Bridges Weekly Trade News Digest • Volume 13 • Number 36 • 21st October 2009

EU, South Korea Sign Free Trade Accord

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The European Union and South Korea signed a free trade agreement last week that will do away with ‘virtually all tariffs’ on trade between the two major world economies, the European Trade Commission said in a statement. The deal is the biggest trade pact ever signed by the 27-nation bloc.

The EU’s Trade Commissioner, Catherine Ashton, and South Korean trade minister Kim Jong-hoon initialled the deal in Brussels on 15 October, officially marking the end of negotiations on the deal.

Two-way goods trade between Europe and South Korea amounted to €65 billion in 2008. The EU is South Korea’s second-largest trading partner, after China. The EU Trade Commission says the new deal will give European exporters an estimated €19 billion in new trade.

Deal addresses services, NTBs, duty drawback

The services trade is set to get a significant boost from the deal, the Commission said, as Seoul has agreed to significantly liberalise its telecommunications, environmental, legal, financial and shipping sectors.

The deal will also remove non-tariff barriers to trade (NTBs) - standards and regulations on goods such as pharmaceuticals, autos, and consumer electronics, among others. In the light of already-low tariffs on such products in South Korea, the removal had been a main demand of some EU member countries.

Beyond the deal to reduce behind-the-border measures, the free trade agreement (FTA) also provides for dispute settlement mechanisms for resolving disagreements over NTBs. The pact marks the first time that such a mediation mechanism devoted exclusively to non-tariff measures has been included in a European FTA.

In a key provision for the EU, the deal also includes special provisions that would speed up the consideration of trade disputes over motor vehicles and auto parts - a highly sensitive sector in Europe.

More generally, the agreement’s dispute settlement mechanism allows parties to revert to to pre-agreement ‘most-favoured nation’ tariff levels in certain cases of non-compliance. Some European countries had long insisted on such a mechanism, which is likely to be used predominantly for NTB cases in sectors such as automotive and consumer electronics.

The deal also clarifies rules governing intellectual property and allows either party to invoke a general safeguard clause in the case of a sudden surge in imports.

The signing of the deal last week marks the end of nearly two and a half years of bilateral negotiations, which hit several stumbling blocks along the way. Negotiators clashed repeatedly on a ‘duty drawback’ provision that would reimburse Korean manufacturers for tariffs they pay on cheap imported auto components when the cars produced from those products are exported to the EU. The finalised text allows for such repayment, but with some limits: “in case of a significant increase of sourcing from countries that have not concluded [a free trade agreement] with Korea…a special clause allows for a cap of the refundable duties at a level of 5 percent,” according to a fact sheet from the Commission.

The Commission will present the finalised text to EU member states in early 2010; it expects the deal to enter into force later that year, assuming the pact wins the approval of the European Presidency and the European Parliament.

The agreement is the first FTA signed by the EU since the bloc launched its ‘Global Europe Strategy’ in 2006. When it was announced, the strategy marked a shift from a strictly multilateral policy to a global trade policy that includes a focus on free trade accords, particularly with emerging Asian economies. The strategy has also spurred European negotiations with India and seven Southeast Asian countries; those talks are still in progress. Trade observers say that significant chunks of the EU-South Korea deal will be used as a template for the ongoing negotiations.

Pressure grows in Washington

The United States struck a similar free trade accord with South Korea in April 2007, but the pact has yet to be approved by lawmakers (see Bridges Weekly, 16 September 2009, http://ictsd.net/i/news/bridgesweekly/55271/). The agreement has languished in Congress, largely due to opposition from the auto and beef industries.

But the signing of the European deal could put some pressure on the administration of US President Barack Obama to push the deal through.

“We have concluded our negotiations with the EU, which has almost a similar economic size as the United States,” South Korean Ambassador to the United States Han Duk-soo said in Washington last week.

“President Obama will visit Korea in November and we hope we will make some progress before that,” Han added.

More information

The full text of the EU-South Korea FTA is available at http://ec.europa.eu/trade/issues/bilateral/countries/korea/pr191009_en.htm

ICTSD reporting; “EU-Korea trade deal puts pressure on Obama to act,” REUTERS, 15 October 2009.