By Don Southerton, Korea Expert Witness Editor and Chief Blogger
Officially and privately, I have carefully followed and supported the FTA talks between the U.S. and South Korea. I’m a strong advocate. Sadly, little movement is occurring–bogged down by the global recession and politics. That said, President Lee Myung-bak strives to secure FTAs with other nations and markets.
Bloomberg notes — The European Union moved a step closer to approving a free-trade accord with South Korea after resolving two contentious issues that threatened to scuttle the multibillion-dollar agreement.
As the world wrestles with the worst economic slump in 60 years, EU national governments signaled backing for the bloc’s largest-ever free-trade agreement at a meeting of their trade experts today in Brussels. Final approval, which may come after German elections on Sept. 27, needs the support of governments at the ministerial level.
The trade experts, who were not asked to vote on the final compromise package, were “positive overall,” said Lutz Guellner, a spokesman for the European Commission. “Everybody recognized the value of the deal.”
South Korea and the EU began negotiations two years ago, seeking to expand their 76 billion-euro ($106 billion) trade relationship by scrapping import duties and other barriers in industries from pharmaceuticals to consumer electronics. Only in recent weeks did they manage to settle two outstanding issues: rules of origin and so-called duty drawback.
The trade experts’ backing comes a day before South Korean President Lee Myung-Bak starts a three-day visit to Sweden, which assumed the EU’s six-month rotating presidency at the beginning on July 1, for talks with Prime Minister Fredrik Reinfeldt. In a July 7 interview with European television network EuroNews, Lee said he hoped the trade deal would be signed by the end of August.
The agreement drafted in March by the commission, the EU’s executive arm, and Korea would make 97 percent of trade between the two governments duty-free within five years. It would phase out the bloc’s 10 percent tariff on Korean cars in three to five years and scrap Korea’s 8 percent duty on European autos over the same period.
The commission says the free-trade deal would eliminate duties worth 1.6 billion euros for European exporters. About 1.2 billion euros of these are levies on industrial goods, the commission says, adding that the accord would save EU auto exporters such as Volkswagen AG, Daimler AG and PSA Peugeot Citroen 2,000 euros on every car worth 25,000 euros.
Under the rules of origin that must be met for duty-free treatment, the EU restricts the level of permissible foreign content. The EU agreed to raise the level of allowable foreign content to 45 percent from 40 percent.
The accord also permits duty drawback — used in both the EU and Korea — but includes provisions to permanently cap refundable tariffs should there be a “notable increase” in foreign sourcing by Korean manufacturers. Under duty drawback, the levies paid on parts used to manufacture a product such as a car are refunded when the final product is exported.
The accord is a “very, very good deal” for the EU and “comes at a time of real economic stress,” European Trade Commissioner Catherine Ashton said on April 30. “That makes it more important to do the deal now, because this is one way in which our industries will benefit.”
European automobile association ACEA criticized the free- trade agreement, saying it would create a “severe competitive disadvantage” for European industries. The compromises made by the EU on duty drawback “effectively open the door for cheap imports from China and other Asian countries, without giving similar advantages to European industries,” ACEA said.
The EU was South Korea’s second-largest trading partner last year after China and has been the largest foreign investor in the country since 1962. South Korea is the EU’s eighth- biggest trading partner.