Bridges Weekly Trade News Digest • Volume 11 • Number 17 • 16th May 2007

South Korea, EU Start Talks On Free Trade Agreement

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South Korea and the EU completed their first round of free trade agreement (FTA) negotiations in Seoul on 11 May, with both sides reporting substantial progress.

Negotiators set themselves the goal of eliminating at least 95 percent of tariffs on bilateral trade within 10 years of the signing of an agreement. While no hard deadline for a deal has been set, they agreed to work toward finalising an accord as soon as possible, hopefully within the year.

Studies estimate that the deal could boost trade between the two partners, which amounted to nearly USD 80 billion in 2006, by as much as 25 percent.

An FTA presents significant opportunities for both trading partners. Seoul is looking to increase its exports of automobiles, textiles, and electronics to the world’s largest trade bloc, while Brussels hopes to both boost auto sales in the Asian nation and gain greater access to the South Korean services sector. Even though both sides have agreed to exclude their famously-sensitive agricultural sectors from the deal, the FTA would require significant concessions: Seoul wants its European partner to ease anti-dumping rules and reduce countervailing duties, while Brussels insists that Korea strengthen intellectual property protections and soften regulations on imported cars. During Seoul’s recently-concluded FTA negotiations with the US, agriculture and automotive trade were the principal sticking points.

South Korea’s lead negotiator, Kim Han-Soo, praised the first round of talks as "highly successful," while his counterpart from the EU, Ignacio Garcia Bercero, claimed that the week of negotiations was "very constructive." However the talks, which covered investment, goods and services, trade regulations, and dispute resolution, failed to fully resolve disagreements in several critical areas, including services, rules of origin, and sustainable development.

The next round of negotiations is set to take place in Brussels in mid-July; a third round has been scheduled for September.

Many economists and trade experts warn that the proliferation of bilateral trade deals has created a "spaghetti bowl" of overlapping regulations that raise transaction costs for businesses and weaken the multilateral trading system. Moreover, to the extent that bilateral tariff reductions discriminate against products from other countries, FTAs can distort trade. EU officials insist that the prospective accord will not cause significant trade diversion.

"South Korea, EU kick off free trade negotiations," REUTERS, 7 May 2007; "South Korea, EU conclude ‘highly successful’ first round of free trade talks," AP, 11 May 2007; "First Round of Korea-EU FTA Talks Opens," KBS GLOBAL, 7 May 2007; "South Korea-EU free trade talks got off to fast start, both sides say," THE HANKYOREH, 11 May 2007. TA NEGOTIATIONS UNDERWAY BETWEEN SWITZERLAND, JAPAN

Switzerland and Japan opened their first round of trade negotiations in Tokyo on 15 May, taking steps toward what would be Japan’s first free trade agreement (FTA) with a European nation.

The talks, which are scheduled to run through 19 May, will cover trade in goods and services, investment, and intellectual property rights. Both countries’ heavily-protected agriculture sectors will not be on the bargaining table.

Trade between the two nations is significant. In 2006, Japanese exports to Switzerland amounted to USD 2.1 billion, while Japanese imports of Swiss products totaled USD 4.6 billion. Japan is Switzerland’s third-largest trading partner, after the EU and the US. Currently, automobiles, machinery, and chemical and pharmaceutical products represent Japan’s primary exports to Switzerland, while the main Swiss export items to Japan are pharmaceuticals, machinery, watches, and jewelry. Trade in agricultural products is low.

Japan’s primary aim in negotiating the agreement is to increase exports of electronic goods to Switzerland, while Swiss negotiators hope to boost exports of pharmaceutical products and watches in the opposite direction. Both sides are looking to strengthen protection of intellectual property rights and promote trade in other goods and services.

Japanese Prime Minister Shinzo Abe and Swiss President Micheline Calmy-Rey agreed in January to begin FTA talks, following a study of trade possibilities.

Negotiators aim to finalise an agreement by the end of the year. Prospects for the negotiations are good, as there appear to be few areas of major disagreement between the two countries.

While bilateral trade agreements appear to offer significant commercial benefits to the parties involved, many economists and businesses complain that FTAs distort trade, complicate the international trade regime, and undermine the principle of comparative advantage.

ICTSD reporting; "Japan, Switzerland Open Free Trade Talks," INTERNATIONAL BUSINESS TIMES, 14 May 2007; "Japan, Switzerland Launch Free Trade Talks," OHMYNEWS, 14 May 2007.