A free trade pact between the European Union and South Korea, the first such deal linking Asia and the world’s largest economic bloc, came into effect yesterday, bringing with it sweeping changes.
The deal will eventually do away with 98.7 per cent of duties and is expected to boost trade by tens of billions of euros a year, slash more than €2 billion in tariffs annually and create an estimated 250,000 jobs in South Korea.
The Wall Street Journal quoted European Trade Commissioner Karel De Gucht as describing the pact as “the most ambitious trade deal ever concluded by the EU and should become a game-changer for our trade relations with Asia”.
On the eve of its implementation, the EU’s ambassador in Seoul Tomasz Kozlowski told journalists that the FTA was a “win-win” agreement and would be a model for other deals that the bloc is negotiating in the region.
The 27-nation European Union, home to 500 million people, is currently negotiating similar pacts with Japan, Asia’s second largest economy, and India.
Apart from multiplying the flow of goods and services, the agreement would “boost exchange of ideas, exchange of people and culture, and ultimately will bring Korea and the EU much closer”, Mr Kozlowski said.
He said some studies forecast the FTA would boost trade by 50 per cent in the short term and more than double it over the next two decades.
One study forecast more than 250,000 new jobs in South Korea in the long term as a result of the pact. The deal comes as a blow to US supporters of a free trade pact with Seoul.
Although the two sides signed a trade agreement in 2007, the pact has yet to be ratified by their legislatures.
The US Ambassador to Seoul, Kathleen Stephens, warned last month that US exporters could lose ground to EU competitors unless Congress quickly ratified the agreement.
Under the EU-South Korean pact, 70 per cent of customs duties will be immediately scrapped, rising to 98.7 per cent over the next five years.
Tariffs on 96 per cent of EU goods and 99 per cent of South Korean goods will be eliminated within the next three years.
The EU is currently South Korea’s second largest trading partner after China, taking almost 20 per cent of its exports.
EU exports to South Korea are worth €28 billion, while South Korea’s exports to Europe amount to €26.71 billion.
The deal would “have a wide impact in Asia and in the world”, Mr Kozlowski told a news conference. “It shows the potential for increasing growth and jobs through greater trade between Europe and Asia.”
He wrote in the Korea Herald yesterday that the “landmark” deal was the “most ambitious ever FTA negotiated by the EU with a partner outside Europe and the first FTA with a country in Asia”.
The pact will bring about yearly savings of more than €2 billion in tariffs, he said.
It will also remove non-tariff barriers, especially those in the automotive, electronics and pharmaceutical sectors and consolidate the liberalisation of the service industries, he said.
While some studies suggest the South Korean car and electronic sectors will benefit from access to the EU market, others point to likely increased sales of EU industrial machines and luxury goods in South Korea, he added.
South Korean trade organsiations expressed hope the deal would boost South Korea’s market share in the European Union, which stood at one per cent, compared with China’s 7.1 per cent.
The state-financed Korea Institute for International Economic Policy said the deal was expected to boost the EU-South Korea bilateral trade as much as 20 per cent in the long term.