EU And Korea To Review FTA Progress

by Ulrika Lomas, Tax-News.com, Brussels

22 May 2009

Leaders from the European Union and South Korea will review the progress of negotiations for an ambitious Free Trade Agreement at a summit scheduled for May 23.

The 4th EU-Korea summit will be attended by European Commission President Manuel Barroso and Korean President Lee Myung-bak. The summit, to be held in Seoul, is the first ‘free standing’ summit between the EU and Korea, the others having been held within the margins of the biennial Asia European Meeting (ASEM) summits.

South Korea was designated by the EU as a “priority FTA partner” in the Global Europe trade policy strategy of 2006. Global Europe argued that a “comprehensive and ambitious” agreement with South Korea that aimed at the highest possible degree of trade liberalization - including far-reaching liberalization of services and investment - was “clearly in the interests” of both sides.

Negotiations for an EU-Korea FTA were launched in May 2007, and both sides were confident of striking a final deal by 2008. But officials have so far failed to bring their negotiations for a FTA to a conclusion.

After reaching a preliminary trade agreement at the eighth round of negotiations in March, it had been hoped that the final meeting between Korean Trade Minister Kim Jong-hoon and the EU's trade representative Catherine Ashton in London on April 2 would result in a concrete conclusion. However, it emerged that they failed to reach an agreement over the issue of duty drawback.

EU Ministers are still opposed to the idea of reimbursing Korean manufacturers for the import tariffs they pay on materials used in the production of exports, saying that such schemes are not present in similar trade deals they have with Mexico and Chile.

The EU has also complained that its companies have had “significant problems” accessing and operating in the South Korean market due to stringent standards and testing requirements for products and services often creating barriers to trade. The EU has been seeking to resolve these issues both through regular bilateral contacts and through the negotiations towards the free trade deal.

It is now hoped that the FTA - which aims to eliminate 97% of trade tariffs between the two parties - can be ratified before next year.

South Korea is the EU's eighth largest trade partner and the EU has become South-Korea's second largest export destination. EU trade with South Korea exceeded EUR65bn in 2008 and has enjoyed an annual average growth rate of 7.5% between 2004 and 2008.

The EU has been the single largest foreign investor in South Korea since 1962, and accounted for almost 45% of all foreign direct investment inflows into Korea in 2006.

Summit participants will also seek to update the Framework Agreement on Trade and Co-operation between the EU and South-Korea, which entered into force on April 1, 2001. The Framework Agreement aims at fostering growth of two way trade and investment and encourages broad-based co-operation in fields such as transport, energy, science and technology, industry, environment and culture.

An Agreement on Co-operation and Mutual Administrative Assistance in Customs Matters has been in force since 1997.

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