Korea-Australia Free Trade Agreement (KAFTA)
An Introdution to the Text of the Agreement
Korea-Australia Free Trade Agreement (KAFTA)
1. KAFTA is a comprehensive free trade agreement similar in form and content to Australia’s other comprehensive agreements, such as with the United States and Singapore.
2. The full Agreement comprises 23 chapters with associated annexes and schedules, and four side letters. These documents, together with additional explanatory materials, are available at dfat.gov.au/fta/kafta.
Preamble and Chapter 1: Initial Provisions and Definitions
3. The Preamble recites the historical basis, bilateral context and broad aims for KAFTA.
4. Chapter 1 establishes KAFTA, consistent with World Trade Organization (WTO) rules. The Chapter also sets out KAFTA’s relationship to other international agreements and provides general definitions to guide interpretation of the Agreement.
Chapter 2: Trade in Goods
5. The Trade in Goods Chapter prohibits the Parties from raising any tariff, and obliges the Parties to progressively reduce and/or eliminate tariffs in accordance with each Party’s applicable schedule contained in two Schedules of Tariff Commitments (one for Australia and one for Korea). It establishes the framework of rules for trade in goods between the Parties. It affirms a number of WTO provisions that already govern trade in goods among the Parties designed to promote transparency.
6. The Chapter ensures the consistency of KAFTA with the WTO Import Licensing Agreement. It requires each Party to provide information about their respective licensing requirements for imported goods promptly after the date of entry into force of KAFTA, and publish any new or modified licensing requirements.
7. The Chapter requires the Parties to ensure that any non-tariff measures are transparent and do not create unnecessary barriers to trade between the Parties. It provides a review mechanism to address non-tariff measures, on a case-by-case basis, through the establishment of a Committee on Trade in Goods that will consider methods to promote trade between the Parties and review any non-tariff measure identified by a Party. The Committee on Trade in Goods will consider approaches to better facilitate trade and may submit any recommendations to the Joint Committee for consideration or action.
8. The Chapter prohibits the imposition of export duties on goods destined for the other Party, unless the duty is also applied to goods for domestic consumption.
9. The goods market access commitments (Annex2-A) and tariff schedules for each country are attached to this chapter.
10. Set out in an appendix to the Chapter are the administrative procedures for agricultural country-specific tariff rate quotas (TRQ) that will apply to certain Australian imports into Korea (Appendix 2-A-1). It provides for the publishing of information regarding the utilisation of the TRQs and sets out a method by which the Parties may resolve any issues arising with the administration of TRQs.
Chapter 3: Rules of Origin and Origin Procedures
11. The Rules of Origin (ROO) Chapter and the accompanying Schedule of Product Specific Rules (Annex 3-A) establish the criteria for determining whether goods will qualify for preferential tariff treatment under KAFTA (whether a good ‘originates’ in Australia or Korea). The Chapter sets out the procedures and documentation for demonstrating that a good qualifies for preferential treatment and, if necessary, verifying that this is the case.
12. In general, a good can qualify as 'originating' under KAFTA if:
- wholly obtained or produced entirely in the country;
- it is produced entirely in either or both Korea and Australia, from materials that conform to the provisions of the ROO Chapter; or
- the product is manufactured in either or both Korea and Australia using inputs from other countries, and meets the Product Specific Rules and requirements specified in the ROO Chapter.
13. Wholly obtained or produced goods are typically agricultural goods and energy and mineral resources. Goods produced entirely from originating materials are products produced entirely in either or both Korea and Australia, exclusively from originating materials, with no imported material content.
14. For goods that contain inputs sourced outside the territories of KAFTA, a change of tariff classification (CTC) approach has been adopted. A good qualifies as originating if a transformation takes place defined in terms of a change in the tariff code of the input to the tariff code of the final product (for example, transforming gold into jewellery). The Schedule of Product Specific Rules sets out the specific CTC requirements.
