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Benefits of Korea-EU FTA

Thursday, September 22nd, 2011

With years of negotiations, the Korea-EU free trade agreement (FTA) ratification was finally brought into effect on July 1. The Korea-EU FTA belongs to a different level compared to previous FTAs. Korea has been pushing ahead, among trade deals with other nations, the FTA with the EU has a larger market than the market of the FTA with the U.S., and the trade volume of the Korea-EU FTA is the second largest next to the trade volume expected by the FTA with China. The Korea-EU FTA is the sixth FTA Korea has entered into.

Negotiations began in May 2007. Until March 2009, eight rounds of negotiations took place in Brussels and Seoul. In July 2009, the conclusion of the Korea-EU FTA was jointly announced at the Korea-Sweden Summit at Stockholm. After a year, in October 2010, Korea and the EU signed the Korea-EU FTA at Brussels. The National Assembly of Korea approved the Korea-EU FTA ratification bill this year on May 4th, and soon after the FTA provisionally took effect on July 1st.

The FTA between the EU and Korea is expected to slash tariffs on more than 20,000 items. Starting July 1st, the tariffs of more than 9000 items in each nation were cut immediately, and the rest will be slashed gradually. Among the imported goods made in Europe that had the tariffs cut immediately were shoes (tariff rate 13 percent), leather bags (8 percent), clothing (8-13 percent), refrigerators (8 percent), and vans (10 percent). According to a report by the Associated Press, EU Ambassador Tomasz Kozlowski said the FTA between the EU and South Korea “immediately slashes 70 percent of tariffs and with that set to expand to 98.7 percent within five years.” The Korean Ministry of Knowledge Economy estimates that for the next 15 years, the Korea-EU FTA will bring an annual average of US$2.5 billion dollars in the manufacturing exports industry, and an effect of US$400 million dollars increase in trade surplus.

The main beneficiaries of the Korea-EU FTA are expected to be Korean manufacturers and Korean electronic component manufacturing companies. With the open legal market, some legal experts believe that local law firms may suffer a blow from European law firms, but others believe that new opportunities may arise. On the other hand, the agricultural sector seems to have a price stabilization effect for a certain period, but damage in the livestock industry seems to be inevitable in the long run.

As of 2010, the EU was the second largest export market, taking up 14.9 percent (US$68.6 billion dollars) of the total Korean export market. However, Korea aims to increase its market share in the EU from 2.6 percent to 3 percent within three years. Trade Minister Kim Jong-hoon said in a radio interview that this figure is possible since Korea’s rival nations need at least three years to conclude the FTA with the EU; whereas, Korea can enjoy the prior occupation effect of the EU-Korea FTA.

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