ITS reported in June that the European Union and South Korea failed to secure a trade agreement due to the issue of duty drawback in the auto-sector.
However, this week, a Free Trade Agreement (FTA) was finally agreed that could be worth up to 19 billion EUR (£17bn) to European exporters. The agreement is expected to come into force in the second half of 2010 once it has been ratified by the European Parliament.
What has been agreed?
Under the agreement, virtually all tariffs between the two economies will be removed. It is estimated that the FTA will quickly eliminate EUR 1.6 billion worth of Korean import duties annually whilst the EU would eliminate around EUR 1.1 billion of duties on Korean exports. As well as other non-tariff related benefits that the FTA will confer, a “general safeguard clause” has also been included that would allow the re-establishment of “duties for up to four years in case of a sudden surge in imports. This was included in order to appease European auto-industries concerns about duty drawback (See EU-South Korea Pact Delayed). With specific regard to duty drawback, the EU and Korea maintain the right to refund duties on imports of parts, in accordance with WTO rules. However, in the case of a significant increase of sourcing from countries that have not concluded an FTA with South Korea, a special clause allows for a cap of the refundable duties at a level of 5%.
EU – South Korea Trade
South Korea is the EU’s fourth-largest trading partner, EU exports reaching EUR 25.6 billion in 2008 whereas South Korea exported EUR 39.4 billion of goods to the EU in 2008.
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