15. For some goods, a regional value content (RVC) approach has been specified. Under an RVC approach, domestically sourced materials and processes must represent an agreed proportion of the final value of the product. The RVC component can take the form of either an additional requirement to the specified CTC, or can provide an optional test, allowing the product to meet a lesser degree of tariff change if the threshold is reached.
16. The Chapter includes provisions covering determination of origin, including: methodology for calculating regional value content; non-qualifying operations which do not affect originating status; treatment of accessories, spare parts and tools; treatment of goods where only a small proportion of inputs fail to meet the relevant ROO (the so-called de minimis principle); treatment of packing materials and containers; and transport of goods through non-Parties.
17. The Chapter also sets out procedures and requirements relating to documentation that the good satisfies the origin requirements. Australian and Korean exporters and producers of goods can self-certify through completing a Certificate of Origin (COO). Reflecting the trade facilitating nature of KAFTA, a COO can apply to multiple importations of the goods described in the COO. Australian exporters and producers also have the option to be granted a COO from an authorised body. Furthermore, KAFTA provides flexibility for each Party to waive the requirement of a COO under certain conditions.
18. The Chapter contains a provision relating to review and appeal of decisions on eligibility for preferential tariff treatment / determination of origin. The Chapter’s direct transport provision allows goods to be transhipped through, stored, repacked and relabelled in non-Parties and retain origin providing certain conditions are observed. The direct transport provisions are business friendly and reflect modern trading practices such as the use of distribution hubs.
19. The treatment of goods partially processed in outward processing zones, such as the Gaeseong Industrial Complex, is a matter for further consideration by a committee to be established under KAFTA. Under KAFTA Annex 3-B, the Committee on Outward Processing Zones is to review the conditions on the Korean Peninsula and identify geographic areas that may be designated as outward processing zones.
Chapter 4: Customs Administration and Trade Facilitation
20. The Chapter on Customs Administration and Trade Facilitation establishes arrangements for expeditious, predictable, transparent and simplified customs administration aimed at facilitating trade between the Parties. In particular, the Chapter encourages procedures that facilitate the clearance of low-risk goods, and provides for the use of advance rulings to give greater certainty to business, and ensure the availability of review and appeal mechanisms to address disputes.
21. The Chapter requires the Parties to provide for written advance rulings on tariff classification, valuation and origin to be issued in response to a request by importers or by exporters or producers in the exporting Party.
22. The Chapter promotes the use of information technology solutions to facilitate trade, and encourages a focus on a risk management approach to customs administration. It provides for the adoption of simplified procedures that ensure the prompt release of goods, including systems for urgent clearance, and which allow for advance, electronic processing before the arrival of goods.
23. The Chapter provides for the establishment of enquiry points for FTA-related queries and the publication of all statutory, regulatory and administrative requirements on the Internet.
24. There is a requirement for Parties to ensure importers have access to independent administrative and judicial review of decisions taken by their Customs administrations.
25. The Chapter provides for increased customs cooperation to facilitate the implementation of KAFTA, and to give advance notice of any proposed legal or policy changes which might affect KAFTA’s operation.
Chapter 5: Technical Barriers to Trade and Sanitary and Phytosanitary Measures
26. This Chapter affirms the Parties’ rights and obligations under the WTO Agreement on Technical Barriers to Trade and the WTO Agreement on the Application of Sanitary and Phytosanitary Measures. The Parties commit to ensure that technical regulations, including mandatory marking or labelling of products, do not create unnecessary obstacles to international trade. It provides for the establishment of arrangements for enhanced information exchange, cooperation and consultation. It identifies a range of possible vehicles for giving effect to enhanced cooperation. It recognises the benefits of increasing efficiency, avoiding duplication and ensuring cost effectiveness in conformity assessment procedures. It provides for the Parties to facilitate the acceptance of conformity assessment procedures. It also provides for the Parties to designate TBT Coordinators to facilitate cooperation between the Parties on standards, technical regulations and conformity assessment procedures.
