Jeffrey Robertson, Bae Hui-yeon, Kim Hansung, Mid to long term economic strategy for Oceania (Korean), Korea Institute for International Economic Policy (KIEP), Seoul, December 2007

Executive Summary

Oceania is comprised of numerous states, mostly islands in the Pacific Ocean such as Cook Island, Fiji, and French Polynesia, and includes Australia and New Zealand, the two developed nations in the region. Although these countries are classified as Oceania, there is immense diversity in political, economic, social, diplomatic, and historical aspects among these nations.

Located apart from the center of the global economy, Oceania nations’ geographical condition is acting as a geopolitical constraint and, at the same time, as a major barrier against activating trade with Korea. Because of differences in economic development among nations in the region, Oceania has been perceived by Korea as two different entities rather than one common region: Australia and New Zealand, and other countries. In 2006 Oceania’s share of Korea’s total exports was about 2%, while imports from Oceania accounted for only 4% of Korea’s total imports. In addition, economic relationships were maintained mostly with Australia and New Zealand, while exchange movements with other developing and underdeveloped countries in the Pacific islands were hardly existent.

Considering economic aspects alone, Oceania cannot be one of those countries in which Korea should have interests. Although Australia and New Zealand, two representative countries of Oceania, are developed countries with high per capita GDP, their small populations-20 million and 4 million, respectively-have reduced interest from Korea, whose major export is final consumer goods such as cars and electrical apparatus. In the case of the Pacific island countries, it is difficult to expect profits through trade enlargement or economic cooperation considering their poor trade-related infrastructure. Oceania countries’ economic, political, and cultural diversity, however, has complementary aspects. Australia’s abundant natural resources, New Zealand’s agricultural technology, and the Pacific islands’ voting power in international organizations provide the basis for having complementary economic and diplomatic relationships with Korea.

Therefore, Korea should take into account the uniqueness of those countries, as well as economic factors, when establishing trade strategy for Oceania. In other words, rather than directly promoting export enhancement or trade enlargement with Oceania countries, Korea needs to come up with an economically and politically comprehensive strategy that utilizes the comparative advantages of these countries. Securing resources supply, enhancing technological cooperation in the agricultural sector, and strengthening Korea’s base of support in the international community through expanding diplomatic cooperation are good examples.

Basically, Korea needs to make use of its position as a mediator for Australia and New Zealand, which want to take part in economic integration of East Asian countries. For both Australia and New Zealand, which had been isolated in the process of European integration due to their geographical position, having an entrance to the East Asian economy carries great importance for surviving in the world market in which regionalism is emphasized more than ever. While competition and conflict between China and Japan is intensifying in the East Asian economic unification movement, Korea holds the casting vote in Australia and New Zealand’s entry into the East Asian economy. In this context, Korea is not just a major exporting country to Australia and New Zealand, but a country with a great significance that can exert immense influence on whether those two countries can enter the East Asian bloc. It would be desirable for Korea to enhance its role as an arbitrator between those two countries and other East Asian countries by utilizing politics within East Asia rather than simply pursuing a one-sided strategy in haste.

Also, since Australia and New Zealand retain world-class competitiveness in the agricultural sector with their naturally endowed environments, they are two countries with strategic importance to Korea for agricultural cooperation and expansion. While experiencing an economic crisis in 1980s, both countries went through various active reforms and stood up as countries with the lowest producer subsidy estimate (PSE) to total production, having the greatest competitiveness in the agricultural sector. Currently, Australia and New Zealand are countries with great competitiveness in the international agricultural products market with the lowest PSE among countries in the Organization for Economic Co-operation and Development. This is a good example of the two countries’ comparative advantages in agricultural production.

In addition to their technical expertise in the agricultural sector, both countries’ official language is English, which would serve as a convenience for Korean people or companies that wish to communicate and advance their businesses in those countries. Additionally, their governments are positively inducing immigrants in the agricultural sector, which is an affirming factor for Korea’s agricultural advancement. Therefore, the Korean government should make a strategic effort to expand agricultural cooperation through governmental contact by reducing institutional barriers in this sector and providing information to those individuals or businesses interested in agricultural exports.

In addition, being a diplomatic cooperation partner with Oceania could be a main strategic goal for Korea. In international relations, Oceania is considered to be a significant power that “punches above its weight.” This means that Australia and New Zealand are making active diplomatic efforts, and other island countries in the Pacific are casting their voting rights in several multilateral negotiations, despite their limited economic influences.

In this respect, Korea needs to intensify its diplomatic partnership with Oceania to obtain support in international society. Cooperation with Oceania could improve Korea’s diplomatic capacity to solve the North Korea issue. As Australia and New Zealand have close relations with the countries concerned(USA, UK, Russia, and China), getting support from Australia and New Zealand should be important for Korea to drive international opinion in positive way. Also, expanding Korea’s official development assistance for Oceania is an effective strategy to obtain Oceania’s support in international society.

Finally, Korea should consider promoting the Korea-Australia and Korea-New Zealand FTAs. Even though Australia and New Zealand have demanded to achieve FTAs, the Korean government has held that it is premature to discuss them at this point. Free trade agreements with Oceania require a mid-term strategic attitude by the Korean government. Instead of focusing on a simple economic approach, the Korean government should keep expanding its approach regarding the distinctive societies and economies of Oceania. Although the core issue of FTA negotiation is lowering Oceania’s tariffs to improve trade, the ultimate goals should be to remove the controls on investment and service movement, and to expand cooperation in technology and science. It will be a significant steppingstone for Korean companies to make inroads into Oceania’s markets. Through the FTA, Korea should develop strategies to secure a supply of natural resources from that region. Concluding an FTA with Australia or New Zealand would not only consolidate bilateral diplomatic cooperation, but also restrain the influence of China and Japan in the Oceania region, providing a good opportunity for Korea to strengthen its role as a mediator in East Asia.

Korea strategy for Oceania.pdf