5 free trade agreements boost Korean exports: report

Five free trade agreements that Korea signed have been found to be the pillars of the Korean economy in the wake of the global economic slump, as shown by rising exports to the U.S. and the European Union, especially items that benefit from tariff reductions.

According to the Korea Customs Service`s report on global trade trends after Korea signed the accords with the U.S. and the EU, Korean exports to the U.S. between March 15 when their pact took effect and Nov. 31 hit 37.3 billion U.S. dollars, up 2.1 percent year-on-year. Considering that Korea saw overall exports fall by 3.4 percent to 350 billion dollars over the same period, the country`s shipments to the U.S. has continued to grow.

In particular, the export value of items subject to free trade agreement benefits, which tariff rates fell or were removed, gained a whipping 12.9 percent, spearheading export growth to the U.S. By item, automotive parts saw the largest gain with 15 percent, while those of rubber products grew by 14 percent and petrochemical products by 8 percent.

The use rate in export of the Korea-U.S. accord was 66 percent, higher than the rates measured after the effectuation of similar agreements between Korea and India (17.7 percent) and member countries of the Association of Southeast Asian Nations (3.5 percent). The use rate in export of a free trade agreement refers to the percentage of export value that Korean companies post through an accord, which is subtracted from the value of export items that are tariff-free and excluded from the pact. A higher use rate means more companies take advantage of a free trade agreement in their exports.

Korea’s exports to the EU have declined due to the fiscal crisis there, but export of items that benefit from tariff cuts have gained. Korean shipments to the EU between July 1 when the accord took effect and Nov. 31 reached 67.21 billion dollars, down 10.2 percent year-on-year, but the export of items that benefit from the agreement gained by 10.9 percent to 35.88 billion dollars.

By product item, petrochemical products (17 percent), cars (15.2 percent) and auto parts (6.6 percent) enjoyed higher export growth. The use rate in export of the Korea-EU agreement was also fairly high at 80.8 percent. In contrast, however, the export value of items that do not benefit from the trade pact, including semiconductors (minus 43.2 percent), ships (minus 39.7 percent), and wireless communication devices (minus 24.2 percent), slumped by 26.2 percent overall.

A customs source said, “The free trade agreements that Korea signed have generated effects sooner than expected because they entail significant market opening and have been implemented seamlessly,” adding, “Items benefiting from the pacts are serving as pillars of the Korean economy in offsetting a fall in export due to the economic slump.”

Korea will observe the 49th Trade Day in a ceremony on Wednesday at the Seoul COEX. The government changed the day from Nov. 30 to Dec. 5 to mark the milestone of 1 trillion dollars in combined trade that was achieved Dec. 5 last year.

ryu@donga.com