27. The Chapter contains SPS provisions on arrangements aimed at strengthening information exchange, cooperation and consultation between the Parties and provides for the establishment of Contact Points. The Parties agree to hold technical meetings to review and monitor implementation of SPS commitments, enhance mutual understanding of each party’s SPS measures and regulatory processes.
28. The dispute settlement provisions of KAFTA are not applicable to any matter arising under this Chapter.
Chapter 6: Trade Remedies
29. The Chapter on Trade Remedies affirms Australia and Korea’s rights and obligations under the WTO with regard to the application of safeguards, anti-dumping and countervailing measures. It establishes arrangements for a KAFTA specific safeguard measure which may be applied during the transitional period, that is, while tariffs are being reduced and/or eliminated.
30. The Chapter sets out the conditions and limitations of a safeguard action. A Party can only apply a safeguard measure following an investigation by the Party’s competent authorities to establish whether the conditions justifying such action are met. A safeguard action cannot be taken more than once against the same good. The Chapter also provides for provisional safeguard measures in critical circumstances (200 days maximum).
31. The safeguard action may involve either a suspension in the reduction of the tariff or an increase in the tariff. The Chapter also contains procedures/provisions in relation to compensation in the form of substantially equivalent concessions.
32. The Chapter provides Korea with the ability to impose an agricultural safeguard measure when imports of Australian beef, malt and malting barley, maize and refined sugar reach predetermined volume levels in a calendar year. The measure is not automatic and is temporary, as it cannot apply beyond the end of the calendar year.
33. Through referencing WTO provisions relating to anti-dumping, countervailing measures and global safeguard measures, the Chapter provides certainty regarding the application of relevant WTO disciplines, and some limited ‘WTO-plus’ treatment. In relation to anti-dumping measures the Chapter provides for a Party to normally apply the ‘lesser duty’ rule if this is adequate to remove injury to domestic industry. On Countervailing Measures, the Chapter affirms the WTO rights and obligations of the two Parties. Regarding global safeguard measures, the Chapter provides that there should be no duplication in the application of bilateral and global safeguard measures, and for the Parties to consult with each other relating to consideration by either Party of the initiation of global measures.
Chapter 7: Cross-Border Trade in Services
34. Core obligations in the Chapter on Cross-Border Trade in Services require each Party to provide market access, national treatment, and most-favoured-nation (MFN) treatment to service suppliers of the other Party. The Chapter also includes the obligation not to impose local presence requirements. Measures which do not conform with these obligations are listed in ‘negative lists’ contained in schedules of non-conforming measures (NCM Schedules). The NCM Schedules list specific areas which are carved out from the obligations of the Chapter. Any sectors not listed in the NCM Schedules are subject to the liberalising obligations of the Chapter.
35. Other key obligations in the Chapter provide enhanced certainty and transparency for each Party’s services suppliers in relation to licensing requirements and other domestic regulations. Each Party is required not to unduly restrict the use of enterprise names used by other Party’s services suppliers. The Chapter incorporates a framework for enhanced cooperation on professional services (Annex 7-A), as well as an Audiovisual Co-Production Agreement (Annex 7-B). The Chapter does not apply to services provided in the exercise of governmental authority.
Chapter 8: Financial Services
36. The Chapter on Financial Services applies to measures affecting financial institutions of both Parties as well as to investments in financial institutions and cross-border trade in financial services. As with the Cross-Border Trade in Services Chapter, this Chapter provides for the scheduling of market access commitments on a ‘negative list’ basis, where each Party lists in NCM Schedules specific areas which are carved out from the obligations of the Chapter. Core obligations in the Chapter require each Party to provide market access, national treatment and MFN treatment to financial institutions and cross-border financial service suppliers of the other Party, unless otherwise listed in the NCM Schedules. The Chapter also requires each Party not to impose nationality requirements on senior management and boards of directors, unless listed in the NCM Schedules.
37. The Chapter provides for enhanced non-discriminatory treatment of banks, insurance companies and other financial firms of both Parties. There are specific commitments allowing for the offshore processing of information and other back-office functions, and for cross-border portfolio management services. The Chapter enables financial services suppliers of either Party to provide new financial services that the other Party permits its own institutions, in like circumstances, to provide. Importantly, the Chapter provides safeguards to allow either Party to adopt or maintain measures for prudential reasons.
