Korea inks free trade pact with EU

Economy

Published: 15 Oct. 2009, 21:37

Korea inks free trade pact with EU

European Union Trade Commissioner Catherine Ashton, right, and Korea’s Trade Minister Kim Jong-hoon, left, sign an EU-South Korea free trade agreement in Brussels yesterday. [REUTERS]

Liquor imports from the European Union, including wine, vodka and whiskey, may cost 20 percent less in the next three years while auto imports from the economic bloc will drop 8 percent.

Those are just some of the results that could flow from yesterday’s signing of the Korea-EU free trade agreement that had been hashed out for over two years. The deal still needs approval by respective legislatures.

The document was approved in Brussels, Belgium by Korea’s Trade Minister Kim Jong-hoon and EU Trade Commissioner Catherine Ashton.

This would be the second biggest free trade deal ever to be signed, following the North American Free Trade Agreement by the United States, Canada and Mexico in 1994. The Korea-EU FTA would also be the first free trade deal in Asia for the EU. Korea’s foreign affairs and trade ministry plans for the deal to go into effect next July.

With bilateral trade reaching $98 billion last year, the EU is Korea’s second-biggest trading partner after China. The world’s top market bloc is also Korea’s biggest foreign investor, with around $4.3 billion invested here in various projects. The deal would eliminate tariffs on 96 percent of EU goods and 99 percent of Korean goods within three years after taking effect. Items involved include cars, TVs, refrigerators, ships, radios, car parts and more. In particular, Korean automobile exporters could save at least 1,000 euros ($1,495) per car after all tariffs for cars with smaller than 1,500 cc engines are eliminated within three years and those on cars with larger engines are gone within five.

European automakers have been criticizing the deal’s no-tariff barriers, saying the pact would give an unfair advantage to Korean companies, such as Hyundai Motor and Kia Motors.

“In the past, it was more about striking FTA deals but now, there is more pressure on how the agreement is dealt with afterwards [by the respective industries],” said Kim Hong-jong, a researcher at the Korea Institute for International Economic Policy.

Tariffs on rice, however, will stay steady while frozen pork imports from the EU, another sticky issue, would be phased out within 10 years. KIEP said that the free trade deal could boost bilateral trade between Korea and the EU by 20 percent, while over time bumping up Korea’s GDP by around 3 percent.

On the other hand, the Korea-U.S. FTA deal still faces major challenges. Wendy Cutler, the assistant U.S. trade representative for East Asia, said yesterday that although there is “overwhelming public support” for the Korus FTA to be finalized, the Obama administration and U.S. auto companies still have concerns over the auto sector segment of the deal. “I would also note that there are areas of concern as noted by some of the submissions, particularly by two of the automotive companies, the UAW [United Auto Workers union] and other workers’ groups,” she said during a hearing of the House Foreign Affairs Committee. “It’s apparent that more can be done and should be done in the automotive sector to help level the playing field for U.S. companies and workers in this important sector,” she added.

Although U.S. President Barack Obama has told Korean President Lee Myung-bak that he is committed to finalizing the deal, he has not yet set a time frame.

By Cho Jae-eun [jainnie@joongang.co.kr]