South Korea steps closer to completing FTA network
The Korea-EU Free Trade Agreement is set to take effect on Friday, opening new doors for the country’s economy.
The negotiations over the pact, which began in May 2007, came to a close in October 2009 when the agreement was penciled in, and in October 2010 the agreement was formally signed by the leaders of Korea and the EU.
The EU approved the deal, which will see tariffs on 11,261 items produced in Korea and 9,842 items produced in the EU removed over a period of seven years, in February 2011. Approval by Korea’s National Assembly soon followed on May 4.
While the pact is the sixth such agreement for Korea to implement, the Korea-EU FTA concerns the largest partner yet to implement such a deal with Korea. In addition, it is the first such pact the EU will be implementing with an Asian nation.
A glass board inscribed with the national flags of Korea and EU member-countries stands in a fair to mark the ratification of the Korea-EU FTA in Seoul in March. (Yonhap News)
The EU is Korea’s second largest export destination, and European goods account for the fourth largest proportion of Korea’s imports. According to the Korea Customs Service, Korea’s exports to the region came in at $53.5 billion last year.
As such, the pact is projected to have significant benefits for Korea’s economy with some projecting that it will have a larger effect than the pact with the United States.
According to estimates from the Samsung Economic Research Institute, the pact with the EU will push up Korea’s gross domestic product by 1.02 percent, while that with the U.S. will increase it by 0.56 percent.
According to the results of studies conducted by state-run think tanks including the Korea Development Institute, the country’s gross domestic product could expand by as much as 5.6 percent in the 10 years following the Korea-EU FTA’s implementation.
The studies also project that as many as 253,000 new jobs will be created in the long term as a result of the deal.
As such, the National Assembly’s approval of the pact in May led to praise from Korea-based economic organizations including the Korea International Trade Association, which called it a significant step towards raising Korea’s annual trade volume to $1 trillion.
According to the European Union Chamber of Commerce in Korea, the pact will open up new trade opportunities in goods and services worth 31.9 billion euros ($45.6 billion) for the EU and Korea, and remove 2.7 billion euros in tariffs placed on goods traded between the two parties.
In addition to such direct gains, think tanks say that Korea will also be able to gain less tangible benefits from the deal.
“By establishing an economic network with the EU, (Korea will be able to) raise market share in the EU and improve its standing as the bridge that links Asia to Europe,” a recent SERI report said. The report also said that the pact’s implementation was an opportunity for advancing Korea’s economic system by improving its transparency and openness.
As with previous agreements, Korea’s manufacturing industry is considered to be the biggest beneficiary of the agreement. With the EU placing some of the highest tariffs on cars and electronic goods, local automotive and electronics makers are considered by experts to be among those who are to receive the largest benefits from the trade agreement.
The EU’s tariffs on imported automobiles range from 10 percent to 22 percent while a 14 percent tariff is placed on televisions. According to local think tanks, auto exports will increase by about $1.47 billion on an annual basis over the 15 years following implementation, while that of electronics and electrical equipment is projected to rise by $394 million each year.
For Korea, the implementation of the pact with the EU could have much deeper implications.
As well as providing an opportunity for growth, developments on Friday will take Korea a step closer to becoming an “FTA hub.”
In 2003, the Korean government drew up the FTA Roadmap as part of its efforts to maintain competitiveness for the country’s trade-dependent economy. According to the Ministry of Foreign Affairs and Trade, 82.2 percent of Korea’s gross domestic product was raised from importing and exporting of goods in 2009.
Through such efforts, the country has trade pacts in effect with Chile, Singapore, India, ASEAN and with the members of the European Free Trade Association.
In addition, the country is waiting for the implementation of FTAs with Peru and the U.S. Once the long-delayed pact with the U.S. is ratified, Korea will have formed free trade agreements with countries that account for 61 percent of the world’s gross domestic product and 46 percent of its trade.
In all, the country has free trade agreements, including those still to be implemented, with 47 countries, putting it far ahead of its Asian rivals China and Japan. China currently has similar agreements with 19 countries, while the figure for Japan stands at 22.
In addition, Korea is negotiating trade deals with Australia, Canada, Columbia, Mexico, New Zealand and Turkey, and further deals with 10 countries and regions including Japan and China as well as a three way pact between Korea, China and Japan are under review.
By Choi He-suk (email@example.com