Chapter 9: Telecommunications
38. The Chapter on Telecommunications governs areas including resale, submarine cable access and the allocation of telecommunications spectrum. The Chapter requires both Parties to prevent anti-competitive conduct and ensure that major suppliers provide interconnection, leased circuit services and co-location of equipment on reasonable, non-discriminatory terms and conditions.
39. Other key outcomes include commitments on technology neutrality, number portability and network unbundling. There are strong provisions on transparency and review for regulatory decisions. Regulators must be independent and impartial and properly explain decisions, such as determining which services are subject to regulation and licensing decisions.
Chapter 10: Movement of Natural Persons
40. The Chapter on Movement of Natural Persons provides for coverage of temporary entry of service suppliers and investors. Australia and Korea have made commitments to liberalise access for skilled service suppliers, investors and business visitors to enter and stay in the territory of the other Party. Australia has agreed not to apply labour market testing.
41. Annex 10-A sets out in detail the requirements that skilled service suppliers, investors and business visitors (including citizens and permanent residents) must meet to qualify under this Chapter.
Chapter 11: Investment
Section A: Investment
42. This Chapter covers market access and protections for investors of both Parties. The key commitments in this Chapter include:
- Non-discrimination through national treatment and most-favoured-nation (MFN) provisions;
- Minimum standard of treatment: the foreign investor / investment to be treated in accordance with customary international law, including fair and equitable treatment and full protection and security;
- Expropriation and compensation: commitment not to expropriate or nationalise a covered investment unless it is undertaken in a non-discriminatory manner, for a public purpose and on payment of prompt, adequate, and effective compensation;
- Transfers: commitment to allow all transfers relating to a covered investment to be made freely and without delay into and out of its territory;
- Performance requirements: lists the types of requirements which each Party agrees not to impose as a condition of establishment or operation of an investment in the other Party; and
- Senior management and board of directors: prohibition on requiring the appointment of particular nationalities to senior management positions in businesses that are covered investments.
43. As with the Chapter on Cross-Border Trade in Services, the Chapter on Investment provides for measures which do not conform with the obligations of the Chapter to be scheduled on a ‘negative-list’ basis. Such non-conforming measures are set out in the NCM Schedules.
Section B: Investor-State Dispute Settlement
44. The Chapter includes an Investor-State Dispute Settlement (ISDS) mechanism which allows investors to directly enforce investment obligations. Where an investor from one Party to KAFTA alleges loss or damage as a consequence of the other Party breaching a commitment in the Investment Chapter, the investor can commence arbitration against that Party in a tribunal.
Chapter 12: Government Procurement
45. Under this Chapter procuring entities of one Party (at the central level of government and, in Australia's case, States and Territories, and, in Korea's case, certain regional governments) are required to afford the suppliers, goods and services of the other Party the same treatment that applies to its domestic suppliers, goods and services.
46. Annex 12-A sets out the specific entities bound by commitments and other conditions (such as monetary thresholds) that must be met before a procurement will be covered by the Chapter. Transactions not covered by this Chapter include procurements below the relevant thresholds (set out in the Annex) and procurements by government entities which are not listed in the Annex to the chapter. In addition, the Government Procurement chapter is limited in application by specific exceptions.
47. The Chapter also sets out rules and procedures for conducting procurements which are consistent with existing Australian government procurement frameworks, requiring no domestic change.
Chapter 13: Intellectual Property Rights
48. The Chapter on Intellectual Property Rights reinforces commitments Australia and Korea have made under the World Trade Organization Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). It builds on TRIPS with provisions for the protection and enforcement of Intellectual Property (IP) equivalent to that provided under Australia’s free trade agreement with the United States.
49. Korea and Australia have committed to accord national treatment in relation to the protection of intellectual property rights, with exceptions, and agreed to specific commitments on patents, trademarks, copyright and related rights, and enforcement.
