hankyoreh

Yesterday Korea and the European Union began their second round of negotiations on a free trade pact. Each side has furnished the other with their lists of proposed concessions, so you can expect substantial and concrete discussion.

Trade talks with the European Union are likely to go relatively more smoothly than did negotiations on the free trade agreement with the United States, since they will not include sensitive agricultural products and state-investor claim issues. However, given the situation in which the talks have started, things should not be underestimated. For example, Korea has far higher tariffs, 11.2 percent on average, while the European Union averages just 4.2 percent. However, European companies are far ahead in terms of technological power and brand value. There would clearly be a major increase in how much Korea imports from Europe, not just in terms of traditional manufacturing areas like automobiles, machinery and chemical products, but big brand products like alcohol, cosmetics and high-end clothing, as well as food and pharmaceuticals.

A trade deal would mean more than just an increase in physical goods. EU companies could be expected to enjoy a big increase in earnings through changes like stronger intellectual copyright protections. For example, blocking the circulation of pirated products would allow European companies to maximize the value of their competitive products. The European Union is demanding that “items that potentially infringe on intellectual property rights” be prevented from clearing customs altogether.

Korea can expect to benefit in only a few areas, such as automobiles, electronics, textiles and freight machinery. The government has a lot of hope for Korean automobiles, but considering the expensive imported cars that can be expected to arrive in the country, this is no less important than any expectations about increased exports, and calculating the advantages and disadvantages will not be easy.

The European Union is proposing that 80 percent of tariffs be removed within three years of the agreement taking effect, and that all tariffs be removed after seven years. If you look at only the scope of products, it would be far more rapid and far-reaching than the free trade agreement with the United States. The European Union is Korea’s second largest trading partner, after China. Yearly import and export with the European Union is US$78.5 billion.

A free trade agreement would clearly increase the amount of trade Korea does with the European Union. But it could also significantly hurt the trade balance. In other words, while we are busy being satisfied with our economy’s growth rate and the increased amount of trade, European companies would be making off with what matters. The negotiations themselves are important, but of primary importance will be accurately determining what the influence of an agreement would be once signed. Instead of relying on a few government-funded think tanks and corporate-funded research institutes, the government needs to commission an independent body to assess what the impact would be. It must not be forgotten that taking these negotiations with the EU lightly could lead to a major national loss.


Please direct questions or comments to [englishhani@hani.co.kr]