[Viewpoint] The impact of the Korea-EU FTA

The European Union is the world’s largest economy, with a population of around 500 million people and an annual GDP of 12.5 trillion euros ($18.675 trillion) in 2008, representing one-third of the world’s total. The EU is also the world’s largest trader, accounting for 17 percent of global merchandise trade and 28.5 percent of trade in services.

With a GDP in current prices of around 650 billion euros, the South Korean economy ranked 15th in 2008, just after India, Mexico and Australia. The Korean population reached 48.5 million the same year, bringing the GDP per capita to 13,260 euros.

EU trade and investment have grown remarkably in South Korea and are benefiting from South Korean economic growth. With total bilateral merchandise trade exceeding 65 billion euros in 2008 (which makes up 2.3 percent of total EU trade with the world), South Korea consolidated its position as the EU’s fourth largest non-European trading partner after the U.S., China and Japan and ahead of India and Brazil.

Moreover, in the fast-growing services area, bilateral trade reached more than 11 billion euros in 2007, representing 1.3 percent of the EU’s total trade in services.

Finally, the EU is the largest foreign investor in the country in terms of cumulative total of FDI flows since 1962, reaching more than 32 billion euros in 2008. EU companies have put considerable trust and confidence in South Korea and demonstrated an outstanding long-term commitment. EU invested companies are highly respected employers offering attractive job opportunities to many South Koreans.

The South Korea-EU merchandise trade volume (imports plus exports) has been characterized by strong growth during the first part of this decade. It has, however, slowed during the past two years.

In 2008 the total volume of bilateral trade between the EU and South Korea amounted to more than 65 billion euros and South Korea was able to hold its position as the EU’s eighth-largest trading partner.

Between 2004 and 2008, the average annual growth of the two-way trade exchanges amounted to 7.5 percent and, as a result, EU trade with South Korea accounts now for 2.3 percent of total EU external trade. This proportion is larger than EU trade with countries like Canada, India and Brazil.

EU exports to South Korea, although recently affected by the economic crisis, showed an average annual growth rate of 9.3 percent since 2004, which is higher than the Union’s overall growth rate in exports (8.3 percent). As a consequence, South Korea’s share of EU exports reached the level of 2 percent.

The current pending conclusion of an Korea-EU FTA should also improve access to markets on both sides. Estimates of gains from this FTA - which is pending signing and ratification - range between a 30 percent to 40 percent increase in bilateral trade. This FTA will reduce tariffs and non-tariff barriers for goods, services and investments as well as introduce advanced principles and rules for the conduct of trade and prevention of future barriers.

The European Union Chamber of Commerce in Korea, which represents the interests of European companies in Korea, welcomes the Korea-EU FTA. The EUCCK believes that fewer trade barriers create more trade. The benefits of increased trade come in the form of growth and prosperity which contribute to security and stability.

The EU is the largest investor in Korea and the second largest export market for Korea. A Korea-EU FTA would allow an even stronger economic partnership. Furthermore, as Korea remains the fourth most important non-European trading partner for the EU, the benefits would be mutual and considerable. EUCCK members fully support the Korea-EU FTA, which addresses the concerns of EU companies already operating in Korea. This will encourage further investments and establishment of new EU companies. The EUCCK members urge EU member states to facilitate the ratification process of the high-quality FTA between Korea and the EU.

As noted by Jean-Jacques Grauhar, the secretary general of the EUCCK, EU businesses will work with the Korean government and people with the aim of providing the best benefits of long-term foreign direct investment to Korea. For the EU, the Korea-EU FTA will provide a gateway to East Asia’s vast market, and for Korea, it will lay the groundwork for becoming East Asia’s economic hub.

From the European point of view, it is a very important step in our relationship and indicates the dawn of a new partnership. Although there is always some adjustment cost, FTAs are ultimately beneficial to both sides and there is a strong economic rationale. If one looks at the trade figures before and after trade agreements are negotiated, one can find that there is generally a very substantial increase that takes place. Korea and the EU share a very dynamic business relationship with large investments on both sides and large amounts of goods traded. Both manufacturing and services will benefit from the streamlining of rules in Korea, while consumers will benefit from access to better and cheaper goods.

*The writer is the president of the European Union Chamber of Commerce in Korea

by Jean-Marie Hurtiger