50. Provisions on the enforcement of intellectual property clarify civil and administrative procedures and remedies to ensure judicial authorities have appropriate authority to deal efficiently and effectively with infringement cases. The Chapter also includes requirements related to border measures which ensure that authorities are able to deal with suspected infringing goods.
51. A Committee will be established under this Chapter to monitor and assess the implementation of the Chapter, provide a mechanism for the exchange of information on IP rights, discuss and recommend cooperative activities and to discuss and seek resolution of any matter arising under the Chapter.
Chapter 14: Competition Policy
52. The Chapter on Competition Policy ensures the trade and investment liberalisation achieved through KAFTA is not undermined by anti-competitive practices. Australia and Korea have committed to:
- address anti-competitive practices, including cartel behaviour, abuse of dominant position and anticompetitive mergers, by maintaining and enforcing competition laws in their respective jurisdictions;
- ensure that competition laws are applied to all businesses and to only permit exemptions where they are transparent and in the public interest; and
- ensure that the enforcement of their respective competition laws are consistent with the principles of transparency, timeliness, non-discrimination, comprehensiveness and procedural fairness.
53. The Chapter also provides a framework for competition authorities in Korea and Australia to cooperate and coordinate their enforcement practices, including through:
- consultation on how to further curtail anticompetitive practices that affect trade or investment between the Parties; and
- notification of enforcement activity that may affect the interests of the other Party.
Chapter 15: Electronic Commerce
54. The Chapter on Electronic Commerce supports businesses of both Parties in harnessing the efficiencies of electronic commerce, while ensuring the protection of consumers engaging online. Key commitments include:
- Customs duties: neither Party shall impose customs duties on electronic transmissions between the two countries.
- Domestic regulations: the Parties undertake to adopt or maintain domestic measures regulating electronic commerce taking into account the UNCITRAL Model Law on Electronic Commerce, including measures to minimise the regulatory burden on electronic commerce.
- Authentication and digital certificates: the Parties commit to maintaining domestic legislation governing methods of authenticating electronic transactions.
- Online consumer protection: the Parties undertake to adopt or maintain measures to protect consumers engaged in electronic commerce, which are at least equivalent to those provided for consumers engaged in other forms of commerce. The Parties also recognise the importance of cooperation between their respective national consumer agencies on activities related to cross-border e-commerce.
- Paperless trading: the Parties agree to endeavour to make publicly available, in electronic form, all trade administration documents and to accept electronic trade administration documents as the legal equivalent of the paper version of those documents.
- Online personal data protection: the Parties undertake to adopt or maintain measures which ensure the protection of the personal data of the users of electronic commerce.
- Unsolicited commercial electronic messages: the Parties agree to endeavour to adopt or maintain measures to regulate unsolicited spam and telemarketing.
Chapter 16: Cooperation
55. The Chapter supports increased bilateral cooperation in the fields of agriculture, fisheries, aquaculture, forestry, energy and mineral resources. Coverage includes cooperation on innovation, research and development in areas such as sustainable resource management, climate change adaptation and mitigation, animal husbandry practices, productivity enhancement, biotechnology, food safety and the exploration, extraction, processing, transportation and use of energy and mineral resources. It establishes Contact Points for cooperation.
56. It promotes cooperation on sanitary and phytosanitary matters, namely in the areas of human, animal and plant health and food safety. It underlines the importance of domestic agricultural production and bilateral trade for the maintenance of a stable and reliable food supply and the fulfilment of food security objectives. In the event of a severe and sustained disruption to supply of staple foods and feed grain, the Chapter provides for Australia and Korea to enter into consultations and to endeavour to take any appropriate actions. Committees on Agricultural Cooperation and Energy and Mineral Resources Cooperation are established to review and assess the implementation of the Chapter and to make recommendations regarding cooperative activities.
