1

Korea’s FTA strategies &

Effects of Korea-EU FTA

Korea’s FTA strategy began ten years ago

2

Korea chose FTA as major growth engine to overcome the 1997 financial crisis Korea needed a further access to global market in order to overcome the crisis

in 1997, which hit its economy very hard Korea’s decision to push forward FTA negotiations was also based on the need

for further reform of its economyKorea’s first FTA partner was Chile: Negotiation was com-

pleted in 2002 and agreement came into force in 2004Korean Economy during crisis

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

-30

-20

-10

0

10

20

30

-8-6-4-2024681012

Imports growth(LH)

Exports growth(LH)

GDP growth rate(RH)

(%) (%)FTA negotiation with Chile began in 1999

FTA 1.0

Source: IMF

Evolution of Korea’s FTA strategy

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In 2003, Korean government introduced ‘FTA Roadmap’, a long term plan for future trade & investment negotiations Indicated major FTA partners and areas for liberalisation

Completed negotiations with EU and US in the late 2000s: These were key achievements of ‘FTA Roadmap’ Korea-EU FTA and Korea-US FTA came into force in ‘11 and ‘12, respectively

FTA 2.0

In 2013, Korean government announced ‘New Trade Roadmap’, a new plan for the next decade Plans to play the role of a linchpin in TPP led by US and RCEP led by China Began FTA negotiation with China, participated in RCEP negotiations, and

stated intention to consider joining the TPP in 2013Plans to expand trade with resource rich countries and

emerging economies FTA negotiations were completed with Australia in 2013 and Canada in 2014 Currently negotiating with Indonesia and Vietnam

FTA 3.0

Korea’s FTA network in 2014

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As of April, 2014, no. of Korea’s FTA partner countries stands at 47 through 9 agreements in force Chile, Singapore, EFTA, ASEAN, India, E.U., Peru, U.S., Turkey

Compared to Korea’s major competitors… With FTAs with the US and the EU, the share of trade with FTA partners almost

trebled since 2009 to 35.3% in 2013, surpassing China and Japan Share of home country & FTA partners’ GDP in the global economy is 56% for

Korea, much higher than that for China(16.2%) or Japan(17.2%)

Share of Home & FTA Partners’ GDP

Share of trade with FTA Partners

2009 2010 2011 2012 20130

5

10

15

20

25

30

35

40

(%)

Korea

ChinaJapan

Korea China Japan0

10

20

30

40

50

60

FTA partnersHome country

(%, Year 2013)

Source: KITA IIT Source: KITA IIT

Notable trends in Korea-EU trade relations

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Korea → EU: Motor vehicles, Cruise ships, Telephone sets, Motor partsEU → Korea: Motor vehicles, Petroleum oils, Machines and apparatus, AircraftsWith a rapid rise in Korea’s imports from the EU, net trade

balance has turned negativeShare of EU in Korea’s exports is declining fast

Rise of Asian trade partners such as Vietnam and Indonesia Eurozone fiscal crisis led to a depressed consumption market

Share of Korea’s exportsKorea-EU trade relations

Source: KITA Source: KITA

2005 2006 2007 2008 2009 2010 2011 2012 2013

-20,000-10,000

010,00020,00030,00040,00050,00060,00070,000

ExportsImportsBalance

(Million $)

2005 2006 2007 2008 2009 2010 2011 2012 20130

5

10

15

20

25

30(%)

China

ASEAN

U.S.E.U.

Japan

There are some positive signs too

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Performance of Korea’s exports to the EU has been disap-pointing since the FTA came into effect

Yet it is too early to criticise the agreement and there have been economic crises in the eurozone

Korea is doing well in its key export products- Out of Korea’s 10 top export items to the EU, 5 items recorded an increasing

share in the EU market between 2010 and 2013(Jan.~Oct.)

Share of imports from Korea in EU’s total external imports

2010 201335

37

39

41

43

45Cruise Ships(%)

2010 20134

5

6

7

8Motor vehicles

(%)

2010 20133

4

5

6Plastic(%)

2010 20131

1.5

2Precision

Equipment(%)

2010 20131

1.2

Chemical products

(%)

Source: KITA IIT

Products covered by Korea-EU FTA

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If we analyse EU’s import of products covered by the Ko-rea-EU FTA in 2013, Korea performed rather well EU’s imports from Korea decreased by 6.6% in total: while imports of products

not covered by FTA decreased by 15.4%, those covered increased by 0.1% EU’s imports of products covered by Korea-EU FTA (a+b) increased by 0.1%

from Korea while total imports of these products decreased by 1.7% The performance of Korea’s exports was more marked in products with tariff

planned to be phase out (b)

Source: KITA IIT

Products with tariff…

Immediately Eliminated

(a)

Phased Out (b)

Total covered by FTA (a+b)

(a+b) share of total im-

ports

Korea -1.8 5.7 0.1 60.7

China -1.9 -7.6 -2.3 58.6

Japan -11.4 -9.5 -11.0 66.4

U.S. -1.8 -16.4 -2.9 56.9

Extra-EU total -1.6 -2.7 -1.7 46.8

% change in EU’s imports of products covered by Korea-EU FTA(2012 Jan~Oct → 2013 Jan~Oct)

Lessons from Korea-EU FTA

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Governments and independent bodies should provide a balanced analysis on the effects of FTAs e.g. Trade balance vs. Performance of exports covered by FTA

Governments should continue their efforts to raise the FTA utilisation rate, with special focus on helping SMEs

Korean exporters’ FTA utilization rate

Source: KITA IIT Source: Korea Customs Serivce

2011 2012 201360

70

80

90

Korea-EU FTA

Korea-US FTA

(%)

No. of requests to check RoO

2011 2012 2013 Jan~Sept0

100

200

300

RestUSEU

Lessons from Korea-EU FTA (cont’d)

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Participating countries’ firms should bare in mind that FTAs are like a marathon not a sprint

Both governments and firms should be prepared for the spread of FTAs The EU is working hard to push forward its FTA strategies

EU is currently negotiating FTAs with major advanced economies such as the U.S(TTIP), Japan & emerging economies such as India, Vietnam, MERCOSUR, and Thailand

EU: Share of Home & FTA Partners’ GDPEconomic growth rate

Source: IMF Source: KITA IIT

2010 2011 2012 2013 2014 2015

-1

0

1

2

3United King-

dom

Eurozone

(%)

2011 2012 2013 Short term Medium to long term

01020304050607080(%)

Negotiations com-pleted or near enforcement

Negotiating stage