Korea-EU FTA Expected to Bring Big Gains

The free trade agreement between Korea and the European Union is expected to benefit both sides in market expansion and higher productivity.

As advanced EU member nations with the U.S. and developing nations compete with Asian countries, the accord is also projected to raise efficiency in Korea’s resource distribution and cut production costs.

The Korea Institute for International Economic Policy said ratification of the agreement could raise Korea’s GDP 3.08 percent, add 2.85 billion U.S. dollars to the trade balance and create 597,000 jobs over the long term.

LG Economic Research Institute also expects Korea’s economic growth to climb two tenths to almost six tenths of a percentage point with the deal since the European Union is the world’s single largest market and Korea’s second-largest export market following China.

The ensuing reduction in tariff barriers is likely to boost Korean exports in cars, textiles, communication devices and consumer electronics such as televisions.

In contrast, Korea will experience a rise in European goods in import-heavy sectors such as precision manufacturing, petrochemicals and machinery. Stock farm imports including pork and dairy products such as milk and cheese could also surge since the EU demands major market opening in these fields.

Korean conglomerates can also gain from the agreement by raising the value of their end products with the EU’s advanced source technology in materials and parts.

They can also cut unit production costs through the diversification of parts imports, an area in which Korea is heavily dependent on Japanese manufacturers.

Furthermore, small and mid-size Korean companies that roll out quality products with high price competitiveness are also set to benefit from the agreement. The pact will be the way for Korean access to a large market comparable in size to Asia and South America.

With the European Union accelerating efforts to promptly conclude the deal with Korea before doing the same with China or Japan, early conclusion of the agreement is projected to elevate Korea’s status in the global trade market and strengthen its clout in the East Asian economic order.

Furthermore, the accord will contribute to peace and stability on the Korean Peninsula as it seeks to be a comprehensive agreement that encompasses not only the commodities market but also service, investment and politics.

LG researcher Kim Hyeong-joo said, “Korean exporters had different export strategies for advanced and developing markets depending on the competitive advantages of their products. However, the Korea-EU FTA must involve a more sophisticated and strategic approach given that it will additionally open up a huge market with multidimensional facets.”

ceric@donga.com