REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Annual Report on the Implementation of the EU-Korea Free Trade Agreement
Date: 2013-02-25
Institutions: European Commission
Subjects: South Korea, customs drawback, electronics industry, exchange of information, export (EU), free-trade agreement, import (EU), interim agreement (EU), motor vehicle industry, protective clause, textile industry

EUROPEAN 
COMMISSION 

Brussels, 25.2.2013  
COM(2013) 100 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Annual Report on the Implementation of the EU-Korea Free Trade Agreement 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Annual Report on the Implementation of the EU-Korea Free Trade Agreement 

1. 

INTRODUCTION 

The Free Trade Agreement (FTA) between the EU and South Korea  has been provisionally 
applied  since  July  20111.  It  is  the  first  of  a  new  generation  FTA,  characterised  by  its  far-
reaching and comprehensive nature. It is also the EU's first trade deal with an Asian country.  

After a little more than a year of its operation it is still too early to show the full impact of the 
FTA  as  the  provisions  on  the  tariff  and  non-tariff  measures  liberalisation,  as  well  as  the 
measures on services and investment, will come into force over a longer timeframe. However, 
major tariff dismantling has already taken place and the positive effects on the EU's exports 
are already being felt on the ground. 

The purpose of this report is to comply with the obligations  deriving from Regulation  (EU) 
No 511/2011 of the European Parliament and of the Council of 11 May 2011 implementing 
the bilateral safeguard clause of the Free Trade Agreement between the European Union and 
its  Member  States  and  the  Republic  of  Korea2.  According  to  Article  13(1)  of  the  said 
Regulation,  the  Commission  shall  make  public  an  annual  report  on  the  application  and 
implementation  of  the  Agreement.  Furthermore, Article  3(3)  stipulates  that  the  Commission 
shall  present  an  annual  monitoring  report  to  the  European  Parliament  and  the  Council  on 
updated statistics on imports from Korea of products in the sensitive sectors.  

2. 

OVERALL ASSESSMENT: EVOLUTION OF TRADE AND DUTY SAVINGS 

The main conclusions, based on a comparison of data for the first year of implementation of 
the agreement (July 2011 – June 2012) compared to an average of the data from the past four 
twelve month periods (the 'reference period') are outlined below. This method of comparison 
over a longer period of time neutralises the impact of the crisis.  

2.1. 

Evolution of trade 

EU exports to Korea increased by 37% overall. Exports of products fully liberalised as from 
the  date  of  provisional  application  of  the  agreement  increased  more  than  exports  of  other 
products. Exports of these products, representing 35% of EU exports to Korea, increased by 
54% (€4.4 billion) between July 2011 and June  2012, compared to the reference period. By 
comparison,  exports  of  the  same  fully  liberalised  products  to  the  world  have  increased  by 
27%.  

This  contrasts  with  products  not  subject  to  any  preference,  accounting  for  18%  of  EU's 
exports,  which  increased  by  20%  over  the  period.  For  products  partially  liberalised, 
representing 43% of EU's exports, the increase in exports was 35% or €3.9 billion. 

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of 

the 

The  FTA  is provisionally  applied  in  the  EU  until  all EU  Member  States  have  ratified  it.  The  state  of 
play 
the  Council's  Agreements  website: 
http://www.consilium.europa.eu/policies/agreements/search-the-agreements-
database?command=details&id=&lang=en&aid=2010036&doclang=EN 
OJ L 145, 31.5.2011, p. 19 

ratification 

checked 

can 

on 

be 

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Comparing  the  growth  rate  of  fully  liberalised  products  to  Korea  with  the  "normal"  growth 
rate of the same products to the rest of the world, the growth differential translates into more 
than €2 billion extra exports.  

At the same time, EU imports from Korea have only marginally increased (1%).  

The current economic climate in the EU has clearly had a negative impact on the growth rate 
of Korean exports to the EU. Another reason for the fall in exports of goods from Korea to the 
EU  is  that  Korean  corporations  continue  to  shift  production  to  the  EU  and  other  countries, 
displacing direct exports from Korea. For instance, Korean carmakers have set up production 
plants in the Czech Republic and Slovakia and Korean electronics companies have production 
sites in several EU Member States, thus contributing to jobs and growth in the EU.  

2.2. 

Duty savings  

Duty savings were already sizeable even before the full implementation of the FTA. Under a 
conservative  assumption,  duties  actually  saved  on  EU's  exports  amounted  to  around  €600 
million over the first twelve months of the FTA.  

