International Trade Solutions reported in April that a free trade agreement between the European Union and South Korea was close (“EU-South Korea Pact Near”). However, a recent summit in Seoul has revealed that pre-existing differences over the issue of duty drawback in the auto sector have prevented an agreement from being reached.
What are the main issues in question?
The issue of duty drawback has proved to be the big stumbling block. The South Koreans are particularly keen to claim import duties back on cheap car components imported from China as long as the cars were destined for the EU market. However, the European auto-industry was very unhappy with this and the European Commission has now proposed that the amount of “foreign” components in any product is to be limited to 45% of the finished item which the Koreans are unhappy about. The EU has also argued that agreeing to Korean demands would undermine existing Free Trade Agreements with Mexico and Chile as there are no such drawback provisions in place.
There is also an issue to do with rules of origin as the South Koreans have made a request that items made at a Seoul-funded industrial complex in North Korea be treated as South Korean goods.
What are the chances of reaching an agreement?
Both the EU and South Korea have made it clear that they are keen to sign an agreement as soon as possible. Talks have been scheduled to take place in Paris at the end of June where a compromise solution is anticipated.
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