The EU-Korea Free Trade Agreement: Making of a "Deep" Free Trade Agreement

Abstract

Korea a dynamic newly-industrialized economy, and the EU, the largest economic block have negotiated an FTA. It came in force on July 1, 2011. Before the FTA was formed, the two were important trading partners of each other. Korea has enjoyed a trade surplus in merchandise trade vis-à-vis the EU. An overwhelmingly large proportion of EU-Korea trade is in manufacturing products. The EU took has had a surplus in trade in services vis-à-vis Korea. The FTA protocol has specified lowering of tariffs and NTBs in a phased manner over a transition period. The FTA had sector-focused negations. Technological standards and environmental considerations are a part of the FTA protocol. It has a comprehensive coverage and in trade economics parlance known as a “deep” regional integration arrangement. The impact of the FTA on the two partner economies would be positive but small. The empirical analyses predictably concluded that of the two, the FTA will benefit Korean economy relatively more in terms of welfare gains, while the EU economy will only gain modestly. An important fact that will influence the welfare gains is that the magnitude of the EU trade with Korea; it is only 2 percent to 2.5 percent of total extra-EU trade. Sectoral impact of the FTA will be important for both the EU and Korea and this article elucidates which sectors will benefit more than others. To protect domestic producers and markets from sudden surge in imports, there is a provision of a bilateral safeguard clause in the FTA.