Case study 17.2: EU-South Korea Free Trade Agreement – an
exemplar of the Global Europe approach
In 2011, the EU-Korea Free Trade (FTA), the first of the new generation of bilateral
agreements envisaged by Global Europe, came into force. That it was South Korea with
whom the EU would pioneer its new strategy was no surprise. Previous trade agreements had
been with neighbouring countries or with countries with which the EU had strong historical
or political ties. Although extremely important, such agreements were not generally
negotiated on economic grounds. Although South Korea is physically distant from the EU
and has limited links with Europe, it has exhibited highly impressive economic growth and
the economic opportunities there have been taken advantage of Europe’s main economic
rivals more effectively than by Europe itself. Thus the choice of South Korea by the EU as its
partner for the first of the new round of trade agreements was based on economic criteria,
notably the potential for increasing EU access to this highly dynamic economy, and was
regarded as merely the first stage in improving economic exchange with Asia where the
world’s most dynamic economies are located but where many obstacles continue to face
European exporters and investors trying to gain access to them.
The negotiations between the EU and South Korea also took place at a time when the Doha
talks were stalling and it was becoming increasingly apparent that a comprehensive
multilateral agreement was far from imminent. The negotiation of this bilateral, and
potentially others, was thus regarded by the EU as a way of furthering liberalisation and
making progress on issues that it seemed were unlikely to receive support in the multilateral
talks – otherwise known as ‘WTO plus’. According to the EU, the EU-Korea FTA does not
represent a turning away from a commitment to multilateralism as some have claimed, but is
a way of increasing the total amount of liberalisation in the world.
The EU-Korea FTA is the most ambitious trade agreement ever negotiated by the EU and the
first it has concluded in Asia. As such, it represents the deep and comprehensive agreements
envisaged by Global Europe. The agreement is unique in its scope: once fully implemented,
the vast majority of industrial trade between the two will be duty-free as well as most
agricultural products. The agreement also seeks to remove significant non-tariff barriers
(NTBS), especially those relating to motor vehicles, pharmaceuticals/medical devices and
consumer electronics. Furthermore it improves market access for a wide range of service
sectors and also makes advances in intellectual property protection, public procurement and
competition policy and sets in place an institutional framework to implement and monitor the
agreement. The measures introduced by the agreement are discussed in more detail below.
Tariff removal
The biggest removal of duties on industrial goods occurred when the FTA came into force
with 98.7 per cent of Korean duties in terms of trade value to be eliminated within a five year
transition period intended to help domestic producers prepare for and adapt to the new
situation. The main EU beneficiaries of this increased market access in terms of value were
machinery and appliance manufacturers followed by the chemical sector. Other major EU
beneficiaries include textile producers for whom 93 per cent of the duties facing them in the
South Korean market were eradicated immediately; glass - 85 per cent; leather and fur – 84
per cent; footwear - 95 per cent; iron and steel 93 per cent and optic instruments 91 per cent.
EU industrial tariffs were also removed from Korean exports: transition periods of up to five
years were applied to for more sensitive products such as cars with smaller engines,
consumer electronics, TVs and LCD monitors.
The opening of Korea’s market for EU agricultural products is highly significant. South
Korea has negotiated, or is in the process of negotiating, trade agreements with major
agricultural producers like Chile, the US, Canada, Australia and New Zealand which, without
greater access to Korean markets for EU producers, could seriously undermine EU
agricultural exports to Korea. Moreover, prior to the FTA, only two per cent of EU
agricultural products entered Korea duty-free. The FTA eliminates tariffs completely for most
agricultural products: wine became duty-free as soon as the FTA came into force; whisky
faced no tariffs after three years and pork after five. The market for the most sensitive
product, frozen pork belly, is scheduled for opening after ten years. Excluded from the
agreement are products which the EU does not export or exports insignificant amounts – like
rice.
Technical barriers to trade (TBTs)
TBTs include a wide range of regulatory requirements such as technical regulations and
standards, conformity assessment procedures and similar requirements which can have a
negative and costly impact on exporters by requiring them to undergo different and timeconsuming procedures and to adapt their product to each individual export market, thereby
increasing costs.
The FTA contains a number of general commitments on TBTs, including co-operation on
standards, including recognition of international standards where appropriate, and regulatory
issues and transparency and marking/labelling regulations that go beyond WTO obligations.