The above figure is based on an estimated EU preference utilisation rate of about 50%, while 
the preference utilisation rate for Korean exports is 68%.  

Although the EU preference utilisation rate has gradually improved in the second half of the 
first year of the FTA implementation, Korean exports still have a higher preference utilisation 
rate  than  EU  exports.  This  can  potentially  be  explained  by  a  number  of  factors,  including 
different conditions to apply the new administrative customs procedures and differences in the 
export  profiles  of  companies  since  mainly  large  Korean  companies  export  to  the  EU,  while 
the  EU  exporters  are  rather  fragmented.  Finally,  the  "direct  transport"  provision  which  in 
some cases implies that goods that are shipped to Korea via logistic hubs, such as Singapore 
or Hong Kong, may lose the preferences can also partially explain this situation. 

2.3. 

Automotive sector and other sectoral effects 

EU  car  imports  (HS8703)  from  Korea  have  increased  by  20%  (€  663  million)  in  value  and 
12% (+45 000 vehicles) in volume during the first year of the FTA compared to the reference 
period. Despite the increase in car imports from Korea since the provisional application of the 
FTA, the level of car imports remains 37% below the level for the same twelve month period 
four years earlier.  

The  increase  in  Korean  car  imports  has  partly  taken  place  at  the  expense  of  imports  from 
other  partners.  Since  the  provisional  application  of  the  FTA,  overall  EU  car  imports  from 
around the world have decreased by 15% in quantity and by €1.5 billion in value, compared to 
the reference period.  

It is unlikely that a significant proportion of the increase in car imports from Korea to the EU 
can be attributed to the FTA liberalisation, since little liberalisation has actually taken place 
on the EU side; the EU's tariff was reduced by 3 percentage points for medium and large cars 
and by 1.7 percentage points for small cars, starting from an initial level of 10%, on the date 
of provisional application of the FTA and again one year later. This also has to be weighed 
against  the  depreciation  of  the  euro  by  7.2%  during  the  first  12  months  of  the  FTA,  which 
offset the tariff reductions over this period.  

According  to  Eurostat,  EU  car  exports  to  Korea  have  increased  by  69%  (€840  million)  in 
value  and  70%  (+33,000  units)  in  volume  during  the  first  twelve  months  of  the  FTA 
compared to the reference period. Cars have been partially liberalised; the Korean import duty 
has been reduced by 1.4 percentage points.  

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Regarding  other  sectors,  EU  exports  of  (fully  liberalised)  machinery  and  mechanical 
appliances  representing  more  than  a  third  of  EU  exports  to  Korea  have  increased  by  25% 
since the provisional application of the FTA compared to the reference period. This may be 
partially linked to the immediate elimination of most of the 5% to 8% duties in these sectors, 
as  well  as  the  elimination  of  certain  non-tariff  barriers,  such  as  the  acceptance  by  Korea  of 
self-certification for electromagnetic compatibility and electric safety for machines.  

Other  important  sectors  also  show  significant  increases  in  EU  exports  of  fully  or  partially 
liberalised products: transport equipment (51%), chemical products (23%), plastics and rubber 
(30%), textiles and clothing (25%) and base metals (20%). In terms of agricultural products, 
animals and animal products have increased by 84% and prepared foodstuffs by 35%. 

Significant increases were recorded for both imports and exports of mineral fuels. However, 
there are indications that these increases are partially caused by external factors, in particular 
by the political tensions in the Middle East.  

Post-FTA monthly data on services exports is not yet available. However, certain sectors, in 
particular  telecommunications,  financial  services,  environmental  services  and  professional 
services, will benefit from the agreement due to legislative changes in Korea. However, many 
of  the  pre-FTA  restrictions  will  only  be  lifted  after  the  expiry  of  transitional  periods, 
necessary  for  Korea  to  revise  its  regulatory  framework.  Therefore,  depending  on  the  sector, 
effects of the FTA will need time to materialise. In other sectors, such as maritime transport 
and  construction  services,  the  FTA  bound  the  existing  level  of  liberalisation.  This  provides 
legal certainty for the providers of these services against unilateral backtracking by Korea in 
the future. 

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EU trade in passenger cars with Korea, July 2011-June 2012 compared to 
Table 1: 
the average of the preceding four 12 month periods (change in € million and 1000 units).  

Imports 

Exports 

Value  
(€ mn.) 

