Trade context

Box 7 Impact of the EU-Korea Free Trade Agreement

2.4.1.1 Bilateral trade relations and the nature of the Agreement

The Republic of Korea (Korea) is a member of the G20, it is classified as an advanced economy by the IMF, and its trade surplus for December 2015 is estimated at $10.4 billion.²⁸⁵ The EU has had a strategic partnership with Korea since 2010. The relations are governed by two key agreements on the following topics: political dialogue under the EU-Korea Framework Agreement;²⁸⁶ and trade under the EU-Korea Free Trade Agreement (hereinafter called the ‘EU- Korea FTA’).²⁸⁷ In October 2010 the EU, its Member States and Korea signed the new agreements at the EU-Korea Summit in Brussels. Both agreements update and replace the 1996 Framework Agreement for Trade and Cooperation between the EU and the Republic of Korea. As far as domestic support for the FTA goes, Mazur observes that, ‘[a]lthough representatives of manufacturing industry supported the conclusion of the FTA with the EU, some reluctance has been observed within the [Korean] groups involved in the liberalisation of services’.²⁸⁸

As of 1 July 2011 the EU-Korea FTA was applied provisionally²⁸⁹ until its entry into force on 13 December 2015.²⁹⁰ The FTA stipulates a gradual approach to liberalisation, with 1 July 2016 as

285 See http://www.tradingeconomics.com/south-korea/balance-of-trade.

286 Free Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part, 2010.

287 Ibid.

288 G. Mazur, The European Union–South Korea Free Trade Agreement. A New Model of Trade and Economic Cooperation between Developed Countries, Research Papers of Wroclaw University of Economics, Issue 257, 2012, p. 40.

289 http://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:22011X0628(01)&from=EN.

290 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22015X1125(01)

&from=EN.

 Trade between the EU and Korea has increased significantly, lifting the EU’s trade deficit with Korea and generating a trade surplus in EU’s favour.

 The Committee on Trade in Services, Establishment and Electronic Commerce convened numerous times but has not reported in detail its deliberations about Financial Services sector. Korea regularly and extensively updated its legislation and regulation concerning the sectors and subject areas governed by the FTA.

the date for the elimination of most import duties on products except for a limited number of agricultural products.²⁹¹ It is expected that the FTA will also impact the free trade of goods and services, especially in relation to the electronics sector, the car industry, the pharmaceutical sector, and the shipping industry. Bilateral trade exchange between the EU and Korea amounted to €65 billion in 2008, while this trade exchange had increased to €81 billion in 2014.²⁹²

Figure 1 EU exports to and imports from Korea, 2005-2013 (€ billion)

Sources: COMEXT & Chief Economist Note (ISSN 2034-9815)293

As for the (financial) services sector, the LSE reported in 2010 that the regulatory framework for the Korean financial services sector has remained highly discriminatory; and that the FTA makes important progress towards removing discrimination against EU suppliers and that the agreement has also an important impact on market access.²⁹⁴ It underlines that costs savings alone, resulting from the FTA’s provisions, are expected to measure in the tens of millions of euros for EU financial services. Furthermore the LSE report noted that the FTA will ensure greater transparency and predictability of the future business environment in Korea, partly due to the ‘negative list’ (itemising restrictions, and deeming everything else restriction free) and more transparency in regulatory procedures.²⁹⁵

291 http://ec.europa.eu/trade/policy/countries-and-regions/countries/south-korea/.

292 http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113448.pdf/.

293 C. Lakatos and L. Nilsson, The EU-Korea Free Trade Agreement: Anticipation, Trade Policy Uncertainty and Impact, Chief Economist Note, European Commission, DG Trade, Issue 2, June 2015, p. 6.

