Thanks to EU-Korea Free Trade Agreement trade has been boosted
Five years ago on July 1, 2016, the FTA Free Trade Agreement between the European Union and South Korea was put into place, helping to turn a trade deficit into a trade surplus
EU exports to South Korea have increased by 55 % since the trade deal between the two partners entered into force in 2011, and European companies have saved EUR 2.8 billion in scrapped or discounted customs duties. Bilateral trade in goods between the EU and South Korea has been growing constantly since 2011, and reached a record level of over EUR 90 billion in 2015.
These are some of the findings of a detailed European Commission report released July 1, 2016 to mark the five-year anniversary of the trade deal with South Korea, demonstrating a significant boost in trade thanks to the agreement.
In a comment, EU Commissioner for Trade Cecilia Malmström said: “The numbers speak for themselves. The evidence of our agreement with Korea should help convince the unconvinced that Europe benefits greatly from more free trade. When our companies can export more easily, or when money saved from scrapped customs duties can be reinvested in company development, it spurs European growth. It safeguards and creates jobs. This anniversary gives us many reasons to roll up our sleeves and conclude all other pending EU trade deals that are on the table.”
South Korea is now one of the EU’s top ten export markets. In addition to more traditional exports of machinery, transport equipment, and chemical products, the agreement has opened new export opportunities for many small European businesses in such diverse sectors as food and drink, pottery, packaging, sports equipment and book binding technology (for concrete examples, see our benefits of trade page). The previous EU trade deficit with South Korea has been turned into a trade surplus.
Exports of EU products that previously faced particularly high duty rates – such as certain agricultural products – now benefit from discounted tariffs, and their exports have increased by over 70 %. Other sectors experienced an even more significant improvement. For instance, the EU’s car sales in South Korea tripled over the five-year period. In addition, EU companies managed to add 11 % to the value of services provided in South Korea and expand bilateral investments by 35 %.
Worries expressed by European stakeholders ahead of the FTA’s approval have thus not materialised. Nonetheless, the European Commission continues to monitor the situation as regards potentially sensitive sectors (such as textiles, cars and electronic products) and – together with civil society – keeps a close eye on the impact of trade on sustainable development. In this context, the EU and Korea also cooperate on environmental issues and labour rights.
The agreement also allows EU authorities to continue improving trading conditions for European companies by raising potential problems in several implementing committees created under the FTA. The Commission has agreed with South Korea to explore possible amendments to the existing deal to make it correspond even better to expectations of stakeholders on both sides, for example to enable European companies to export through their logistical hubs in Asia and at the same time benefit from the FTA.
Unfortunately, more than 35% of European companies exporting to Korea fail to ask for the privileged treatment – in terms of lower customs duties and other benefits – to which they are entitled. This shows that EU Member States have a role to play in informing companies about the benefits of the EU trade deals already in force.
South Korea ranks ninth among the EU’s main export markets and is an important partner of the EU as regards global value chains. The agreement in place since July 2011 is the first comprehensive agreement concluded by the EU with an Asian partner, and the most ambitious trade deal implemented by the EU so far.
It has brought about important changes, such as the elimination by both sides of import duties on the large majority of products traded between the two partners, as well as a reduction of administrative barriers to trade, and mutual openness as regards provision of services, public contracts and investment. The agreement also includes guarantees as regards competition policy, the transparency of regulatory regimes, and the protection of intellectual property rights.
Since the South Korea agreement, the EU has negotiated several other agreements that are already in effect, including with Colombia and Peru, Central American countries, and Ukraine. Agreements with Georgia and Moldova – two comprehensive deals, part of larger Association Agreements – will formally enter into force today after having been ratified by all EU Member States.
The EU is also set to benefit from other agreements still to be validated, including a comprehensive trade deal with Canada, as well as agreements with Singapore and Vietnam.
The EU’s new trade policy strategy presented in the autumn of 2015 – Trade for All -includes plans to conclude future trade deals with strategic EU partners, supporting further economic growth in Europe.
It goes further than any previous agreements in lifting trade barriers and it is also the EU’s first trade deal with an Asian country.
The agreement eliminates duties for industrial and agricultural goods in a progressive, step-by-step approach. The majority of import duties were removed already in 2011. The remaining ones – with exception of a limited number of agricultural products by 1 July 2016.
The FTA also addresses non-tariff barriers to trade, specifically on the automotive, pharmaceutical, medical devices and electronics sectors.
The agreement creates new opportunities for market access in services and investments, and includes provisions in areas such as competition policy, government procurement, intellectual property rights, transparency in regulation and sustainable development.
The agreement was amended in 2014 to also allow Croatia to benefit from the same preferences as the other 27 EU Member States since its date of accession to the EU on 1 July 2013. This amendment was needed because Croatia was not member of the EU when the agreement was signed in 2010.