FTA with EU was just in time to buttress sagThe free trade pact with the European Union has helped the Korean economy get along amid the global economic slump, as exports of tariff-slashed goods to the European market served as a buffer against an overall drop in overseas demand, experts said.
After negotiations of more than two years, both sides signed the deal in 2010. The trade deal took effect on July 1 last year, allowing Korean firms to tap deeper into the world’s single largest economic bloc.
According to government data, Korea’s exports to the EU actually fell 12.1 percent on-year in the July 1-June 15 period, with its trade surplus reaching $1.8 billion, a sharp drop from a surplus of $14 billion a year earlier.
Experts said the sharp drop in exports was attributed to the euro zone crisis and the global economic downturn.
“A drop in exports to the EU was mainly due to an economic slump in the euro zone caused by fiscal problems in the region,” said Myung Jin-ho, an analyst at the Korea International Trade Association (KITA).
But shipments of products such as automobiles and auto parts, which enjoy tariff cuts under the pact, jumped 20.2 percent on-year during the cited period, the data showed.
For one, Korean automakers’ exports to the EU surged 43 percent from a year earlier to reach some 426,000 units last year. In the first five months of this year, auto exports to the region gained 12.7 percent to some 176,000 units.
In particular, shipments of jet fuel, gearboxes and petrochemical products surged more than two fold in the cited period as such products benefited from the lowered tariffs under the trade pact.
According to the report by the KITA, the EU’s investment in Korea also soared 60.5 percent on-year to reach $3.57 billion during the July-March period, compared with a 48.8 percent plunge in the same period a year before.
Under the deal, Seoul and Brussels agreed to eliminate or phase out tariffs on 96 percent of EU goods and 99 percent of Korean goods within three years after the accord takes effect. They have also agreed to abolish tariffs on most industrial goods within five years of the deal taking effect.
Overall, the deal is projected to boost bilateral trade between Korea and the EU by as much as 20 percent in the long term, according to earlier estimates by the state-run Korea Institute for International Economic Policy (KIEP).
The KIEP said the free trade accord with the world’s largest economic bloc would help boost Korea’s exports by $11 billion and its economic growth by 5.6 percent while creating up to 253,000 jobs over the long haul.
“The deal will help boost our exports, especially sales of autos, electronic goods and textiles, to the European market, if the euro zone problem is resolved,” said Kim Hyung-joo, a researcher at LG Economic Research Institute.
Meanwhile, imports from the EU also surged. Imports of agricultural products reached $2.63 billion in the July-May period, up 24 percent from a year earlier.