International Trade Solutions reported in October of last year that the EU and South Korea had agreed on a Free Trade Agreement that would significantly increase trade between the two entities. The text of the FTA was initialled between the European Commission and South Korea on 15 October 2009 but was finally signed on 6 October 2010 in Brussels.
When will the agreement come into force?
The agreement will come into force on 1 July 2011 subject to the European Parliament giving its assent and subject to an agreement being reached between the Council of Ministers and the Parliament on the bilateral safeguard regulation that implements the provisions concerning action to address “injury” to domestic injury caused by increased imports arriving under the FTA.
What will be the main benefits?
It has been estimated that the additional value of the FTA to EU firms is in the region of €19 billion. The key beneficiary industries of this agreement will be importers of machinery and transport equipment (that account for 71.4% of imports from South Korea) and manufactured goods (that account for 10% of imports from South Korea). So for example:
- Manufacturers of motor vehicles importing parts will see duty rates fall from a typical 4.5% to 0%
- Importers of chemicals will see duty rates fall from a typical 5.5% to 0%
- Importers of clothing will see duty rates fall from 12% to 0%
The FTA is particularly important to the UK. In 2009, the UK was the largest single investor in South Korea and the UK was Korea’s fourth-largest trading partner within the EU. In a time when the UK economy is still delicately poised between recession and recovery, the FTA will hopefully help to reinvigorate the EU economy.
It is being reported that Japan is particularly unhappy about this agreement as it fears it will become less competitive against Korean exports. Although the EU and Japan have been discussing their own bilateral agreement, these talks have stalled and Japan is now extremely keen to resurrect and push them to a conclusion.
The EU-South Korea FTA takes effect from 1 July 2011. Importers should take advantage of customs planning to delay the customs duty point wherever possible until this date to enjoy the benefit of lower rates.
Once the FTA takes effect, the rules of origin become critically important. Just because something may say “Made in Korea” you as the importer may be required by HMRC to prove that it does actually originate in Korea. Robust “origin planning” is of paramount importance to importers.
Contact us to find out how International Trade Solutions could help save you money as well as helping you to ensure that all your customs obligations are met.