S Korea, EU sign free trade pact
SEOUL, Oct. 6 -- South Korea and the European Union (EU) sealed a bilateral free trade agreement (FTA), based on which the two sides will enjoy stronger economic ties as strategic partners, South Korea's presidential office said Wednesday.In a ceremony held in Brussels on the sidelines of the Asia- Europe Meeting (ASEM) Summit, South Korean President Lee Myung-bak and EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso signed the pact which was initialed a year ago in Brussels, the presidential office said.
The presidential office praised the deal, saying it will allow South Korea with a preemptive access to the European market, highlighting its expected economic effect.
"The signing of the FTA between South Korea and the EU will bring forth not only an economic alliance but a relationship based on values," presidential spokeswoman Kim Hee-jung said in a briefing.
SUMMARY OF S. KOREA-EU FTA
The South Korea-EU FTA marks the first free trade pact the EU has settled with an East Asian country, while the EU, whose GDP takes up 30 percent of the world's total amount, has become the largest free trade partner of South Korea.
Under the deal, the two sides are to eliminate or phase out tariffs on 99.6 percent of industrial and agricultural products from the counterpart country, the presidential office said in a report.
While tariffs on 81.7 percent of South Korean goods and 94.0 percent of EU products will be abolished right after the deal takes effect, 5.5 percent of South Korean products and 2.9 percent of EU goods will have to wait three additional years, the report showed.
Within five years, 93.6 percent of South Korea's and 99.6 percent of EU's will be shipped to the counterpart market without any tariffs, according to the report.
In particular, tariffs on cars will be eliminated within three years to five years, benefiting auto industries of both countries.
While most agricultural items are included in the deal, rice and related items, which South Koreans find most sensitive, is excluded from tariff exemption.
Also, with respect to the service sector, South Korea is to open 115 industries, while Europe will allow South Koreans to move into 139 industries, the report added.
PROGRESS REPORT
South Korea and the EU officially launched free trade negotiations in May 2007, with difference over industrial tariffs and auto trade initially hampering progress.
The two sides have held eight rounds of free trade talks, together with several inter-session meetings, for 26 months to narrow the gap in their stances over sensitive issues.
After going through years of struggles, the two sides settled a "provisional" agreement on the bilateral free trade negotiations in late March, reaching a compromise in various points, such as the term to phase out tariffs on industrial goods.
Amid growing expectations on an early settlement, the thorniest issues held back the final agreement for which South Korean Trade Minister Kim Jong-hoon and his EU counterpart, Catherine Ashton, met at a ministerial-level meeting in London.
During the meeting which was held on the sidelines of the G-20 summit, the two ministers discussed over the remaining sensitive issues, such as a duty drawback scheme and rules of origin, which caused the leaders to meet again in Paris later in June.
On the final draft of the agreement, the EU agreed to allow a duty drawback system for South Korean companies, which it does not allow for Chile and Mexico under current free trade agreements, South Korean Deputy Trade Minister Lee Hye-min said.
Concluding the negotiations in July, the two sides initialed the pact in October, seeking to finalize follow-up process in 2010.
The process, however, was halted for a while as the EU's Foreign Affairs Council postponed its decision to sign the deal due to opposition from some member countries such as Italy.
After months of talks, the South Korean side succeeded to convince its counterpart, finally gaining the approval from the council.
S Korea, EU sign free trade pact
EXPECTED EFFECTS</p> The EU has been South Korea's second-largest trading partner after China, with two-way trade reportedly reaching around 98.4 U. S. dollars in 2008 and 78.8 billion U.S. dollars in 2009.According to a research by 10 state-run think tanks, led by the Korea Institute for International Economic Policy (KIEP) and released by the presidential office, the South Korea-EU FTA will likely bring forth a 5.6 percent GDP gain for the country in the long run.
The research also predicted the deal will contribute to the sluggish job market as well, creating up to 253,000 jobs over the long term, 219,000 in service sector, 33,000 in manufacturing sector, and 1,000 in agricultural sector.
According to the research, South Korea's exports to the EU expected to rise 2.5 billion U.S. dollars and imports to expand by 2.7 billion U.S. dollars on annual average for the next 15 years
In an earlier report by the KIEP, it was estimated that the deal will increase bilateral trade by 20 percent.
South Korean media, together with the government and state-run trade agencies, point at the local auto industry as the top beneficiary of the trade pact, with the world's single largest economic bloc, is now scheduled to phase out a 10 percent tariff on their auto products.
The presidential office research expected an average 1.41 billion-U.S. dollar annual gain in auto exports for the next 15 years.
Local media also expected South Korean automakers will likely reap greater gains as the tariff is gradually phased out over the five year term, considering the EU auto market is 14 times the local market,.
In 2009, South Korea's auto exports to the EU amounted to 4.6 billion U.S. dollars, while imports from the market totaled 3 billion U.S. dollars.
Along with auto industry, electronics sector would see large gains, expected to see an average 0.39 billion U.S. dollar rise in exports for the next 15 years.
Under to the deal, the EU cuts its some 10 percent tariffs on electronic goods, such as fridges, air conditioners, and TV sets.
South Korea will not only add gains in real economy, but also in financial markets, as it will help draw more foreign investments, the state-run Korea Institute for Industrial Economics and Trade (KIET) said.
In addition, the KIET said the South Korea-EU pact will contribute to rebuilding South Korea's image as an "advanced trading country," together with the deal with the U.S. which is now awaiting ratification.
On the other hand, the pact is expected to hurt the local agricultural sector which is to suffer around 2.3 trillion won (2 billion U.S. dollars) in losses, struck most harshly in pork and dairy sectors.
Despite the inevitable losses in the agricultural sector, South Korean media is still relieved that the deal is decided to take effect.
As the EU endorsed the South Korea-E.U. free trade pact, it will have a pressure on the pending South Korea-U.S. FTA, local media said, urging U.S. parliament on its imminent ratification.
Striking the free trade deal in 2007, South Korea and the U.S. have been struggling to pass it in legislatures in both countries.
While the trade committee in South Korea agreed to pass the bill in 2009, making it more likely it will be ratified in a plenary session, the deal is still harshly opposed in the U.S. mainly due to the thorny beef and auto industry issues.
Local media is recently forecasting there will likely be progress in the U.S. parliamentary body in November, ahead of the upcoming Seoul G20 Summit.
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