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Negotiating a Korea – EU free trade agreement: easier said than done

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Abstract

A number of countries have chosen recently to shift away from an exclusive support to trade multilateralism and towards regional or bilateral trade agreements. Being no exceptions in this respect, the Republic of South Korea and the European Union have engaged in a bilateral FTA negotiation in early 2007. The objective of the paper is to account for the unexpected difficulties encountered in the negotiation. The paper starts with a brief overview of the trade and investment relations between the two partners and underlines the complementarity between the two partners, as well as their respective offensive and defensive interests. As a next step, the paper delves into the “politics” of the FTA negotiation with a view to highlighting the motivations and objectives of the various partners involved. It comes to the conclusion that the major reason why the negotiation turned out to be more complex than initially expected relates to the two partners’ diverging views as to what a discriminatory FTA should imply.

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Notes

  1. Until 2003, Korea was the only country in East Asia which had not signed a bilateral trade agreement.

  2. This new policy is defined in the European Commission (2006).

  3. See Nicolas (forthcoming) for more details on the shift in the EU’s FTA policy.

  4. It is number eight among the EU25’s import partners and number 12 among its export partners.

  5. All tables are based on the Sysprod database which combines the UN trade classification Comtrade (by products) and the production classification (by sectors).

  6. As exemplified by a similarity index of 0.79. The dominant sector is 32 – Radio, TV, and communication equipment, which includes the semi-conductor industry, the largest export item for Korea since 1992.

  7. It is one of the leading manufacturing sectors in Korea, with 11% of total manufacturing activity in 2006.

  8. In 2006, 1,164,254 units were sold on the Korean market, while 56,030 units were imported.

  9. EU car-makers account for close to 60% of all imported cars in Korea, ahead of Japan (30%) and the US (11%). Figures provided by KAMA for 2006.

  10. The level of intra-industry trade in an industry is usually calculated as follows: \({\text{IIT}}_{\text{i}} = \left[ {1 - {\raise0.7ex\hbox{${\left| {X_i - M_i } \right|}$} \!\mathord{\left/ {\vphantom {{\left| {X_i - M_i } \right|} {\left( {X_i + M_i } \right)}}}\right.\kern-\nulldelimiterspace}\!\lower0.7ex\hbox{${\left( {X_i + M_i } \right)}$}}} \right] * 100\) Where Xi and Mi represent exports and exports in the industry respectively. The value of the index ranges from 0 to 100, where 0 indicates complete inter-industry trade and 100 implies complete intra-industry trade.

  11. These products account for more than 80% of total bilateral trade.

  12. Which account for more than 88% of total bilateral trade.

  13. These figures, from the Export-Import Bank website (www.koreaexim.go.kr), relate to investment amount.

  14. These investments are likely to fuel a further expansion in trade in parts and components.

  15. Refer to the introductory chapter.

  16. This may, however, be perceived as problematic by Korean partners.

  17. See the ESF position paper (2007).

  18. That is, all sectors are considered targets for trade liberalization unless identified exempt in the relevant annexes.

  19. These figures were provided by ACEA.

  20. Quoted in Cooper and Manyin (2007).

  21. The last country to join the move was Mongolia.

  22. See Infomag (December 2006).

  23. The ITA was concluded in the Singapore Ministerial Conference in December 1996 with the objective of cutting tariffs to 0 on IT products. Countries accounting more than 90% of world trade in IT products are signatories to this agreement.

  24. According to a recent KCCI (Korea Chamber of Commerce and Industry) survey entitled “How Businesses View Korea’s FTA with Major Trading Partners” conducted with 300 businesses (with 263 responding) in the Greater Seoul area, 83.6 of the respondents were in favour of the Korea – EU FTA. See English/korcham.net.

  25. The media coverage of the Korea-EU FTA cannot be compared to what was the case for the Korea-US FTA, reflecting a much lower degree of tension between the two partners.

  26. In the latter case the US negotiators preferred to get a less than perfect agreement rather than having the whole negotiation collapse on this specific issue. It must also be noted that Korea also insisted on having rice included in its list of sensitive products in the context of the Korea-ASEAN FTA. This position led to the Thai decision not to sign the agreement.

  27. The GIC, located ten kilometres north of the Korean Demilitarized Zone with direct road and rail access to South Korea, hosts South Korean manufacturing companies hiring North Korean workers. As of late 2006 over 11,000 North Korean workers were employed in the GIC. In 2006, firms in the complex produced nearly $75 million in manufactured goods, mostly light industrial products such as textiles and electronic goods (Cooper and Manyin 2007).

  28. Korea is heavily dependent on its East Asian neighbors in its sourcing strategy.

  29. This was referred to as «US parity».

References

  • Business Europe (2007), BusinessEurope position on the EU-Korea Free Trade Agreement, July 18, 2007

  • Cooper W, Manyin M (2007) “The Proposed South Korea – US Free Trade Agreement”, CRS Report for Congress, July

  • European Commission (2006) Global Europe: Competing in the World, EC Staff Working Document, Come(2006)567 final, October 4

  • European Services Forum (2007) ESF position paper on EU Free Trade Agreements, Brussels, February 28, 2007

  • European Union Chamber of Commerce in Korea (2007) EUCCK Position on EU-Korea FTA, Seoul

  • Kim Deuk-Kab (2007) “The Korea-EU FTA: Issues and Strategies”, SERI Issue Paper, 07-05, September

  • Nicolas F (forthcoming), “American and European Approaches to Trade regionalism ”, in Belin C., J. Fernandez and L. Pisar, American Perceptions of the European Union, LGDJ, Paris, Global Understanding Series

  • Nicolas F (2003) FDI as a factor of economic restructuring: The case of South Korea. In: Bende-Nabende A (ed) International trade, capital flows and economic development in East Asia-the challenge in the 21st century. Ashgate, Aldershot

    Google Scholar 

  • UNICE (2006) “UNICE Strategy on an EU Approach to Free Trade Agreements”, mimeograph, December

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Authors and Affiliations

  1. French Institute of International Relations, University Paris-Est Marne-la-Vallée, Paris, France

    Françoise Nicolas

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  1. Françoise Nicolas
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Correspondence to Françoise Nicolas.

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The present research has benefited from the financial support of the Korea Foundation.

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Nicolas, F. Negotiating a Korea – EU free trade agreement: easier said than done. Asia Eur J 7, 23–42 (2009). https://doi.org/10.1007/s10308-008-0207-x

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  • DOI: https://doi.org/10.1007/s10308-008-0207-x

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