Chapter 17: Labour
57. The Chapter provides for the enhancement of cooperation between Korea and Australia on trade-related aspects of labour issues, while preserving the policy space for each to establish and maintain national laws, policies and priorities. It requires each Party to respect the other Party’s right to establish its own labour policies and priorities and to adopt and administer its labour laws, regulations and practices in accordance with those policies and priorities. Under this Chapter the Parties also commit to not failing to enforce their own labour laws and state that they shall endeavour not to weaken them to encourage trade. The Parties also recognise that labour laws, policies and priorities should not be used for trade protectionist purposes. An ad-hoc committee can be established or consultations held in the event of any concerns of a Party about implementation of the Chapter. The Chapter is not subject to dispute settlement or ISDS.
Chapter 18: Environment
58. Similar to the Labour Chapter, the Environment Chapter also provides for enhanced cooperation between Korea and Australia on trade-related aspects of environment issues. The Parties state their respect for the other’s right to establish its own environmental policies and priorities and to adopt and administer its environmental laws, regulations and practices in accordance with those policies and priorities. As with the Labour Chapter, the Parties also commit to not failing to enforce their own environment laws, state that they shall endeavour not to weaken them to encourage trade and also recognise that environment laws, policies and priorities should not be used for trade protectionist purposes. An ad-hoc environment committee can be established or consultations held in the event of any concerns of a Party about implementation of the Chapter. The Chapter is not subject to dispute settlement or ISDS.
Chapter 19: Transparency
59. The Chapter on Transparency requires the prompt publication of all laws, regulations, procedures and administrative rulings of general application in respect of any matter covered by KAFTA, allowing interested persons and either Party to be aware of them. The Parties must also notify each other of any proposed or actual measure they might take that could materially affect the operation of the Agreement or otherwise substantially affect the other Party’s interests under KAFTA.
60. The Chapter also contains provisions in respect of the fair conduct of any administrative proceedings undertaken in regard to laws, regulations, procedures and administrative rulings of general application in respect of any matter covered by KAFTA. It also requires each Party to provide impartial and independent review and appeal processes for final administrative actions regarding matters covered by the Agreement.
Chapter 20: Dispute Settlement
61. This Chapter includes a binding State-to-State dispute settlement mechanism modelled on previous free trade agreements and the WTO system. Most substantive obligations in KAFTA will be subject to this mechanism, except those found in the Technical Barriers to Trade, Sanitary and Phytosanitary Measures, Competition Policy, Labour, Environment and some aspects of the Movement of Natural Persons chapters.
Chapter 21: Institutional Provisions
62. The Chapter on Institutional Provisions establishes a Contact Point to facilitate communications between the Parties. The Chapter also establishes a Joint Committee, consisting of representatives of the Parties and co-chaired by each country’s Minister of Trade. The Joint Committee will oversee implementation and operation of KAFTA and supervise and coordinate the work of all subsidiary bodies. The Joint Committee will meet within one year after KAFTA enters into force, annually for the first three years and thereafter as the Parties mutually agree.
63. The Chapter also establishes a variety of committees and working groups under the auspices of the Joint Committee. The committees and working groups shall inform the Joint Committee of their schedules and agendas and report to the Joint Committee on their activities.
Chapter 22: General Provisions and Exceptions
64. The Chapter on General Provisions and Exceptions sets out exceptions which apply to a number of chapters of the Agreement. Such exceptions ensure FTA obligations do not unreasonably restrict government action in key policy areas, including to protect essential security interests, the environment and health.
65. The Chapter also carves out application of KAFTA to a Party’s taxation measures except in certain circumstances. However, should any inconsistency arise with the bilateral tax treaty, the tax treaty will prevail.
66. The Chapter also provides that nothing in the Agreement shall require a Party to furnish or allow access to confidential information that would impede law enforcement, be contrary to the public interest or prejudice legitimate commercial interests of public or private enterprises. Where one Party discloses confidential information to the other Party, the Chapter provides for protection of that information.
Chapter 23: Final Provisions
67. The Chapter on Final Provisions governs the way in which KAFTA operates as a treaty. It establishes the processes by which the Agreement will enter into force, how it may be amended and the conditions under which it may be terminated.