The European Union (EU) today gave the go-ahead to a wide-ranging free trade deal with South Korea, its first with an Asian partner. Italy, the main country opposing the agreement, withdrew its objections in exchange for a concession that will see the deal’s introduction postponed by six months.
“This is the first generation of bilateral trade agreements which will bind Europe and Asia together in an ever-closer economic bond,” said Steven Vanackere, vice prime minister of Belgium, which holds the EU’s rotating presidency, at a press conference in Brussels. “This is a very big step in opening markets in Asia for our companies.”
The EU is also currently negotiating a free trade agreement (FTA) with India, for which chief negotiators will be meeting in Brussels next week.
Despite having been initialled almost a year ago in October last year, it’s taken the EU until now to garner the consensus required from its 27 member states to pass the accord. It is now due to be signed at an EU-South Korea summit meeting in Brussels early next month. If the European Parliament also gives its backing, it will then enter into force from July 1, 2011. This is six months later than the date initially planned.
The deal will remove 99 per cent of all tariffs between the two economies within five years, as well as many non-tariff barriers. The European Commission estimates that it will be worth up to 19 billion euros in new trade for EU exporters. EU-South Korea trade was worth around 53 billion euros in 2009.
The FTA has been held up on the EU side primarily because of the concerns of European car makers, including Italy’s Fiat, who will now face stiff competition from Korean counterparts. Particularly contentious was a “duty drawbacks” clause that allowed for the reimbursement of tariffs.
The clause permits South Korean manufacturers to purchase 45 percent of car components from low-cost countries like China and India and claim the duties back when these vehicles are shipped to European markets.
The EU imported about 450,000 Korean cars into its market of 15 million in 2008, while exporting 33,000 autos to Korea, where one million new cars are sold annually.
The EU-Korea FTA is the second-biggest free-trade pact ever after the 1994 $1-trillion North American FTA among the US, Canada and Mexico.
