Exploring the benefits of the EU-Korea Free Trade Agreement

Legislation | | MIC Customs Solutions |

The EU-Korea Free Trade Agreement recently marked its fifth anniversary since coming into effect, prompting the release of a report highlighting the considerable benefits it has delivered in that time.

Many companies operating in the European Union and beyond are heavily reliant on free trade agreements (FTAs) to facilitate their importing and exporting activities, and to make their operations as competitive and bureaucracy-free as possible.

The benefits of such deals are widely documented, with the European Commission shedding further light on the potential positive impact of these FTAs earlier this month by publishing a report on the progress it has made through its trade pact with South Korea.

Signed in 2010, the agreement has strengthened the EU's links with one of Asia's most prosperous economies, with further benefits to be unlocked in the years to come. As such, the report - released to mark the fifth anniversary of the FTA - provides key insights into the broader business advantages of further moves towards trade deregulation.

The background of the deal

The EU-Korea FTA came into effect on July 1st 2011 and marked the first comprehensive agreement concluded by the EU with an Asian partner, as well as being one of the most ambitious trade deals implemented by the EU to date.

It eliminated duties for industrial and agricultural goods, with the majority scrapped in 2011 and further changes made over the subsequent five years, with only a limited number of agricultural tariffs still in place. Moreover, it addressed a number of non-tariff barriers to trade in the automotive, pharmaceutical, medical devices and electronics sectors, while creating new market access opportunities, including provisions in areas such as competition policy, government procurement, intellectual property rights, transparency in regulation and sustainable development.

Most of the key pillars of the FTA came into effect in 2011, with the main amendment since then being the inclusion of Croatia - which joined the EU in 2013 - under the scope of the agreement in 2014.

The benefits to date

As a direct result of the EU-Korea FTA, South Korea has become one of the EU's top ten export markets, ranking ninth overall. European exports to the Asian nation have increased by 55 per cent, while bilateral trade in goods has grown constantly, reaching a record level exceeding €90 billion in 2015.

European companies have saved €2.8 billion in scrapped or discounted customs duties, with sectors that previously faced particularly high duty rates - such as certain agricultural businesses - now benefit from discounts, allowing them to increase their exports by more than 70 per cent. As such, the previous EU trade deficit with South Korea has been replaced by a surplus.

The European Commission continues to monitor the impact of the deal in terms of its effect on potentially sensitive sectors such as textiles, cars and electronic products, while raising potential problems through several implementing committees created under the FTA. Possible amendments are also being explored to maximize its benefits - there is scope, for example, for European companies exporting through logistical hubs in Asia to benefit from the FTA in a way that is not currently possible.

However, the report also noted that more than 35 per cent of European companies exporting to Korea do not ask to receive the lower customs duties and other benefits to which they are entitled under the FTA. This is a problem that can be avoided through the use of efficient FTA management, underpinned by a software solution such as the origin calculation system MIC OCS, but the existence of the broader trend highlights the need for expanded efforts to educate businesses on what the deal provides.

The wider impact

Since the EU-Korea FTA was brought into effect, several other similar agreements have been implemented by the EU, including with Colombia and Peru, several Central American countries, and Ukraine. Indeed, new deals with Georgia and Moldova formally entered into force on the same day the Commission released its five-year anniversary report on the Korean agreement.

Further comprehensive trade deals with Canada, Singapore and Vietnam are also under discussion, and the EU is keen to use the South Korean example as a clear illustration of the kinds of benefits similar FTAs can offer to European businesses.

EU commissioner for trade Cecilia Malmstrom 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."