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Tuesday, December 13, 2011

The EU-South Korea Free Trade Agreement and Its Implications for the United States

William H. Cooper
Specialist in International Trade and Finance

Remy Jurenas
Specialist in Agricultural Policy

Michaela D. Platzer
Specialist in Industrial Organization and Business

Mark E. Manyin
Specialist in Asian Affairs

On October 6, 2010, the 27-member European Union (EU) and South Korea signed a bilateral free trade agreement (FTA). The South Korean National Assembly and the EU Parliament have ratified the agreement. The agreement went into effect on July 1, 2011. The South Korea-EU FTA (KOREU FTA) is the largest FTA in terms of market size that South Korea has entered into. The KOREU FTA reflects the EU and South Korean trade strategies to use FTAs to strengthen economic ties outside their home regions. It also builds upon the surge in trade and investment flows between South Korea and the EU over the past decade. On October 12, 2011, both houses of Congress passed implementing legislation for the U.S.-South Korea FTA (KORUS FTA), which the President signed into law (P.L. 112-41) on October 21. The KORUS FTA is expected to enter into force in early 2012.

The KOREU FTA is very comprehensive. It would reduce and eliminate tariffs and other trade barriers in manufactured goods, agricultural products, and services and would also cover such trade-related activities as government procurement, intellectual property rights, labor rights, and environmental issues.

Most studies done on the potential impact of the KOREU FTA estimate that the agreement will have a small but positive effect on the economies of the EU and South Korea as a whole and that the larger relative impact would be on the South Korean economy. The greatest economic impact of the KOREU FTA would be on specific sectors in each economy. EU services providers would be expected to experience gains from the agreement, especially in the areas of retail and wholesale trade, transportation services, financial services, and business services. In terms of trade in goods, EU exporters of pharmaceuticals, auto parts, industrial machinery, electronics parts, and some agricultural goods and processed foods would be expected to gain from the KOREU FTA’s implementation. At the same time, South Korean manufacturers of cars, ships, wireless telecommunications devices, chemical products, and imaging equipment would be expected to increase their exports to the EU market.

The KOREU FTA is similar to the KORUS FTA in many respects. Both agreements are comprehensive and both would eliminate tariffs on most trade in goods soon after they enter into force. However, they differ in other respects. Phase-out periods for tariffs on some manufactured goods differ. In addition, the KOREU FTA does not cover investment protection. Unlike the KORUS FTA, the KOREU FTA does not allow trade sanctions to be applied where violations of the workers’ rights and environment provisions have been deemed to occur. In addition, the KORUS FTA covers a broader range of trade in services than does the KOREU FTA. It is not clear whether these differences in the structures of the

Date of Report:
December 1, 2011
Number of Pages:
Order Number: R4154
Price: $29.95

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