ECA

How the benefits of KAFTA are shared – Case study: Australian orange juice

18.06.2018 Heath Baker

The Export Council of Australia (ECA) interviewed a Korean importer of Australian orange juice.

Korea has four major brands of orange juice: three use orange juice sourced from America, one uses orange juice from Australia. The fourth brand uses Australian orange juice as its point of differentiation, allowing it to target a niche, premium market.

The importer established its brand in around 2000, using Australian orange juice from the start. But in early 2014, they were starting to seriously consider switching to importing American orange juice instead. When KORUS came into force in 2012, tariffs of American orange juice dropped by 10.4% each year, from a base of 54%.

By 2014, the tariff on American orange juice was just 21.6%, while it was 54% for Australian orange juice.

But the signing of KAFTA in April 2014 (and its entry into force in December that year) was a lifeline for the exporter. The provisions of KAFTA allow the tariffs on Australian orange juice to drop by 10.8% each year. In its first year, KAFTA reduced the American tariff advantage to 21.6%. This clawed back enough of the American tariff advantage to allow the importer to keep importing from Australia.

American orange juice retained its tariff advantage until 2017. That year, the American tariff had already hit zero and the Australian tariff was down to just 10.8%. The importer was able to take advantage of this improved competitiveness to broaden its distribution network. It has entered a deal with a major retail chain to significantly expand its distribution in 2018, when the American tariff advantage was eliminated.

As with mangoes and beef, the benefits of KAFTA have been shared between the Korean consumer, the importer and the exporter. Thanks to KAFTA’s entry into force, the Korean consumer retained the option to buy Australian orange juice, the exporter was able to retain its exports to Korea, and the importer did not have to re-brand and retained its point of differentiation. With KAFTA eliminating the tariff advantage for American orange juice, the importer has been able to expand supply. This benefits the exporter, importer and consumer.

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