EU-South Korea FTA: a good blueprint for the future, but ambition sorely needed
One year ago, a landmark Free Trade Agreement (FTA) between the European Union and the Republic of Korea entered into force. It was billed as a major coup for the EU, with economic gains for EU enterprise and industry and promises of exponential growth in trade between the two partners.
EU exporters were expected to immediately save some €850m on day one of the FTA and EU importers some €1.6bn annually from not paying import duties. It was also predicted that agricultural exporters would save some €380m every year, while the EU textiles and clothing sector would immediately be relieved of almost all of its annual €60m in duties. Furthermore, it was estimated that the agreement would precipitate a 70 per cent increase in trade volume for financial services alone, with all of these factors expected to double trade between the two partners over a 20 years period. Impressive though these figures are, have these gains become a reality?
The numbers speak for themselves.
Foreign Direct Investment between the two partners increased for three consecutive quarters following the implementation of the agreement and jumped by 60% and EU exports to South Korea have increased by some €6.7 billion or 35% compared to the same period since 2007.
According to the European Commission, a number of individual sectors have experienced specific trade bumps and seen faster than average growth. EU exports of pork are up by almost 120%, which translates into new trade of almost €200 million and the trade in leather bags and luggage has shot up by over 90%, or by € 50 million. Similar trends have been observed with regards to high end manufactured goods with exports of EU machinery used for manufacturing of semiconductors up by 75%, representing €650 million in additional exports, and EU cars exports increased by over 70%.
There is strong evidence to suggest that the FTA was directly responsible for this increase in trade volume. Whilst EU exports to South Korea have increased at an average of 35% compared to 2007, EU exports to other countries have risen by just 25% in the same timeframe.
Furthermore, when you compare the levels of trade volume between the EU and South Korea with the level of trade liberalisation, the benefits of the agreement becomes even more pronounced. Trade volumes of products that had full tariff liberalisation increase by 46% and products with partial liberalisation saw a 36% increase. When one compares this to just a 23% increase where the FTA offered no change, it is hard to argue that the FTA has been anything but a success.
The EU-South Korea FTA was the first of a new generation of trade agreements aimed at taking advantage of the world's high growth regions. As, nearly 90% of world growth will be generated outside of Europe, this move is essential if the EU wants to maintain its position as the world's leading trading bloc.
As I write, EU negotiators are thrashing out agreements with major economies such as the United States, India, Canada, Japan and Singapore. Many have championed the EU-South Korea FTA as a model for all future agreements, myself included. As the Parliament's rapporteur on the EU-South Korea FTA, I saw first hand the depth of trade liberalisation involved in agreement. However, the crowning glory of this agreement is the inclusion of a robust bilateral safeguard clause, negotiated by the parliament, which strengthens the role of industry and guarantees its confidence by protecting sensitive sectors. The inclusion of said safeguard clause certainly sets a precedent for any future trade deals.
Unfortunately, in reality, indications from most of the ongoing negotiations suggest that they will not touch on this level of ambition both in terms of the scope and political will. Furthermore, it is apparent that domestic political hurdles will be a major factor, as each country represents its own specific needs in terms of its economy, geography and political make up. This does not mean that the framework of the EU-South Korea agreement cannot be used as a blueprint but just that it seems that this will be more aspirational than practicable. The difficulty of reaching similar agreements with other partners just goes to show how well the EU and South Korea worked together and the level of ambition and trust that the two partners have shown. However, it is not time to stand around patting ourselves on the back. The real work did not end with the implementation of the agreement back in July 2011 but it has only just begun. We must continue to work with our Korean friends to make sure that the agreement is working as it should and to ensure that it is fully implemented.
There are still a number of crucial areas that must addressed, such as Non-Tariff barriers which are still detrimentally affecting trade between the two parties, notably in the automotive industry. This is incredibly important not only so that both sides fully reap the rewards of our labour, but so that we can learn from any difficulties for the many future agreements we are currently negotiating. Only then can we safely announce 'mission accomplished'.