More Than Just TariffsStella Park
Korea Australia Free Trade Agreement
The Korea Australia Free Trade Agreement (“KAFTA”) entered into force on 12 December 2014.
This agreement did not just contain provisions for the removal of tariffs for the trade in goods it also aims to eliminate other barriers which impedes on the trade relationship between the two countries.
Set out below are a few of the significant behind-the-border barriers which KAFTA provisions have addressed.
Trade in services
Australian financial services providers may:
- establish a commercial presence or acquire institutions in Korea by either establishing a branch or a subsidiary;
- supply specified cross-border financial services, enabling service providers to do business without the need to open a full commercial presence.
Australian law firms may:
- establish representative offices in Korea;
- establish joint venture law firms in Korea (from December 2019).
Australian accountants may:
- provide services relating to Australian or international tax or accounting law through offices in Korea.
There are many other services sectors which would also receive benefits from KAFTA, by receiving guaranteed market access from Korea. (for e.g. education and engineering services)
There will also be enhanced mutual recognition of professional qualifications to allow Australian professionals to be recognised in Korea.
Changes to Australia’s Foreign Investment Review Board (“FIRB”) threshold for investments in non-sensitive sectors are considered for FIRB review from $252 million to $1,094 million.The Australian investors in Korea will be treated no less favourabley than other investors from a third-party nation. This will give Australian companies a better competitive position in the Korean market.
Both Australia and Korea must permit all transfers relating to an investment to be made freely and without delay into and out of its territory.
Traders and Investors – Korea will grant visas to traders and investors who are in a role which is in a supervisory or executive capacity, or involves essential skills, for a period of up to two years for the purpose of:
- carrying on substantial trade in goods or services principally between Australia and Korea; or
- establishing, developing or administering an investment, or providing advice or key technical services to the operation of an investment to which that person or that person’s enterprise has committed, or is in the process of committing, a substantial amount of capital.
- Contractual Service Suppliers – visas shall be granted for a period of up to one year or for the period of the contract, whichever is less, to a person who is seeking to provide services as a contractual service supplier in a profession set out in the KAFTA Agreement.
- Intra-corporate transferees – visas shall be granted for a period of up to three years for an executive, manager, or specialist employee of Australian enterprises that supply services through subsidiaries, or branches established in Korea, and who have been so employed for a period of not less than one year immediately preceding the date of the application.
Entry and temporary stay shall be granted for an equal period to a spouse or dependent of an intra-corporate transferee, trader, investor or contractual service supplier.
Investor-State Dispute Settlement
Investor-State Dispute Settlement (“ISDS”) refers to provision in the KAFTA which allows for the respective investors in Korea or Australia a right to pursue an action against the host country under the KAFTA concerning a covered investment. The investor would have the right to access an international tribunal under this provision.
ISDS provisions are beneficial to the investors because it allows for the disputes with the host country to be settled through the dispute resolution process of international arbitration, rather the judicial system of the host country.
There are a series of steps set out in the KAFTA which investors must follow in order to have the arbitration under the provision.
A tribunal under the provision can make a final award against a respondent, separately or in combination:
- monetary damages and any applicable interest; and
- restitution of property, in which case the award shall provide that the respondent may pay monetary damages and any applicable interest in lieu of restitution.
A tribunal may also award legal costs in accordance with the KAFTA provision and the applicable arbitration rules.