While the recent buzz has been over the passage and the coming March 15th implementation of the KORUS Free Trade Agreement, the FTA between the EU and Korea will celebrate the 3rd anniversary of its signing this coming October.
The agreement between the two economies stands as the most comprehensive FTA that the EU has negotiated to date; with a near elimination of all trade duties, including strict provisions on intellectual property, sustainable development and the all important issue of transparency.
Though the FTA was inked just three years ago, ties between Europe and Korea go back to 1963 when diplomatic relations were first established with the then newly developing Republic of Korea. Later, in the 1980’s, significant business ties were being formed, allowing the growing Korean economy the chance to expand outside of the U.S. sphere of influence while lessening its dependence on the American market for growth.
In 1986 the European Union Chamber of Commerce set up shop in Seoul. Later the same year the name was changed to the European Community Chamber of Commerce in Korea, and the EUCCK was born.
The EUCCK is comprised of 27 EU member states and over 850 member businesses that operate here on the peninsula. Last year, trade between the two economies totalled $140.36 billion, with $75.11 billion in exports going from Korea to the EU and $65.25 billion from the EU into Korea. By comparison, two-way trade between Korea and the U.S. was around $100 billion in 2011, while Korea’s largest trading partner, China, exchanged $207 billion in products and services in 2010. Currently, the EU accounts for twelve percent of Korea’s export market.
The EU’s relationship with Korea has been of great benefit to European business not only as a market to sell its goods and services, but as a springboard into other Asian markets.
In an interview last year with Europolitics, EUCCK Secretary-General Jean-Jaques Grauhar, spoke of Korea’s unique role as a gateway for EU businesses looking to expand into Asia.
It is a relatively small market compared with China or India, but a country on the forefront of technology. South Korea is interesting as a platform for building industrial partnerships and then re-exporting in the region, said Grauhar.
Haps Magazine recently had a chance to talk with Mr. Grauhar, who has been with the EUCCK since 1994. He has been a consultant advising EU companies on trade and investment in Korea for more than 20 years.
Can you talk about the history of trade and business between Europe and Korea?
Although diplomatic relations between South Korea and the European Union were established in July 1963, it was not until the end of the 1980s that significant ties began to be formed.
Even as European leaders were preoccupied with the challenge of implementing the Single Market by 1992, South Korea’s transition to democracy, along with its increasing importance in the global economy, led EU policy makers to realize the necessity of improving relations with South Korea. This aim was part of a general change of EU policy toward Asia, which sought to promote European business interests in the region. From the Korean perspective, the integration of the European market to form the world’s largest single trading bloc was an opportunity to sustain South Korea’s outward-oriented development strategy and reduce its excessive dependence on the U.S. market.
Entering the new millennia, the world began to witness a sea of change in the bilateral relations between Korea and Europe. Trade in goods and services and two-way foreign direct investment (FDI) are generally the most important aspects of the relationship.
Bilateral trade volume has increased by fourfold in the last ten years, making the EU Korea’s second largest trading partner. The data speaks for itself: In 1986 total bilateral trade was $9.32 billion- $5.32 billion in exports from Korea and $ 4 billion in imports into Korea.
In 2011 Korea-Europe trade has increased by 1,407 percent to $140.36 billion. $75.11 billion in exports from Korea and $65.25 billion in imports into Korea from Europe.
If you take a look at Foreign Direct Investment, in terms of cumulative total of FDI flows since 1962, they reached more than $65 billion by the end of last year. In 2011 the European Union continued to be the highest foreign investor, with a total of $5.03 billion, which was a 57.4 percent increase over the previous year.
EU companies have put considerable trust and confidence in Korea and demonstrated an outstanding long-term commitment. EU-invested companies are highly respected employers offering attractive job opportunities to many Koreans.
Unlike other regions, a majority of investment is in greenfield projects and not speculative investments. According to the Ministry of Knowledge Economy, greenfield investments increased 5.8 percent in 2011 on the back of the Korea-EU FTA.
Coming to the issue of Korean investment in Europe, it is already fairly strong, with over two-thirds of its top 100 companies present. Although in terms of value, their investments in the EU may be a small portion at present, it is bound to increase because of the FTA.
Already, the emerging economies of Eastern Europe, which boast vast growth potential, have enticed many Korean companies to focus on these markets. An increasing number of firms are now committed to local communities in Eastern Europe, which also act as gateways to the continent and its vast consumer base.
For example, the LG Group factory cluster in Wroclaw, in southern Poland, has hired 13,000 workers to produce liquid crystal display modules and LCD TVs. Manufactured goods from this area are widely distributed to retailers in Eastern Europe and other regions of Europe, highlighting the strategic importance of the region. Other Korean companies, such as Samsung Electronics and Hyundai Motor, are also enjoying increased brand awareness and consumer loyalty in the region.
This is just the start, and we will see stronger economic relations this year and ahead.
What has been the role of the EUCCK in facilitating better business relations between Korea and the EU? Can you talk about some of the more difficult tasks the organization faces when bringing together the variations in business cultures of Europe and Korea? As for the Busan branch of the EUCCK, what role does it play?
The EUCCK, a non-profit organization, is the representative voice of the EU business community in Korea. It was formed by a group of individual business executives from various EU companies based in Korea with initial financial support from the European Commission in February 1986. Since then, it has grown to be financially independent and does not receive monetary support from the EC. This year we are celebrating the 26th anniversary.
As of 2011, membership of the EUCCK amounted to 850 members including Busan. Today EUCCK members roughly employ a combined total of 280,000 employees in Korea.
Our membership base is spread across the different sectors -manufacturing, financial services, food processing, automotive, cosmetics, legal services, energy/environmental services, wine and spirits, pharmaceuticals and real estate.
