EU Member States Sign Ambitious FTA with South Korea

In 2009, The EC concluded an FTA with South Korea- a deal which has now been signed by all EU Member States ahead of pending Parliamentary procedures, ratification by all EU Member States according to their own laws and procedures and subsequent provisional application in July 2011. 

The first interesting observation from the EU-South Korea deal is that the EU’s FTAs are increasingly “americanized” as they resemble templates applied by the US based on NAFTA. In addition, the agreement will make major advances in areas such as intellectual property, government procurement, competition policy and trade and sustainable development.

South Korea was designated a priority FTA partner by the EC in the Global Europe trade policy strategy of 2006, given that South Korea’s economy (the 14th largest in the world) was the EU's fourth most important trading partner behind the US, Japan and China. It is therefore not surprising that the EC-South Korea FTA is the most comprehensive FTA the EU has concluded which is expected to open several billion euros worth of new opportunities for EU companies especially in the services sectors. 

The Agreement eliminates almost all tariffs in goods trade while in services, the FTA will offer the EU commitments on services on a par with those offered by South Korea in the draft FTA with the US. However the EU-South Korea deal also goes beyond commitments South Korea undertook with the US in those sectors of specific EU interest. The United States and the Republic of Korea signed the United States-Korea Free Trade Agreement (KORUS FTA) on June 30, 2007, however the Agreement is still pending Congressional approval. If approved, the Agreement would be the United States' most commercially significant free trade agreement in more than 16 years.

In practical terms, the FTA between South Korea and the EU will eliminate 98.7% of duties in trade value for both industrial and agricultural products within 5 years from the entry into force of the FTA. By the end of the transitional periods, duties will be eliminated on almost all products, with a few exceptions in the agricultural sector.

In comparison with the ACP, EC offer was that as of 1st January 2008, all goods originating from an ACP country or region that negotiated an interim EPA, would enjoy duty free quota free access to EU markets, except for rice and sugar where access to EU markets will be duty free from 2010 and 2015 respectively.

In services, the EC-South Korea FTA will be by far the most ambitious services FTA ever concluded by the EU, which significantly improves South Korea’s current WTO-GATS commitments including its offer in the ongoing DDA negotiations. The agreement additionally covers the liberalization of investment, both in services and most non-services sectors.  In practical terms, EU broadcasters (telephone and TV) will be able to operate directly cross-border into South Korea, thus avoiding the obligation to liaise with a Korean operator. The FTA also allows: 100% indirect ownership in the Korean telecommunication sector; full market access for EU's shipping firms and the right of establishment in South Korea; substantial access to Korean market to all EU financial firms, with ability to freely transfer data from their branches and affiliates to their headquarters;  access for EU providers of international express delivery services to the Korean market and allows European lawyers to open offices in South Korea to advise foreign investors or Korean clients on non-Korean law. 

What is interesting to note in the EU-South Korea services, investment and e-commerce chapter is that, the text is generally similar to the ambitious EC Template presented to Sub Saharan African economies in the context of the EPA negotiations. This is despite the fact that the services trade output of all SSA economies combined cannot be compared to that of South Korea alone.

The full text of the Agreement can be obtained here.

EU launches FTA negotiations with Singapore and Vietnam

The EU has launched and concluded FTA negotiations with Singapore (see legal texts here) and with Vietnam (see legal texts here) with the objective to create new opportunities for businesses from both sides including the building of economic foundations for further strengthening of trade ties. 

Currently the European Union is Singapore's largest trading partner and foreign investor and bilateral trade in goods and services exceeded €55 billion in 2008. Meanwhile, Singapore is the EU's foremost trading partner among the Southeast Asian countries and about one third of EU-ASEAN trade is with Singapore.

According to the new EU Trade Commissioner, Karel De Gucht besides trade, bilateral investment ties are robust and the investment relationship is two-way with Singaporeans working in the pharma business, maintaining aircraft or selling financial services benefit from the presence of European investors in Singapore, where some 3400 EU companies have set up subsidiaries. The EU Commissioner is also keen to further promote the EU to investorstof Singapore, including Sovereign Wealth Funds. For the EU, Singapore represents a growing market for exports and investments, as well as a crucial link to the wider ASEAN region.

EU-Vietnam annual bilateral trade in goods amounted to almost € 12 billion in 2008, and trade has increased 12% annually during 2004-2008. Within ASEAN, Vietnam is the EU’s fifth largest trading partner. Vietnam has seen rapid economic and social transformation over the past decade. Vietnam is a good example of an economy successfully opening up to trade and investment and lifting millions of people out of poverty. Vietnam is today one of the fastest growing and dynamic economies in ASEAN. GDP growth averaged almost 8% during 2003-2008. Even through the global economic downturn in 2009, Vietnam recorded a respectable growth rate of almost 5%.

EU’s total trade with Asia last year amounted to €730 billion, compared with €426 for the combined NAFTA countries. Notwithstanding Asia's growing economic success, today, Europe too has predominant role in the world economy. Out of a world GDP worth €41 trillion, the EU's €12.5 trillion economy (compared with China's €3 trillion) is the world's largest. The EU is also the largest importer and exporter, as well as the main source and destination of foreign direct investment. Over the last twenty years Europeans created a Single Market, a common currency and a border-free travelling area and integrated 12 mostly former communist economies, bringing the EU's total population to 500 million, a similar proportion to ASEAN. It is important to note that, last year, the EU initialed an ambitious free trade agreement with Korea.

The EU has also initialed EPAs with African and Caribbean countries. However the trade and investment flows between the EU and Africa, Caribbean and Pacific regions hardly matches those of the ASEAN- EU regions and importantly the investment flows are not necessarily two way. Furthermore Africa’s exports to Europe have been steadily declining over the past decades and it is not clear how the new agreements will stimulate increased exports from Africa. It is widely recognized that there have been many concerns about certain provisions in the EPAs and it remains to be seen if the full comprehensive agreements will substantially revise the areas of concern and hence reflect the severely asymmetric relationship.