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The landmark free trade deal with the EU is expected to provide great momentum to South Korea's hope of turning into an “FTA hub" linking Europe, Asia and the American continent. Free trade accord with the U.S., the world's biggest market, is also expected to help South Korea counter a growing trend towards trade protectionism that has threatened the country's export-driven economy and put pressure on the United States to ratify a similar accord, officials said quoting analysts.
Conclusion of the deal with the EU was declared during summit talks in Stockholm between South Korean President Lee Myung-bak and Swedish Prime Minister Fredrik Reinfeldt, whose country holds the EU's rotating presidency.
"The two leaders welcomed the final agreement on the South Korea-EU FTA and expressed hope it will quickly be initialed," Lee's office said in a statement.
The deal, which requires legislative approvals by both sides, may take effect as early as the first half of next year after the accord is formally signed in January or February, officials said.
The free trade deal will eliminate tariffs on 96 percent of EU goods and 99 percent of South Korean goods within three years after the accord takes effect. They will also abolish tariffs on most industrial goods within five years after the deal takes effect.
But the full contents of the accord will be disclosed only after a preliminary signing takes place in September following a legal review, officials said. South Korea has sought greater access to the EU's auto, textiles and electronics markets, whereas the EU is interested in machinery, medical equipment and dairy and pork industries.
South Korea, which exports about 16 percent of its automobiles to the European market, currently imposes an 8 percent import duty on European cars, while the EU imposes a 10 percent duty on autos from South Korea.
"Final approval of the pact by legislative bodies is expected in either January or February," Deputy Trade Minister Lee Hye-min told a press briefing. "The trade pact will send a signal to other nations that South Korea and the EU opted to open the markets rather than choosing to protect them," he said.
The deal would be the biggest free trade accord ever for South Korea that has already signed similar deals with the United States and the 10-member Association of Southeast Asian Nations.
The 27-member European economic bloc was South Korea's second largest trading partner after China last year, with two-way trade reaching US$98.4 billion. South Korea enjoyed a surplus of US$18.4 billion last year. The EU is also the largest foreign investor in South Korea, with accumulated investments totaling US$44.8 billion.
According to a study by the state-run Korea Institute for International Economic Policy, a free trade agreement with the EU would increase South Korea's gross domestic product by 3.08 percent, or 24 trillion won (US$18.6 billion), and boost South Korea's exports by US$11 billion.
The deal could also boost the country's employment by 3.58 percent, the think tank said. "A free trade accord with the EU will also upgrade South Korea's sovereign rating," said Suh Jin-gyu, an economist at the think tank.
South Korea, which had long remained out of the race for free trade deals, has aggressively signed free trade accords with hopes of transforming the country into "an FTA hub" that links Europe, Asia and the American continent.
South Korea has free trade accords that have taken effect with Chile, Singapore, and the European Free Trade Association, consisting of Switzerland, Norway, Iceland and Liechtenstein and the ASEAN.
It has also signed free trade accords with the United States and India, which are awaiting ratification by legislators. "South Korea has free trade deals with more than half of the population on the globe," a senior trade ministry official said.
In addition, South Korea is engaged in free trade negotiations with Japan, Canada, Peru, Mexico, Australia, New Zealand and the six-nation Gulf Cooperation Council. It is also pushing for FTA deals with China, Russia and Turkey, among others.
"South Korea's trade pact with the EU puts pressure on American exporters and is likely to force the U.S. Congress again to ratify the FTA accord with Seoul," said Kim Deuk-kab, a senior research fellow at Samsung Economic Research Institute. "The deal is also expected to boost South Korea's position in negotiations with China and Japan," he said.
South Korea considers its free trade network as the most effective tool to fight a growing trend toward protectionism. President Lee has warned protectionism would only lead to a market contraction and thus delay the recovery of the global economy.
