korea-bulgaria economic relations in the context of a korea-eu fta

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Korea-Bulgaria Economic Relations in the Context of a Korea-EU FTA

3 May 2007

Heungchong KIM

Head, European Studies

Korea Institute for International Economic Policy

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Table of Contents

I. Korea in the First-round FTA Partner of EU

II. Korea’s FTA Policy

III. Current Status of Korea-EU Economic Relations

IV. Korea-Bulgaria Economic Relations

V. Korea-EU FTA: a feasibility

VI. Korea-EU FTA: current situation and prospects

VII. Future Prospects of Korea-Bulgaria Economic

Relations

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I. Korea in the First-round FTA Partner of EU

Key Economic Criteria of new FTA partners

1. Market potentials in terms of economic size and growth

2. The level of protection against EU export interests

3. The progress of their negotiations with EU competitors

4. The types of FTAs that the potential partners pursued: high-level and comprehensive.

Based on these criteria,

ASEAN, Korea and Mercosur are chosen in the first round of the FTA negotiations,

India, Russia and GCC emerged to be in the second wave.

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II. Korea’s FTA Policy Why does Korea pursue FTAs now?

Korea: strongly supported multilateral trade negotiations as it is one

of the greatest beneficiaries of the GATT/WTO – heavily dependent on foreign markets, but just ignored FTAs Regionalism revived and making fortress in foreign markets,

so urgent need to change its trade policy to take new markets and not to lose existing ones. Emerging China and Korea’s choice A sense of urgency = “Already late, but don’t be too late.”

Basic Strategy of Korea’s FTAs

Should take a multi-track pursuit with a high-level and comprehensive Forming FTA networks with giant economies and emerging markets FTAs supporting MTN

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Why does a high-level and comprehensive FTA?

To create an FTA harmonizing worldwide trade and investment liberalization, why?

FTA as a domestic negotiation – only high-level and comprehensive FTA induce domestic reform and active remedy support for the groups - contribution to a worldwide liberalization in WTO

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I. Korea’s FTA Policy

Entry into force

Chile Proved successful through mutual benefits

Singapore Entered into force on 2nd March 2006

EFTA Entered into force on 1st September 2006

Under

Negotiation

U.S. Negotiations completed in 1 April 2007

Canada Negotiations since July 2005

Mexico Negotiations since February 2006 – stalled, but expected to begin soon

India Negotiations since March 2006

ASEAN Finished commodities sector, and negotiations on services

JapanStalled (differences over agricultural products)

Joint Study MERCOSUR Under way

Joint Study ChinaAt the academic, industry and governmental level (until the end of 2007)

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Korea’s FTA Networks in the Future

FTA Networks with more than 50 countries in the World

including…..

- Small but strong countries such as Chile, Singapore, EFTA and Canada

- Giant economies of ASEAN, US, EU, Japan and China

- Emerging Markets of India, Mexico, MERCOSUR and Russia

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Achievements in Trade

Official diplomatic relations in 1963 => 43 year “celebration” of diplomatic relations; great achievements in trade and investment

Korea’s exports to the EU increased by 566 times in 1971 to 2005; Korea’s imports from the EU also increased 117 times over the same period.

In 2006, Korea's exports to the EU amounted to $49.2 billion, while its imports totaled $30.2 billion, making the total volume of its trade $79.4 billion. This is composed of nearly 12.5% of Korea’s total trade volume in 2006.

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Achievements in Trade

As of 2006, the EU was Korea’s second biggest exporting partner next to China and ahead of the U.S. It is also the second biggest trading partner next to China, and ahead of Japan and the U.S.

Korea is the 8th trading country for the EU.

- U.S., China, Switzerland, Russia, Japan, Norway, and Turkey stood ahead of Korea

- Korea is the biggest country of MFN status except giant economies of the US, China and Japan

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Achievements in Investment

Before 1990: Japan was the largest investor to Korea – almost half of total investment record since 1962, much ahead of the U.S.(28.5%) and EU(12.5%)

Since 1991, the EU and US spurred up to the biggest investors in Korea

As of 2006, the EU stood as the largest investor in Korea with a registered investment stock of US$40.5bn in 2006; 31.9% of foreign capital in Korea

Korea’s ODI to the EU totalled US$9.4bn or 13.6% of Korea’s total ODI – not so conspicuous (compared with some 24% to the US or China), but much developed mainly to the CEECs

- more than 60% of Korea’s ODI to the EU goes to new member states recently

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Recent Developments in the Relations

EU’s strategic paper on Korea in 1993 and the Asia Strategy initiative in 1994

The Korea-EU Framework Agreement for Trade and Cooperation established in 1996 between the two

The Joint Committee Meeting has been taken place since 2001.

- 2001, 2003, 2004, 2005 and 2006 Big trade issues including shipbuilding, trade remedy and

others have settled down, but cosmetics, SPS, IPRs and other issues including NTB… still remaining

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Korea-EU Relations Revisited

Trade imbalance – more than $19 billion trade surplus of Korea Trade potentiality fully developed?

- trade in goods and services Problems in market access and investment issues Strategic importance of the EU among the world

vs. strategic importance of Korea among Asian countries

Asked a critical moment in economic relations

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Korea's Trade with Bulgaria

-50000

0

50000

100000

150000

200000

250000

300000

Year

'000

US

$

Exports Imports Balance

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To Bulgaria To the World

RankHS Code

No. DescriptionAmounts HS Code

No.