294 An Assessment of the EU-Korea FTA, LSE and Political Science and Consortium Partners, Ed.:

R. Bendini, Parliament's Committee on International Trade, June 2010, p. 94.

295 Ibid.

The (financial) services sector has seen growth ever since the provisional implementation of the FTA (as seen from the statistics of DG Trade).²⁹⁶ The 2014 Annual Report on the Implementation of the EU-Korea Free Trade Agreement describes the impact on the services sector as follows:

‘[s]ervices trade data is produced with a severe time lag and is very aggregated, making it impossible to make the same kind of up-to-date and detailed comparisons as with goods. The comparison has thus been made for calendar year 2011, compared to 2010, i.e. the year when the FTA was “half implemented” compared to the calendar year before the FTA was provisionally applied. On this basis, EU exports of services (GATS modes 1 and 2) to Korea increased by 9% in 2011 compared to 2010. At the same time imports of services from Korea decreased by 2%, leading to an increased surplus for the EU’s trade in services.’²⁹⁷ The total trade shows a similar trend. The 2015 Annual Report describes that the EU’s trade deficit with Korea (€7.6 billion) turned into a trade surplus (€3.6 billion); and that the EU's share in Korea’s total imports increased from 9% before the FTA to 11% in the third year. Over the same period of time, the EU's share in total exports from Korea declined from 11% to 9%.²⁹⁸

2.4.1.2 Institutional framework

The implementation of the EU-Korea FTA is overseen by numerous specialised committees²⁹⁹ and working groups³⁰⁰ which focus on specific sectors or detailed aspects of the trade relations. The specialised committees convene on an annual basis (unless the FTA specifies another regularity for a specific committee) while the working groups convene on an ad hoc basis, at request of either party or of the Trade Committee.

This Trade Committee carries the responsibility to ensure the proper operation of the FTA, to supervise and facilitate the implementation and application, to supervise the specialised committees and working groups, and to consider ways to enhance trade relations between the parties.³⁰¹ The Trade Committee convenes once a year.³⁰² The Trade Committee has the power to dissolve, establish or change the task assigned to specialised committees and working groups.³⁰³ The existence of a special committee or working group does not preclude either Party

296 http://ec.europa.eu/trade/policy/countries-and-regions/countries/south-korea/.

297 European Commission, 2014 Report from the Commission tot the European Parliament and the Council: Annual Report on the Implementation of the EU-Korea Free Trade Agreement, 28 February 2014, Brussels, p. 6.

298 European Commission, 2015 Report from the Commission tot the European Parliament and the Council: Annual Report on the Implementation of the EU-Korea Free Trade Agreement, 26 March 2015, Brussels.

299 Article 15.2 EU-Korea FTA. Notably the Committee on Trade in Services, Establishment and Electronic Commerce, see also next section.

300 Article 15.3 EU-Korea FTA.

301 Article 15.1(3) EU-Korea FTA.

302 Article 15.1(2) EU-Korea FTA.

303 Articles 15.2(5) and 15.3(5) EU-Korea FTA.

from bringing any matter directly to the Trade Committee.³⁰⁴ The powers of the Trade Committee are specified in Article 15.1(4). The Trade Committee can make decisions that are binding upon the Parties.³⁰⁵ However, the Trade Committee shall draw up decisions and recommendations by agreement between the Parties.³⁰⁶

Furthermore the relevant professional bodies in the respective territories of the parties to the FTA also assume an important role for the operation of the FTA. The Agreement provides that the Parties must encourage these bodies to jointly develop and provide recommendations on mutual recognition to the Trade Committee, for the purpose of the fulfilment, in whole or in part, by service suppliers and investors in services sectors, of the criteria applied by each Party for the authorisation, licensing, operation and certification of service suppliers and investors in services sectors and, in particular, professional services, including temporary licensing.³⁰⁷ The institutional framework of the EU-Korea FTA furthermore encompasses the Joint Committee established under the EU-Korea Framework Agreement which focuses on the political dialogue between the EU and Korea.³⁰⁸ The Trade Committee must report to the Joint Committee about its activities, and that of the specialised committees and working groups.³⁰⁹ Upon the entry into force of the FTA, the Parties must also designate coordinators in order to facilitate communication and ensure effective implementation of the FTA.³¹⁰

2.4.2 Assessment of the Regulatory Framework for the Provision of Financial