EU trade pact with South Korea faces criticism

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The European Union and South Korea today (15 October) signed a long-awaited trade pact potentially worth 100 billion euros ($149 billion), but the agreement has attracted criticism from industry.

The trade deal is the most important ever negotiated between the 27-nation European Union and a third country, the EU executive said in a statement. 

It is worth an estimated 19 billion euros in new trade in goods for EU exporters, around 12 billion euros in goods for Korean companies, and will see the removal of all tariffs as well as many non-tariff barriers between the two economies.

“It will create new market opportunities for European companies in services, manufacturing and agriculture,” EU Trade Commissioner Catherine Ashton said in a statement. “This agreement is particularly important in the current economic climate, helping to fight the economic downturn and create new jobs,” she added. 

Trade in goods between the EU and South Korea was worth around 65 billion euros in 2008. The EU currently runs a deficit with South Korea in terms of goods traded, although trends suggest that the Korean market offers significant growth potential for European companies. 

The deal will see the quick elimination of 1.6 billion euros of duties for EU exporters to Korea and tackle key non-tariff barriers including regulations and standards in industries such as the automotive, pharmaceuticals and consumer electronics sectors. 

Ratification of the free trade agreement (FTA) would result in eliminating or phasing out tariffs on 99.4% of EU goods shipped to Korea and 95.8% of Korean goods exported to the European trade bloc, all within a three-year period. Immediate tariff removal would make up 76.7% for the EU and 69.4% for Asia’s fourth-largest economy.

The FTA will now have to be approved by the European Parliament. Industry associations have already started their lobbying campaign to derail the process. 

Accoding to ACEA, the European carmakers’ association, the agreement goes against the interest of major manufacturing industries in Europe, including the automotive sector, and their millions of employees.

“We call on EU member states not to ratify the current text. The concerns that many of them expressed before, and that were echoed by members of the European Parliament, a number of European commissioners – as well as trade unions and businesses – have not been addressed,” said Ivan Hodac, ACEA’s secretary-general. 

“The Korean negotiators have not only obtained unrestricted access to a market of over 500 million people, the European Commission has in addition allowed South Korea to subsidise exports from its key industries to the EU. This constitutes unfair competition and will lead to economic distortion,” Hodac added.

EU car sales to Korea went up by a total of 78% in unit sales (39% in value) between 2005 and 2008, whilst Korean car exports to the EU decreased by 37% in unit sales over the same period. 

DigitalEurope, the assocation representing the ICT industry in Europe, also raised concerns about the FTA’s impact. “Lowering or removing tariffs will put European and other non-Korean electronics companies at a competitive disadvantage,” it said in a statement.  

The ratification process by national parliaments, which could take several months, might face also a few hurdles.

(EURACTIV with Reuters.)

Seoul and Brussels began negotiations in April 2007 and concluded the talks in July 2009. 

Exports are an important source of growth and employment in the European economy, making up around 10% of GDP in 2008 and supporting millions of jobs. European companies profit directly from exports and positive spillover effects in the internal market. 

Key Asian markets offer the potential for significant new opportunities: high growth rates combined with high levels of current protection. European businesses have been asking for better terms of access to key Asian markets for some time now. 

Responding to these calls, EU member states authorised the European Commission to negotiate new ambitious Free Trade Agreements (FTAs) with India, Korea and ASEAN countries.

The agreement is expected to enter into force in the second half of next year after approval by the European Parliament.

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