1 87Vehicles other than railway or tramway rolling-stock

109,00485

2 85 Electrical Machinery and Equipment 30,832 87

3 84Nuclear reactors, boilers, machineryand mechanical appliances

18,234 84

4 39 Plastics and articles thereof 9,240 89**

5 54* Man-made filaments 3,363 27**

6 90

Optical, photographic, measuring, checking, cinematographic, surgical, medical instruments and apparatus

1,984

90

7 40* Rubber and articles thereof 1,944 39

8 55* Man-made Staple Fibers 759 72**

9 73 Articles of Iron or Steel 706 29**

10 30* Pharmaceutical Products 556 73

Korea’s Main Exports to Bulgaria by HS description (2006)

•(Unit: thousand US$)

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Korea’s Main Exports to Bulgaria by HS description (2006)


Note: ** denotes the commodities that turn up on the list of Korea’s ten main

exports to the world but is excluded in the list of Korea’s top ten exports to Bulgaria.

No. 89, 27, 72 and 29 indicate (Ships, boats and floating structures), (Mineral fuels

and oils, and products of their distillation), (iron and steel), and (Organic chemicals),

respectively.

Source: KOTIS

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Korea’s Main Imports from Bulgaria by HS description (2006)


From BulgariaFrom the

World

Rank

HS Code No.

Description Amounts

HS Code No.

1 74 Copper and articles thereof 13,141 27**

2 89* Ships, boats and floating structures 12,000 85

3 85 Electrical machinery and equipment 5,182 84

4 76* Aluminium and articles thereof 4,826 72**

5 16*Preparations of meat, of fish, of crustaceans. Other aquatic invertebrates

4,019 90

6 10* Cereals 3,484 29**

7 90Optical, photographic, measuring, checking, cinematographic, surgical, medical instruments and apparatus

2,685 26**

8 84Nuclear reactors, boilers, machinery and mechanical appliances

2,318 39

9 62*Articles of Apparel and clothing accessories, not knitted or crocheted

1,887 74

10 28*Inorganic chemicals, compounds of precious metals

977 87**

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Korea’s Main Imports from Bulgaria by HS description (2006)


Note: ** denotes the commodities included in the list of Korea’s ten main imports from the world but excluded from the list of Korea’s top ten imports from Bulgaria. These are 27 (mineral fuels and oils, and products of their distillation) 72 (Iron and steel), 29 (Organic chemicals), 26 (Ores, slag and ash), and 87 (Vehicles other than railway or tramway rolling-stock, and parts thereof).

Source: KOTIS

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Strategic Complementarities

Placed multilateralism first on the table but changing the mood from both sides

- EU: a) growing concern about trade diversion in the Korean market caused by its active engagement in RTA (e.g. KORUS FTA) b) searching for momentum to improve market access and to solve problems arising from trade deficit c) active engagement of the EU in dynamic East Asia

- Korea: a) why not the EU? from its FTA policy b) good chance to expand trade with a giant economy and create additional wealth c) good chance to make a stepping stone in accelerating the ongoing economic reform and upgrading the economic and social systems once again

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Mutual Benefits Maximized*

Korea would benefit.

- GDP increase by 2.02% and 3.08%

GDP per capita increase by 2.16% and 2.96%

- imports and exports increase by US$ 8.2 billion and 11 billion

: in the improvement of Korea’s trade balance with the EU

(for manufacturing goods) by US$2.9 billion

- Domestic employment rises by 597,000

- FDI increase from 42 to 70% compared to the pre-FTA levels

* KIEP(2005 and 2006)

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EU would benefit, too.

- In the agricultural sector, exports may increase (mainly in processed foods, e.g. dairy products and wine).

- In the service sector, the EU shares estimated to substantially increase in telecommunication & broadcasting, legal, finance & insurance, and transportation & storage

- The EU may benefit from a growing transparency in the Korean economy with the full adoption of a global standard


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Preliminary Talks finished and official announcement

made

Feasibility studies of a Korea-EU FTA finished by both sides

- no need for further joint studies on the feasibility of a Korea-EU FTA

The Joint Committee meeting in June 2006 finished Preliminary talks on a Korea-EU FTA taken place in July and September in 2006 Public hearing from the Korean side in November, 2006 Council of the EU approved the start of negotiation in April, 2007 The Korean Ministers’ meeting decided to start the negotiation in April, 2007.

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Factors to be Considered

Existence of strong will to evolve preliminary talks to a higher level Development of negotiations in DDA Further Development of the KORUS FTA Political sensitivity in both economies Interest groups on both sides

Time schedule

Negotiation will start next week in Seoul 4 or 6 times negotiations by the end of this year Hope to finish by the first half of next year

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VII. Future prospects of Korea-Bulgaria Economic Relations

Korea-Bulgaria Relations will be Strengthened

through a Comprehensive Korea-EU FTA

Korea-EU FTA will provide critical momentum in the bilateral relations of Korea and Bulgaria

- Growing Bulgaria and Korea’s presence on the other side

- Bulgaria: the first FTA with East Asian countries

- Korea: market access

Can provide more active roles in a inter-regional and multilateral arena

- In the ASEM member states, Korea can be a channel for dialogue between the two regions.

- In the WTO/DDA and UN, Bulgaria and Korea can harmonize a

mutually interested agenda.

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Thank you

korea-bulgaria economic relations in the context of a korea-eu fta

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