EU initials Korean trade deal as US looks on

BRUSSELS - After two years of negotiations, the European Commission initialled a landmark free-trade agreement with South Korea on Thursday (15 October), a deal that promises to create up to €19 billion in new trade opportunities for EU exporters.

At a news conference after the document's signing, the EU's trade commissioner Catherine Ashton described the agreement as "a very, very good deal for European industry."

The event will not have gone unnoticed in the US, where a similar bilateral trade deal with South Korea has floundered in Congress, a fact noted by Ms Ashton.

"I think there is no doubt that America is very interested that the European Union has been able to move forward," she said.

Under the deal, full details of which are unavailable, annual import duties worth €1.6 billion on European agricultural and industrial exports entering South Korea will be pulled down. In return, the EU will eliminate €1.1 billion in import duties for Korean goods entering the bloc.

The agreement also sets out to tackle non-tariff barriers such as consumer standards for automotive, pharmaceutical and consumer electronics, with South Korea set to now recognise many European standards and certificates.

In the services sector, the new FTA aims to open up opportunities for European businesses in areas such as telecommunications, environmental, shipping and financial services.

Member state support

The document will now be passed to EU member state governments and the European Parliament for approval before being fully finalised.

Although parts of the deal could be passed by a majority vote, the commission will seek the unanimous approval of member states rather than risk isolating particular countries.

While broad support for the deal is expected, concerns exist that greater imports of small Korean cars could hit European car manufacturers such as Italy's Fiat which competes in the same size range.

But Ms Ashton denied that there was any link between commission plans to extend import duties on Chinese and Vietnamese footwear – a measure supported by Italy but opposed by many member states – and the proposed Korean FTA.

"I've never done a dodgy deal in my life and I don't intend to start now," said the commissioner when questioned on the possible tie-up.

Senior officials in the EU executive insist that Europe stands to gain from the differential timetables regarding the dismantling of car import duties, set at three years for medium-to-large cars and five years for small cars.

"De facto we get much faster access to Korea's market," the EU's chief negotiator Ignacio Garcia Bercero told EUobserver, on the basis that Korean manufacturers concentrate on small car production.

Concerns remain

But certain car manufacturers still harbour concerns that the deal offers too many concessions to Korean companies in the area of duty drawbacks, a mechanism under which Korean companies can claim back EU import duties on car components purchased outside Korea.

"The economic significance of this is very small at the moment," said Mr Bercero, adding that a safeguard clause would allow the EU to restrict drawback claims to five percent of their total if the level of claims rose substantially in the future.

Limited to a simple choice of accepting or rejecting the negotiated package, MEPs are unlikely to create much fuss when asked to agree the deal once member state approval has been secured.

A number of MEPs had raised concerns over the possible inclusion of North Korea's Kaesong Industrial Region in the deal, despite the country's poor human rights record.

In the end, negotiators decided to leave the area, which contains a number of South Korean car plants, out of the deal, with the possibility to return to the issue in the future.

Ms Ashton denied that Thursday's agreement – expected to enter into force in the second half of 2010 – would erode the need for the Doha development round of multilateral trade discussions to be completed.