Change 
(%) 

Units 
(1000) 

Change 
(%) 

Value  
(€ mn.) 

Change 
(%) 

Units 
(1000) 

Change 
(%) 

0 

132 

172 

-47 

-17 

172 

360 

-108 

0 

663 

-28.3 

41.3 

33.9 

-7.3 

-74.1 

357.9 

22.0 

-69.2 

8.0 

19.9 

0 

11 

17 

-17 

-1 

22 

23 

-10 

0 

45 

128.0 

15.2 

18.2 

-21.8 

-76.0 

313.1 

18.7 

-75.8 

-32.0 

11.7 

0 

0 

5 

37 

84 

2 

482 

231 

0 

840 

-92.6 

-61.2 

172.4 

7.7 

19.8 

1191.7 

229.7 

225.1 

-30.3 

68.6 

0 

0 

0 

0 

3 

0 

23 

7 

0 

33 

-76.9 

-56.9 

169.7 

-2.2 

32.2 

1118.2 

182.6 

228.3 

-43.8 

69.5 

HS6 

870310 

870321 

870322 

870323 

870324 

870331 

870332 

870333 

870390 

Total 

Source: COMEXT 

Explanation to HS6 codes in Annex Table 1 

870310 

Motor cars and other motor vehicles specially designed for travelling on snow; golf cars and similar vehicles 

870321 

Motor cars and other motor vehicles of a cylinder capacity not exceeding 1 000 cm3 

870322 

870323 

l

o
r
t
e
P

Motor cars and other motor vehicles of a cylinder capacity exceeding 1 000 cm3 but not exceeding 1 500 cm3 

Motor cars and other motor vehicles of a cylinder capacity exceeding 1 500 cm3 but not exceeding 3 000 cm3 

870324 

Motor cars and other motor vehicles of a cylinder capacity exceeding 3 000 cm3 

870331 

Motor cars and other motor vehicles of a cylinder capacity not exceeding 1 500 cm3  

870332 

l

e
s
e
D

i

Motor cars and other motor vehicles of a cylinder capacity exceeding 1 500 cm 3 but not exceeding 2 500 cm 
3 : 

870333 

Motor cars and other motor vehicles of a cylinder capacity exceeding 2 500 cm 3 : 

870390 

Other motor cars and other motor vehicles 

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3. ACTIVITIES OF THE VARIOUS IMPLEMENTATION BODIES ESTABLISHED UNDER THE FTA 

The  institutional  provisions  of  the  FTA  envisaged  the  establishment  of  seven  Specialised 
Committees, seven Working Groups and an Intellectual Property (IP) Dialogue. The EU-
Korea  FTA  Trade  Committee  plays  a  supervisory  role  and  is  designed  to  ensure  that  the 
FTA operates properly. During the first year of implementation of the FTA the majority of the 
institutional  bodies  established  by  the  FTA  have  met.  When  taking  into  account  also  those 
Committees and Working groups that met in the second half of 2012, there remain only three 
institutional  bodies  that  did  not  yet  meet:  the  EU-Korea  Committee  on  Cultural 
Cooperation, the EU-Korea FTA Working Group on Government Procurement and the 
EU-Korea FTA Working Group on Geographical Indications.  

It is noteworthy that as set out in the Protocol on Cultural Cooperation, the Trade Committee 
has  no  jurisdiction  over  the  Protocol  and  the  Committee  on  Cultural  Cooperation  thus 
exercises the functions of the Trade Committee as regards that protocol. 

The  first  meeting  of  the  EU-Korea  FTA  Trade  Committee,  which  was  co-chaired  by 
Commissioner Karel De Gucht and Korea's, now former Trade Minister Kim Jong-hoon, took 
place  on  12  October  2011  in  Seoul.  During  the  meeting,  both  sides  endorsed  the  draft 
decisions  on  rules  of  procedure  of  the  Trade  Committee  and  the  Dispute  Settlement  panel 
roster.  They  reviewed  the  implementation  of  the  EU-Korea  FTA  in  the  area  of  Trade  in 
Goods,  Services,  Rules  and  Trade  and  Sustainable  Development.  Discussion  on  ways  to 
enhance cooperation to promote bilateral trade and on the economic outlook also took place. 