The four EU sectors likely to benefit most from the FTA, however, are
pharmaceuticals/medical devices; consumer electronics; motor vehicles and parts and
chemicals for which individual annexes containing sector specific commitments are attached
to the FTA. These annexes contain measures requiring mutual recognition of standards and
the acceptance of European certificates as equivalent to domestic certificates, thereby
reducing red tape and costs.
In relation to motor vehicles and parts, for example, the Annexe provides potentially
important breakthroughs on standards which will significantly ease market access for both
parties. South Korea will consider United Nations Economic Commission for Europe (UNECE) regulations on core safety standards as equivalent to Korean regulations and will align
a further 29 of its standards to UN-ECE standards. Korea has also undertaken to ensure that
standards not subject to equivalence or harmonisation will be applied in a way that does not
create market access problems. Korea has also agreed that any future standards it adopts will
be based on UN-ECE regulations and where there are no UN-ECE regulations, the EU and
South Korea have agreed to co-operate to develop international standards or to achieve
convergence in their respective standards. Korea will also accept EU on-board diagnostic
(OBD) devices conforming to Euro 6 as compliant with Korean standards. Finally, South
Korea will extend Most-favoured nation (MFN) treatment to EU producers if Korea decides
to give more favourable treatment to other countries in matters of international taxation or
emission regulation.
Sanitary and phytosanitary (SPS) measures
The agreement aims to stimulate trade in animal and animal products; plant and plant
products and other food products while paying due regard to high levels of human, plant and
animal health. Commitments to transparency, consultation, and forging a common
understanding on international standards provides a foundation for resolving SPS issues like
standards for additives to foodstuffs.
Government procurement
Government procurement typically accounts for 12-15 per cent of GDP in OECD countries
and more in emerging and developing countries but these markets are notoriously difficult to
access for non-domestic suppliers. Both the EU and Korea have made a commitment to
change this. The WTO Agreement on Government Procurement (GPA) contains substantial
transparency and non-discriminatory procedural rules for tenders for some goods and services
by central and some sub-central authorities. The FTA goes beyond the GPA, creating
significant opportunities for EU and Korean companies. Korean companies gain new
opportunities in EU public works concessions and EU construction companies can compete
for Korean build-operate-transfer (BOT) contracts which are used in many Korean
infrastructure projects.
Intellectual property
Using the WTO’s TRIPS (trade-related intellectual property rights) agreement, the FTA
develops a legal framework for the protection and enforcement of legal property rights and
establishes mechanisms for information exchange and co-operation. The agreement covers,
among other issues, trademarks and the rights of authors and performers. Protection is also
given to geographical indications (GIs) – a sign/name that indicates that a product originated
from a specific location and which confers upon that product a certain quality or reputation.
EU products that will benefit from this protection include champagne, Scotch whisky, Parma
ham, Manchego cheese, Tokaji wines, etc.
Services
In terms of the sectors covered and the degree of market access, the FTA is the most
ambitious service agreement negotiated by the EU or Korea so far. The FTA preferentially
opens the growing Korean services to EU suppliers and investors and ensures national
treatment. In other words, EU suppliers and investors will not be discriminated against and
will be treated the same as their domestic counterparts in Korea. The agreement covers crossborder service provision and investment liberalisation in many service and non-service
sectors. The sectors covered by the FTA include telecommunications, environmental
services, transport, construction, finance, postal and express delivery, professional services
such as legal, accounting, engineering and architecture and a large variety of other business
services. Overall, Korea has committed itself to liberalising market access in over 100
sectors. In telecommunications, for example, Korea agreed to relax foreign ownership rules
and allow 100 per cent indirect foreign ownership two years after entry into force of the
agreement and EU satellite TV and telephone operators will be able to operate directly crossborder into Korea without having to go through a Korean operator.
Institutional framework
In order to monitor the implementation and operation of the FTA, a Trade Committee meets
annually and is co-chaired by the Korean Trade Minister and the EU Trade Commissioner. A
number of specialised committees and working groups have been set up to support the work
of this Trade Committee.
Case questions
1. Why is South Korea the first country with which the EU has negotiated a comprehensive
free trade agreement?
2. Identify ways in which the EU-Korea FTA differs from earlier EU trade agreements.
3. Identify ways in which the EU-Korea FTA is in line with the Global Europe strategy.
4. What are the potential for European and South Korean businesses from this FTA?
5. In what ways do the new generation of FTAs (as represented by the EU-Korea FTA)
replicate some of the key principles and features of the Single European Market?