The Korean government also recognizes the Chamber as the representative voice of investors from all of the 27 states who are doing business in Korea.
The purpose of the Chamber is to help in any possible way to develop trade, commercial and industrial relations between the EU and Korea. It paves the way for and fosters contacts between interested business circles of the 27 EU member states and the Korean peninsula.
With Offices in Seoul, Busan and Paris, EUCCK is also an active member of the European Business Organization (EBO) network, created between representatives of EU business associations in non-EU countries and specific interest groups from the European Commission.
One must remember that the European Union has evolved over these years (and is still evolving), and not all European countries are part of the European Union. The EUCCK represents the interests of the EU businesses in Korea, not that of all Europe. In 1986 there were 12 EU member states, and therefore we were not a very influential lobbying association. So working with the Korean authorities was not very easy. We did not have ready access to the authorities and therefore had to work very hard. Now in 2011 there are 27 member states, and we do not face any problems in getting their attention.
As for the Busan office, it essentially operates on the same principles and objectives as the Seoul Office. As our membership in Busan-Gyeongsang region grew, we realized that we needed a dedicated office to handle specific issues that our members face in this region.
Our Busan office is responsible for fostering contacts between interested business and the local government authorities. Most importantly we provide members with general information regarding any developments that has an influence on their operations in Busan and the neighbouring provinces.
We also co-ordinate discussions among members in addressing common problems and opportunities regarding their business activities and maintain contacts with high ranking municipal and provincial officials as well as other government administrations.
The EU and Korea inked their FTA back in October 2009. What were some of the objections on both sides of the table during the negotiating process?
The Korea FTA is one of the most ambitious and complete commercial deals ever negotiated by the EU. It has provided duty free access to the Korean market for European goods and services and introduces important clauses on the respect of intellectual property rights, regulatory issues as well as on sensitive social and environmental matters. Both economies will register an increase in real income, output and GDP, but the effects of trade liberalization will be larger, both in relative
and absolute terms, for the Korean Economy. The agreement has been largely welcomed by the EU business community.
There is no doubt that since the EU-Korea FTA took effect in July last year, trade and economic relations between both sides have steadily improved.
According to the latest figures released by KITA, trade volume between between both sides was $52.82 billion in July-December 2010. This increased to $62.26 billion in the same period last year. This shows a year-on-year growth of 17.87 percent as a direct result of the free trade agreement.
If one takes the entire year, then the trade volume increased by 9.43 percent in 2011, to $103.15 billion from $92.23 billion in 2010. Korea’s exports to EU from July-December 2011 was $34.83 billion and imports from EU were $ 27.43 billion. In 2010, during the same period, exports were $31.21 billion and imports $ 21.61 billion.
In Europe, Korean companies are making big strides thanks to the tariff benefits of the FTA. The latest data suggests that Korea’s shipments of key export items to the EU have continued to rapidly increase, as also imports from the EU. Exports of automobiles to EU countries has increased, shipments of petroleum products also rose. Imports of automobiles from the EU also shot up.
Since the free trade agreement, cheap commodities from Europe are already helping ease consumer price strains here in Korea. The downward price movement is also applicable to luxury European products.
It is indisputable that benefits from free trade agreements are immense. The FTA will also encourage further increase investments and establishment of new EU companies, leading to more employment opportunities. It is expected that the deal will help generate about 253,000 jobs in Korea, in the long term.
It is true that the Eurozone sovereign debt crisis accentuated, when the EU-Korea FTA was being implemented. As a result trade between both sides did not grow at a much higher rate. Korea’s exports were lower than expected because of a weak demand for Korean goods such as ships and IT goods with their exports dropping. Also EU companies were in the middle of the crisis and their business was naturally affected.
Europe is responsible for 12 percent of Korean exports. Dependence on Europe is even higher for mid-sized businesses at 25 percent, which means this sector will be even more vulnerable to events in Europe. I am sure that once the debt problem is resolved in Europe, the full benefits of the FTA will kick in and we will see much stronger growth.
As regards the negotiation process, like every agreement, there were many problems and it is not possible to enumerate all of them here. You should remember that the negotiations were spread over two years, and during each meeting, the problems were discussed and sorted out. During the final negotiation meetings, the Automotive sector was discussed a lot –notably regarding the rules of origin and the duty draw-back system.
There has been public outcry and protests over the FTA with the US. Why was there very little public and government objection to the treaty with the EU, which is also a very large economic power?
It is a very sensitive topic and I would prefer not to comment too much on this, except to say that the EU/Korea FTA too faced objections from certain groups during negotiations. Also, because of the historical anti-American sentiment in South Korea, the protests may have been louder for the US-Korea FTA.
Going forward how do you envision the role of the EUCCK in expanding business relations between the EU and Korea?
This is a very important year for the EUCCK and we will continue to monitor the implementation of the FTA and help in strengthening the relationship between Korea and the EU. We also have an office in Paris, which will help the EU SMEs to understand the implications of the FTA and help them enter Korea. We will provide assistance to companies willing to enter the Korean Market and also to Korean companies wishing to enter the EU market. We will continue to seek a level playing field for all companies in Korea, and increase cooperation with government and help promote Korea to EU companies.
Following the implementation of the FTA, EU services providers are experiencing 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 are also gaining from the FTA’s implementation.
Chemicals, pharmaceuticals, iron and steel, auto parts, shoes, spirits and medial equipment exporters are all seeing substantial savings after tariffs were removed. The deal also tackles non-tariff barriers across all sectors including in industries of specific interest to the EU, such as automotive, pharmaceutical and consumer electronics.
Right now we have been receiving inquiries from many of the companies which are doing business in the above mentioned sectors. They are keen to evaluate the Korean market.
For more information on the EUCCK, visit their website.
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