by Na, Haejung
July 13, 2009
SEOUL, July 13 (Xinhua) — South Korean President Lee Myung-bak and Swedish Prime Minister Fredrik Reinfeldt on Monday declared that they have reached a final agreement on the bilateral free trade talks, wrapping up their two-year-long negotiations, Seoul’s presidential office said Monday.
"The two leaders welcomed the final negotiation agreement on the South Korea-EU FTA (Free Trade Agreement) and expressed hope it will quickly be initialed," the presidential office said in a press release.
PROGRESS REPORT OF S. KOREA-E.U. FREE TRADE NEGOTIATIONS
South Korea and the European Union (EU) officially launched the bilateral free trade negotiations in May 2007, with difference over industrial tariffs and auto trade initially hampering progress.
The two sides have held eight rounds of free trade talks, together with several inter-session meetings, for 26 months to narrow the gap in their stances over sensitive issues.
After going through years of struggles, the two sides settled a "provisional" agreement on the bilateral free trade negotiations in late March, reaching a compromise in various points.
The provisional agreement said that the two sides reached a tentative agreement on eliminating or phasing out tariffs on 96 percent of EU goods and 99 percent of South Korea’s goods within three years.
They have also agreed to abolish tariffs on all industrial goods within five years after the pact takes effect, together with agreeing to eliminate tariffs on cars within three years to five years.
Amid growing expectations on an early settlement, the thorniest issues held back the final agreement for which South Korean Trade Minister Kim Jong-hoon and his EU counterpart, Catherine Ashton, met at a ministerial-level meeting in London.
During the meeting which was held on the sidelines of the G-20 summit, the two ministers discussed over the remaining sensitive issues, such as a duty drawback scheme and rules of origin, which caused the leaders to meet again in Paris later in June.
On the final draft of the agreement, the EU agreed to allow a duty drawback system for South Korean companies, which it does not allow for Chile and Mexico under current free trade agreements, South Korean Deputy Trade Minister Lee Hye-min said.
The EU have been South Korea’s second-largest trading partner after China, with two-way trade reportedly reaching over 90 billion U.S. dollars.
REMAINING PROCESSES FOR FINAL SETTLEMENT
Although the two sides settled on a final draft of the bilateral agreement, they did not explicitly say they have "struck" an agreement as there still remain technical issues, such as an announcement for the EU side, which needs to be made by the European Commission.
The pact needs to go through legal reviews in both sides, which are scheduled in late July and early August.
After the reviews, the two sides hope to conclude the initialing of the pact in September, South Korea’s Yonhap News Agency said.
Although the legal reviews and the initialing are conducted as scheduled, the official signing of the pact may be possible as early as next January or February, Yonhap said, adding that the approval of the pact by legislative bodies may not come easy as well.
Although bumpy processes are still expected for the final settlement down the road, South Korea is showing an optimistic view that the accord will take effect early next year, according to its deputy trade minister.
EXPECTED RESULTS FOR S. KOREAN ECONOMY
While the bilateral FTA is expected to give a boost to the South Korean economy in general, the positive effect will not be generated in every sector of the economy, local analysts said.
The biggest benefits would be given to local automakers as the EU, with the world’s single largest economic bloc, is now scheduled to phase out a 10 percent tariff on their auto products.
"Tariff elimination will lead to price drops for South Korean-made cars in the European market," a local researcher said, expecting South Korean automakers’ long-term sales increase in the market.
Along with the auto industry, the electronics sector would see large gains in sales as the EU cuts its main tariffs on electronic goods, which are currently as high as 14 percent.
"With the tariff elimination, exports will further increase," local electronics firms said.
On the other hand, South Korean machinery and chemicals companies are likely to go through declines in domestic sales as cheaper goods from the region are expected to be imported in a massive amount.
A local research center also expected that the local agricultural sector will suffer around 300 billion won (228 million U.S. dollars) in losses due to the deal, struck most harshly in pork and dairy products.
The free trade accord with the EU will, however, in general help boost South Korea’s economy by expanding exports by 11 billion U.S. dollars and raising its economic growth by more than 3 percent, the state-run Korea Institute for International Economic Policy (KIEP) said.
It also added that a job-creation of over 600,000 is expected through the pact.