On 6 October 2010, representatives from the European Union ("EU") and the Republic of Korea ("South Korea") signed a Free Trade Agreement ("FTA") during the EU-South Korea Summit in Brussels. The EU-South Korea FTA is the first of a new generation of comprehensive FTAs negotiated by the EU, and is the most comprehensive FTA entered into by the EU to date. It is predicted to come into force mid 2011.
The EU and South Korea are already important trading partners with the EU being South Korea's second largest export destination and South Korea being the EU's eighth largest trade partner. While European companies are among the largest investors in South Korea, South Korean investors are increasingly looking abroad for investment opportunities. In 2009, the EU exported € 29.5 billion of goods and services to South Korea compared to exports of € 36.5 billion to the EU by South Korea.
While not attempting to provide a complete summary, this e-bulletin sets out some of the key provisions of the FTA as well as the general impact of the FTA on trade between the two economies.
One of the immediate effects of the EU-South Korea FTA will be the removal of many of the import duties currently in place between the two economies. It is estimated that approximately €850 million worth of customs duties currently imposed on imports from the EU will fall away on the day the agreement enters into force. Most remaining duties will be removed over a period of 5 years after this date. Eventually, import duties on nearly all products will be eliminated and trade in services and in many modes of supply will be liberalised.
A further obstacle to international trade has resulted from the imposition of Non-Tariff Barriers ("NTBs"). These include regulatory barriers, administrative entry procedures, and specific standards required for the import of certain products. Examples of such NTBs currently in force in South Korea include duplicate testing requirements and expensive certification procedures. As NTBs are often sector specific, the FTA contains four annexes dealing with NTBs affecting the consumer electronics, automotive products, pharmaceutical and chemicals industries. Many NTBs currently in force will be eliminated under the terms of the FTA. This will mean that companies will face fewer bureaucratic obstacles and incur fewer costs in introducing their products to the respective markets.
Liberalisation of investment
The FTA provides for the liberalisation of investments in various industries. For example, the foreign ownership requirements currently in force in South Korea in relation to the telecommunication sector will be relaxed and the subcontracting requirements for construction services will be abolished. The FTA will also provide increased access to the Korean market for EU financial firms, including the right to transfer data from branches and affiliates to their headquarters. Other industries affected by the FTA, include: shipping, delivery and air transport services and legal services.
Intellectual property rights are crucial for many businesses and the South Korea-EU FTA contains detailed provisions on copyright, designs and geographical indications, as well as sections on enforcement of intellectual property rights which are based on the EU's internal rules set out in the enforcement directive.
With the benefits outlined above, as well as further chapters on competition, transparency, government procurement, trade and sustainable development and cultural cooperation, the FTA will have a significant impact on trade between the EU and South Korea. Analysts suggest that the trade between the two economies will increase significantly as a direct result of the new FTA. The FTA offers new opportunities to both South Korean and European firms, not least as this is the first FTA to be entered into between the EU and an Asian country and the fact that the South Korea-US FTA is still pending congressional approval in the US.