The European Union – Republic Of Korea Free Trade Agreement: One Year After Its Entry Into Force

Karel De Gucht European Commissioner for Trade The European Union – Republic Of Korea Free Trade Agreement: One Year After Its Entry Into Force European Parliament Workshop/ Brussels 16 October 2012

Brussels, 22-10-2012 — / — Professor Moreira, Minister Bark, ladies and gentlemen,

In politics we spend most of our time trying to equip our societies for the future. That can mean that we miss opportunities to learn from the past.

So I am very grateful to the European Parliament for organising this discussion.

Because it offers us a chance to look back – at the free trade agreement between the European Union and South Korea that entered into force in July of last year.

This is a good choice of topic, not only because of the direct impact of the agreement on both of our economies, but also because it presents an important test case for Europe’s trade policy.

It is Europe’s first agreement with a developed country outside of Europe. And it is the first agreement that really focuses on dealing with regulatory barriers to trade. So the results will be important for how we approach many of our other negotiations.

I want to focus my remarks around three points:

What we have achieved in the text of the agreement;

What has been happening on the ground;

And finally the conclusions we can draw from all of this.

First, the agreement is far-reaching in its elimination of tariffs: Four years from now just under 99% of our trade will be duty free.

Second, it thoroughly tackles barriers to trade in services. From the European perspective, that means new market access for exports of telecommunications, shipping, finance, legal services and environmental services.

Third, it addresses barriers to investment in both services and industrial sectors.

Fourth, it addresses regulatory barriers to trade particularly in sectors where these are very important, like automobiles, pharmaceuticals and electronics.

Fifth, the agreement includes measures to improve the protection of intellectual property rights – including in the key area of geographical indications.

And finally, it delivers new market access in government procurement – an area where Europe has historically been very open but others have not.

The next question to answer is what difference this has actually made on the ground.

Here I need to add a caveat.

Parts of any agreement – this one included – are only implemented over time. Some of the tariff cuts, for example, have not yet taken place.

In addition, companies need time to adapt to the new opportunities presented, for example by reinforcing their distribution channels in the new market. Moreover, it takes time for information about these opportunities to spread. Smaller companies, who are understandably less focused on what is happening far away in Brussels, may not immediately be aware of what they have to gain..

In some areas, statistics also lag behind reality. We have up-to-date figures on trade in goods, but not for trade in services, where the most recent data is from 2010.

Besides, we also need to take account of the fact that we are in a very unusual period for global trade: Following the financial crisis of 2008 world trade collapsed dramatically in 2009 and has been recovering ever since.

All of these reasons mean that any pronouncements we might make on the trade figures are tentative. And the way we measure our trade performance in this context needs also to be carefully calibrated.

That is why we believe it makes sense to compare the figures for the first year of application of the agreement with an average of the figures for the previous four years. The use of this reference period helps eliminate the effects of the crisis.

While bearing all this in mind, I am nonetheless very pleased with the results for Europe.

Where trade barriers have already been removed or reduced, our exports to South Korea are significantly up.

On products where tariffs have been removed altogether exports are up by 54% compared to the reference period. This includes many products in the machinery, chemicals and textiles sectors, for example.

This means that we have seen an extra 2 billion euro worth of additional exports for those products. And 600 million of duties have been saved by our exporters.

At a sectoral level we also see significant developments. Exports of machinery and textiles are both up by 25%. Chemicals are up 23%. And animals and animal products are up 84%.

Of course, this agreement flows two ways, as it rightly should. And I am looking forward to the comments of Minister Bark on our agreement from the Korean point of view.

My conclusion, however, on the basis of a little more than one year of implementation of the agreement is that it is certainly moving our economic relationship in the right direction.

Ladies and gentlemen,

The agreement with Korea sets a standard to our other FTAs to come. This also concerns the way the agreement is implemented, as this is a continuous task, carried out by the various committees set up for this purpose, as well as our market access team in Seoul.

Minister Bark and I have come straight from the second meeting of the EU-South Korea Trade Committee where we have discussed the most pressing issues before us.

I am pleased to say that those talks have been very constructive.

What Europe now expects from South Korea is concrete progress on the issues we are concerned about. That includes problems with regulatory barriers in the automotive sector, in the food sector and in the pharmaceuticals sector and questions around some specific customs rules.

I know Minister Bark understands these concerns and I hope we will be able to find solutions in the near future.

This process also shows that it is possible to tackle non-tariff barriers effectively in a trade agreement.

Some of the European sectors that are doing best out of this deal are those who faced real problems with regulatory barriers in the past – this includes the car sector, but also the machinery and appliance sector, where the agreement was able to remove significant double conformity testing requirements.

This was not an uncontroversial agreement at home for either of us. The economic crisis had already begun and there were strong voices opposed to moving forward. It was also the first major agreement passed in Europe under the new provisions of the Lisbon Treaty.

But we were able nonetheless to put it on the books within four years, two years faster than the United States.

Ladies and gentlemen,

There is also a broader conclusion to draw from this agreement. And I would like to finish on it.

It is very simple: Europe has nothing to fear from trade.

The first year of operation of this agreement shows that European companies are highly competitive on international markets. Competitive enough to take advantage of the opportunities that globalisation has to offer.

It also confirms the broader facts of our trade performance: That we have maintained our 20% share of global exports even as the US and Japan have seen theirs shrink.

This fact needs to underlie all our policymaking on international trade and investment.

Of course we need to consider the impact on specific sectors of new market opening. But we cannot be held back by narrow vested interests.

Europe does not have the luxury of throwing away opportunities right now.

Instead we need to seize them and I look forward to working with the Members of this house to do just that.

Thank you very much for your attention.



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