EU-Korea trade agreement: one year on
The EU and South Korea mark the one year anniversary of the implementation of the EU-South Korea Free Trade Agreement on 1 July 2012. The agreement is the first of a new generation of free trade agreements that went further than ever before at lifting trade barriers and making it easier for European and Korean companies to do business together. As the FTA has lowered import tariffs for European products at the Korean border, it's estimated that EU firms have already made cash savings of €350 million in duties after just 9 months.
"The successful implementation of the EU-South Korea Free Trade Agreement shows that EU trade policy is on the right track. This agreement is already proving its worth as an important step on Europe's path to economic recovery" said EU Trade Commissioner Karel De Gucht. "This next-generation trade agreement, along with others in the pipe-line, is a key part of Europe's growth strategy."
The EU-South Korea FTA has been in force since 1 July 2011.
The deal eliminates tariffs for industrial and agricultural goods in a progressive, step-by-step approach. The first tariffs cuts took effect on 1 July 2011. By 1 July 2016, 98.7% of import duties of EU and South Korea in trade value for both industrial and agricultural goods will be eliminated. In July 2031, 99.9% of EU-South Korea bilateral trade will be duty free. Overall, only a limited number of agricultural products is excluded from tariff elimination.
As most of the tariff benefits will only be felt after a longer time period and as most of the regulatory changes have yet to be implemented, the trade benefits of the agreement can only be assessed with certainty after five or ten years. Hence, one year after the application of the agreement, it is only possible to get a very first picture of the impact.
For this assessment, given that full first-year figures will only be available in autumn 2012, we compared EU trade figures with Korea over nine months – from the entry into force in July 2011 until March of this year - with an average of the figures from the same months over the previous four years, to reflect the fluctuation in trade due to the crisis1.
Accordingly, in the first 9 months of implementation EU exports to South Korea increased by €6.7 billion or 35% compared to the same period since 2007. EU exports to other countries also grew during this timeframe (by 25%) but the level of increase of exports to Korea (35%) indicates that the early tariff eliminations are already having some effect.
This is also supported by the fact that EU exports to Korea have grown faster where the tariff was eliminated or partially removed under the agreement:
• Exports of products where the tariff was eliminated on 1 July 2011 (such as wine, some chemical products, textiles and clothing, iron and steel products, machinery and appliances, representing 34% of EU exports to South Korea) increased by €2.7 billion or 46%.
• For products that were only partially liberalised on 1 July 2011 (such as cars and agricultural products, representing 44% of EU's exports to Korea), the increase is €3 billion or 36%.
• For products where there was no change to the tariff (such as some agricultural products, representing 18% of EU exports) the increase is €1 billion or 23%.
This means that exports of the products affected by Korea's tariff liberalisation in the agreement grew €1.7 billion more than they would have done otherwise.
Exports of some specific products have grown faster than the average, for example:
• Exports of pork are up by almost 120%, which translates into new trade of almost € 200 million.
• Leather bags and luggage exports increased by over 90%, worth € 150 million of extra trade.
• EU's Machinery used for manufacturing of semiconductors proved to be very successful and it imports to Korea went up by 75% and represented € 650 million in additional exports.
• EU cars exports increased by over 70% - which translates into € 670 million in new car sales in Korea.
Besides eliminating duties on nearly all trade in goods, the agreement addresses non-tariff barriers to trade, many of which were identified as particular obstacles. It also includes provisions on issues ranging from services and investments, competition, government procurement, intellectual property rights, transparency in regulation to sustainable development. To ensure enforceability of commitments efficient mediation and dispute settlement mechanisms have been set up. The agreement also established various institutional bodies to monitor the implementation, such as the EU-Korea FTA Trade Committee, co-chaired by Commissioner De Gucht and the Korean Trade Minister, as well as several Sub-Committees and Working Groups such as the Customs Committee, the Automotive, Pharmaceuticals and Chemicals Working Groups that work on the implementation of the deal.
Background – EU-South Korea trade flows
South Korea’s economy is the EU's sixth most important trading partner outside Europe (behind the US, China, Japan, India and Brazil) and tenth overall. The EU is among South Korea's top four largest export destinations together with China, Japan and USA.
In 2010 value of EU services exports to South Korea reached € 7.5 billion, while EU absorbed € 4.5 billion of Korean services.
European companies are also consistently the largest investors in South Korea, representing according to the 2010 data a cumulative total of close to € 40 billion since 1962 (when records became available).
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