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KOR-EU FTA: Major Features and Implications

KOR-EU FTA: Major Features and Implications

LEE Jong-Kyu

Aug. 31, 2009

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Originally released on July 13, 2009

ABSTRACT

The conclusion of the Korea-EU free trade agreement moves the pact into a series of confirmation phases - legal review, preliminary signing, translation, official signing, parliamentary ratification and the exchange of confirmation letters - that could be completed as early as the first half of 2010.

Under "tariff concession on goods," the EU would lift import tariffs on all industrial products within five years, and Korea within 7 years. On "tariff refund," the last of the most contentious issues involved, the two sides agreed to maintain the current rule, which Korea had requested. They also agreed to cap the refund if there is a significant rise in the use of imported parts and components starting five years after the FTA takes effect. As for rules of origin for automobiles, the use of foreign components will be limited to 45% of a finished product. In the service sector, the level of opening is to match that of the Korea-US FTA and a "KORUS plus" for certain telecommunication and environmental service markets. In agricultural products, Korea secured special treatment on sensitive items such as rice and barley.

he economic effects of the Korea-EU FTA will likely be larger than those of the Korea-US FTA since the former would boost both imports and exports. In particular, given that the Korea-EU FTA will contribute to creating a more advantageous export environment, Korea would be able to sustain its trade surplus with the EU. Korea 's flagship export items, especially automobiles, would be expected to benefit the most, while, on the EU side, the industries of refined chemicals, parts and materials and large vehicles will become the largest beneficiaries. In the agricultural sector, Korea will likely witness an increase in imports of pork and wine. In addition, the EU firms will likely make bigger forays particularly in the areas of finance, environment and telecommunication. One of the possible side effects of the expected increase in shipments from the EU is options to substitute higher-priced imports from elsewhere. Overall, the Korea-EU FTA should realize a host of positive benefits, including expansion of e xports, improvement in the economic structure and more foreign investment.

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