[Viewpoint] What to expect from the EU FTA
Negotiations between Korea and the European Union, the world s largest market, have concluded. After reaching a free trade deal with the United States in of May last year, our country has become the one and only nation to have bilateral trade deals with the two largest economic entities in the world. Last year, our trade volume with the 27 countries of the EU was $98.4 billion. The figure is larger than our trade with Japan, $89.2 billion, or that with the United States, $84.7 billion. In terms of trade surplus, the EU is our best trading partner.
Once the free trade deal with the EU is implemented, 96 percent of our tariffs and 99 percent of those in Europe will be lifted immediately or within three years. The evaluations of the deal vary. However, few disagree that the auto industry will benefit most from the pact. Both sides must abolish all the existing tariffs on cars larger than 1,500 cc within three years, and compact-sized cars less than that within five years.
The EU has 10 percent import duties, 2 percent higher than Korea s. That means once duties and tariffs are lifted, Korean companies will benefit more than European ones as products of the former will be lowered by a larger margin. Some maintain that as a great deal of Korean cars sold in Europe are produced overseas the free trade agreement with the EU will not be so huge. But as Korean automakers will be able to save money for other costs including advertisement and promotion, if not for production itself, they will certainly have better conditions for their businesses
On the other hand, there are worries that agricultural products will be damaged most from the trade agreement.
Particularly, livestock farmers are deeply concerned. Our country imports 200,000 tons of pork from European countries such as France and Belgium annually. That is half the size of our domestic pork market. Imports of dairy products like cheese will likely be affected by the trade deal. European apples and pears can be half the price of Korean ones and the price of chicken is nearly half of what it is domestically. Powdered skim milk from Europe is 31 percent cheaper than Korean companies . The price of two-rowed barley from Europe is 46 percent of what it costs here.
Our service industry has seen a surplus from trading with the EU since 2004. If and when the free trade agreement allows European companies easier access to our domestic market, and eases our regulations on foreign investment, the EU will enter the Korean market more actively, particularly to its service industry that produces high added value such as financial and business services and loyalties.
The Korean government is determined to pursue bilateral free trade deals with many countries simultaneously. It says that is an inevitable choice for our country, as it is highly dependent on exports. As negotiations of the World Trade Organization, a paradigm of multilateral trade, have been in a stalemate and trade protectionism intensifies because of a global economic crisis, the government wants to overcome the economic crisis by having more and more bilateral trade pacts across the world.
Considering our strategy for trade, the meaning and importance of the free trade agreement with the EU cannot be underestimated. It is not because our country is one of the largest exporters in the world. It is not because we want to let the world know that we do not pursue trade protectionism, either. It is because the deal can provide us an alternative when a growth engine is slowing down and it becomes increasingly difficult to create jobs.
However, while strong industries such as automobiles or electric appliances can benefit hugely from increased trade because of the trade deal, weak industries can be shaken seriously. If the powerful make gains at the price of the weak, it is only right for the powerful to share their gains with everyone. Meanwhile, there are debates on the pros and cons of certain potentially harmful clauses in the FTA.
The government must publicize the content of the negotiations, take criticism in a humble manner and calm worries. To enter the EU market in the right way, it is urgent to establish and run a system that can cope with non-tariff barriers such as regulations on the environment, safety and hygiene.
When asked how he persuaded some of the EU member countries that were skeptical about the trade agreement in the beginning, President Lee Myung-bak answered that his team had a sincere attitude with the partners and earned their trust and understanding. Until the deal is approved by the National Assembly, the government must persuade the Korean people the same way it convinced the EU countries that were holding out.
*The writer is a professor of law at Sogang University.
by Wang Sang-han