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Japan-EU EPA to present challenges to Korea

Posted July. 07, 2017 07:10,   

Updated July. 07, 2017 07:35


Japan has signed an Economic Partnership Agreement (EPA), a kind of free trade agreement, with the European Union on Thursday. The deal, which started in 2013, will create an enormous economic bloc, which account for 30 percent of the world’s GDP. Ninety-nine percent of tariffs in trade between Japan and the EU will be removed, the public procurement market will be open and some non-tariff barriers will be eliminated. Japan has opened up the agricultural market, its weakest point, and the EU removed the barriers to the auto market, which the EU did not want to open up.

 While Japan had been regarded as a late comer in free trade deals, it was hit hard as U.S. President Trump decided to leave the Trans-Pacific Partnership (TPP), to which it had been committed. Japan pushed for the EPA, though it did not reached agreement on some items, probably because it desperately needed to expand exports through free trade.


If the EU completely removes tariffs in the auto sector, which is 10 percent now, seven years later, Japanese cars will become competitive in prices. However, it will hit Korean automakers. Korea will lose the no-tariff advantage, which it has enjoyed from the free trade pact with the EU signed in 2011. In addition, the market share of Korean automakers has recently stalled in Europe. Japan is determined to occupy the European market with the removal of tariffs.

U.S. President Trump who seeks protectionism asked Korea for a renegotiation of the Korea-U.S. free trade pact in the recent Korea-U.S. summit. China blocked its tourists from visiting Korea in retaliation for the deployment of the anti-missile defense system, THAAD, and Korea’s car exports to China also shrank. If Japan becomes offensive in the European market, Korea will be challenged in all three major export markets. To make matters worse, the union of Hyundai Motor declared a breakdown of the collective bargaining and plans a strike. The union of Kia Motors has already decided to get into a labor dispute. Any action that would weaken internal momentum should be refrained at a time when the government, companies, and labor should pull wisdom together and overcome challenges ahead.