Free Trade Agreement with South Korea - briefing

15 October 2009
by eub2 -- last modified 15 October 2009

European businesses have for some time asked for better terms of access to key Asian markets. Responding to these calls, EU Member States authorised the Commission to negotiate new ambitious Free Trade Agreements (FTAs) with India, Korea and ASEAN countries. In April 2007 EU Member States authorised the Commission to negotiate an ambitious and comprehensive FTA with South Korea. After eight rounds of formal negotiations the two sides have today initialled the agreement.

Key elements of the EU-Korea FTA

The FTA will create substantial new trade in goods and services (up to EUR 19 billion for EU exporters, according to one study). The additional market access provided by the FTA will further strengthen the position of EU suppliers in the Korean market. Some key features:

* The FTA will quickly eliminate EUR 1.6 billion worth of Korean import duties annually for EU exporters of industrial and agricultural products. The EU will eliminate around EUR1.1 billion of duties, which will benefit EU consumers and businesses.
* For example, European machinery exporters will save EUR 450 million annually in duty payments. EU agricultural exporters will save EUR 380 million annually on duties for agricultural products for which Korean duties are currently relatively high. Wine and cheese will enjoy duty free and tariff-free quotas respectively from day one.
* The deal will also tackle non-tariff barriers across all sectors including in industries of specific interest to the EU, such as automotive, pharmaceutical and consumer electronics. Under the FTA, Korea will consider as equivalent many European standards, and recognise European certificates, thus eliminating red tape which so far was a deterrent and a barrier to trade.
* The FTA will provide new opportunities in many services sectors , where the EU is highly competitive. These include telecommunications, environmental services, shipping, financial and legal services.
* The FTA will offer transparency and predictability on regulatory issues such as the protection of intellectual property (including through strengthened enforcement); improved market access in government procurement; as well as a new approach on trade and sustainable development involving civil society in the monitoring of commitments.
* The FTA will offer a high level of protection for EU Geographical indications such as Champagne, Prosciutto di Parma, Feta cheese, Rioja or Tokaji wine or Scotch whisky
* Efficient dispute settlement rules will be set up to ensure enforceability of commitments (arbitration ruling within 160 days, which is faster than in the WTO).
* A protocol on cultural cooperation underlines the special characteristics of this sector.
* The FTA will offer protection via a general safeguard clause . This would allow the re-establishment of so-called "Most Favoured Nation" duties for up to four years in case of a sudden surge in imports. The Commission will monitor closely the evolution of the market in sensitive sectors.
* On rules of origin , rules have been simplified and made more business friendly. At the same time, strict rules apply in sensitive sectors. For instance, for cars, the agreement would only moderately increase the levels of permissible foreign content from 40% to 45%. For textiles, agricultural and fisheries, the EU standard rules of origin will be maintained with only a small number of derogations applying. On duty drawback , the EU and Korea maintain the right to refund duties on imports on parts, in accordance with WTO rules. However, in case of a significant increase of sourcing from countries that have not concluded an FTA with Korea, i.e. where most favoured nation (MFN) duties still apply, a special clause allows for a cap of the refundable duties at a level of 5%.

The EU-Korea trade relationship

Korea's strong economy (GDP per capita of EUR 13,000 and competitive industrial and agricultural imports) have made it our fourth most important trading partner outside Europe (behind the US, Japan and China). EU exports to Korea have averaged a yearly growth rate of 7.5% for the period 2004-2008, reaching EUR 25.6 billion in 2008. The value of EU services exports to Korea in 2007 exceeded EUR 7 billion. Korea exported EUR 39.4 billion of goods to the EU last year.

EU car sales to Korea went up by a total of 78% in unit sales (39% in value) between 2005 and 2008, whilst Korean car exports to the EU have decreased by 37% in unit sales over the same period. EU exports of machinery have grown 33% in total between 2005 and 2008, reaching EUR 4.8 billion in 2008. For products like chemicals, pharmaceuticals, auto parts, industrial machinery, shoes, medical equipment, non-ferrous metals, iron and steel, leather and fur, wood, ceramics, and glass, the EU enjoys a solid trade surplus. Similarly, for agricultural products Korea is one of the more valuable markets globally for EU farmers, with annual sales of over EUR 1 billion.

Source: European Commission