EU talks with South Korea on free trade deal

EU

The European Union kicked off the second-round talks with South Korea on a free trade deal, offering totally free market access for South Korean exports on condition of reciprocity.

“The EU has never before taken such an ambitious position in a bilateral free trade negotiation,” the 27-nation bloc said in a statement. The EU set the bar high by offering 100% tariff-free market access for South Korean exporters to the EU market if South Korea makes a similarly ambitious offer. In return the EU is looking for substantial new access to the growing South Korean market in key areas like automobiles, manufactured goods and business services. The 27-nation bloc also eyes investment opportunities in South Korea, seeking removal of restrictions on EU investors.

The EU took investment as a crucial area for Europe, where no disciplines currently exist under the regime of the WTO. The EU is the biggest investor in South Korea with a total investment of $5 billion (€3.6 billion) last year, accounting for 45% of foreign direct investment inflows to the East Asian country. Besides tariff, the EU wanted to put a new focus on non-tariff barriers and behind the border issues in South Korea, such as regulations that are unnecessarily complicated and burdensome and which may in some cases present greater obstacles than tariffs.

The EU launched the negotiation with South Korea in May, which is part of the bloc's bilateral efforts to boost its presence in growing emerging markets. Those bilateral negotiations are meant to complement the multilateral WTO system by pushing liberalization in key areas like investment not currently covered by WTO rules, the EU said. The second-round talks are expected to last five days, with a third round due in September. Studies showed that an ambitious free trade agreement between the EU and South Korea could increase bilateral trade by between 30 and 40%.


Automobile exports are emerging as a bone of contention as the European Union and South Korea engage in their second round of free trade talks in Brussels, local analysts said on Tuesday. “The broadest gap (in the trade talks) comes from cars,” said South Korea's chief negotiator Kim Han-Soo. South Korea has offered to phase out an 8% duty on cars from Europe over seven years. “The gap is so distinct that we must bring this car issue back home for further discussion with the concerned parties at home.” However, the chief negotiator hinted South Korea may react favorably to European requests.

Cars account for the lion's share of South Korea's trade surplus with the EU. The surplus reached $18 billion in 2006. South Korean shipments of cars to Europe jumped from 677,469 units, worth $6.81 billion, during 2004 to 741,740 cars, worth $9.16 billion, during 2006, or 3.8% of the European car market share, according to the Korea Automotive Research Institute (KARI) in its report. Meanwhile, the number of European cars sold in South Korea increased from 10,182 units, worth $637 million, in 2002 to 23,769 cars, worth $1.62 billion, in 2006. Duty-free access of South Korean cars to the European market could boost South Korean car exports by up to 124,000 units, worth $1.4 billion a year, the South Korea's business interest group Federation of Korean Industries (FKI) forecast.

The EU puts a 10% duty on imported cars versus a 2.5% duty imposed by the US, versus an 8% duty imposed by South Korea. KARI expects European carmakers to gain more than South Korean carmakers from a free trade deal. “If the EU-SK free trade becomes effective, the impact on the South Korean carmakers will be limited. South Korean carmakers like Hyundai Motor are ready to ramp up local car production to reach up to 600,000 cars a year in Europe,” KARI's report said.

Meanwhile, the EU wants greater access to South Korea for its main export products like whiskey, wine, port, chicken and cheese, while South Korea wants easier access to European markets for its color TV sets, textiles, shoes or video equipment. The trade volume between the EU and South Korea reached €60 billion ($82 billion) in 2006. The EU is South Korea's second largest export destination after China. South Korean exports to the EU include automobiles, consumer electronics, semi-conductors and ships. Important EU exports to South Korea include machinery, chemicals and transport equipment. The EU also exports more than €1 billion in agricultural products like pork and wines to South Korea every year. (people.com.cn, monstersandcritics.com)

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