1980s, was ‘perspiration’ as it worked up a sweat establishing itself as an industrialised country, then it moved into a phase of ‘aspiration’ as it joined the OECD, now it will be in a phase of ‘inspiration’ as it transforms itself to deal with a new world with the challenges of climate change. A company like Samsung will be completely different in five years time as it will reinvent itself to be a leading environmental player on the world stage.”

John Walker believes that the GFC has forced Korea to change from the old ways of propping up old inefficient companies but the experience of both the ‘IMF Crisis’ of 1997-99 (what we call in Australian, the Asian Financial Crisis) and the GFC has given Korea more confidence.

And Korea does have a reason to be confident, as like Australia, it avoided a technical recession. After a sharp contraction in December quarter 2008, Korea achieved a 0.1% growth in the March quarter and 2.6% in the June quarter. The Finance Ministry expects a growth rate of between 1.5-2% in 2009, with some think tanks and market economists expecting an even more robust result. Expansionary policies are still in place, and the Bank of Korea has kept interest rates at a record low of 2% for six straight months, although they may follow Martin Place if the stronger data continues.

So for Australian exporters – from resources, to beef to financial services and even car parking (Wilson Parking recently set up in Seoul under the stewardship of Henry Louie) – and investors, Korea is going to be an important economic market for Australia in years to come. And the signs of recovery also give reason for some cautious optimism too. And there’s been some good news for Australian-Korean relations on the ‘big picture’ diplomatic front as well. Now in 2009, 20 years from Bob Hawke’s speech in Seoul, another Australian Prime Minister, Kevin Rudd is working closely with Korea. It was at Rudd’s suggestion that Korea host the next G20 summit. In fact, there are similar parallels to 1989, a global crisis, a need for global and regional cooperation and Australia and Korea jointly taking an important economic and diplomatic leadership role. Whether it’s Bob Hawke with APEC in 1989, or Kevin Rudd with the G20 in 2009, Australia clearly sees Korea as an important economic partner and leader in regional economic reform.

Tim Harcourt is Chief Economist of the Australian Trade Commission (Austrade) and author of THE AIRPORT ECONOMIST.

Thanks to Chong-ae Lee, Jim Lim, Evanor Palac-Mcmiken, Charles Adamson, HJ Kim, John Walker, Henry Louie, Hee jin Lee, Yoing Doo Cho, Dokyun Kim, Matt Gurr, Jaewon Rim, Sean Rodrigues, Martin Walsh, Young Yu and Jaewon So and my colleagues from Austrade Seoul for their assistance with my visit to Korea.