On  14-15  December  2011  the  EU-Korea  FTA  Customs  Committee  met  in  Seoul  and 
discussed the Rules of Procedure and effective operation of the Committee. Both sides agreed 
to exchange data and information in relation to utilisation of the FTA. Various aspects of the 
implementation  of  the  Agreement  and  efficiency  of  origin  verification  were  discussed, 
including  the  issue  of  redrafting  of  the  provision  on  direct  transport.  The  Committee 
addressed  also  the  transposition  of  list  rules  of  Origin  in  HS2012,  respective  international 
affairs on Customs Policy Matters and the Mutual Administrative Assistance. 

On  26-27  April  2012  the  first  meetings  of  the  three  EU-Korea  FTA  Working  Groups  on 
Motor  Vehicles  and  Parts,  Pharmaceuticals  and  Medical  Devices  and  Chemicals  were 
organised in Brussels.  

The  Working  Group  on  Motor  Vehicles  and  Parts  discussed  the  implementation  of  the 
automotive  aspects  of  the  FTA,  in  particular  regulatory  aspects  referring  to  product 
acceptance. Moreover, information on existing and new regulatory initiatives was exchanged.  

The  Working  Group  on  Pharmaceuticals  and  Medical  Devices  discussed  the  Korean 
reform  of  the  reimbursement  price  of  pharmaceuticals,  methodology  for  cutting  the 
reimbursement prices of medical devices, change in the comment period for pharmaceutical 
reimbursement  decisions,  quality  testing  of  pharmaceuticals  and  medical  devices  and  the 
regulatory cooperation. 

The  Working  Group  on  Chemicals  exchanged  views  on  cooperation  with  regard  to  the 
introduction  and  implementation  of  the  Korean  chemicals  regulation  and  technical 
cooperation arrangements on chemicals, as well as a possible exchange of personnel between 
the Korean Ministry of Environment and the European Chemicals Agency (ECHA). 

On  25  June  2012,  the  EU-Korea  FTA  Committee  on  Sanitary  and  Phytosanitary 
Measures (SPS) took place in Brussels. The Committee discussed issues of interest to both 
sides  such  as  the  rules  of  functioning  of  the  Committee,  transparency  and  exchange  of 

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information,  confidence-building  activities,  enhancing  cooperation  on  animal  welfare  and 
problems arising from the application of SPS measures. 

On 26 June 2012, the EU-Korea FTA Committee on Trade and Sustainable Development 
met  for  the  first  time  in  Brussels  and  was  followed  on  27  June  2012  by  the  Civil  Society 
Forum, an advisory body consisting of the European and Korean Domestic Advisory Groups.  

The meeting of the Committee on Trade and Sustainable Development provided a useful 
opportunity  to  exchange  information  on  each  side's  initiatives  in  the  area  of  trade  and 
sustainable  development,  discuss  the  implementation  of  Chapter  13  of  the  FTA  to  date  and 
agree  on  the  next  steps.  The  Committee  adopted  a  decision  on  the  rules  of  operation  of  the 
Civil  Society  Forum  and  the  establishment  of  a  list  of  experts  in  accordance  with  Article 
13.15.3  of  the  FTA.  Finally,  the  Committee  made  institutional,  labour  and  environmental 
oriented operational conclusions.  

The  members  of  the  Civil  Society  Forum  were  debriefed  during  their  meeting  on  27  June 
2012 about the outcome of the Trade and Sustainable Development Committee's meeting. The 
Forum  exchanged  information  on  the  implementation  of  Chapter  13  of  the  EU-Korea  FTA 
and  cooperation  on  specific  economic,  social  and  environmental  issues.  Paragraph  4  of  this 
report  describes  in  more  detail  the  fulfilment  and  obligations  under  Chapter  13  of  the 
Agreement and the activities of the Domestic Advisory Group and the Civil Society Forum. 

On 25 September 2012, the EU-Korea FTA Committee on Trade in Goods met for the first 
time.  The  Committee  addressed  several  FTA  implementation  issues  as  well  as  regulatory 
issues  affecting  bilateral  trade  flows  in  the  sectors  of  aircraft  parts,  electrical  and  electronic 
products, food and agricultural products, cosmetics and thin-film solar panels. The Committee 
also  discussed  the  likely  impact  on  the  EU-Korea  FTA  of  Croatia's  accession  to  the  EU  in 
July 2013. 

On 26 September 2012 the first EU-Korea FTA Committee on Outward Processing Zones 
on the Korean Peninsula took place in Brussels. The Committee discussed the importance to 
Korea  of  this  issue,  which  is  legally  and  politically  difficult  for  the  EU.  It  was  agreed  that 
both parties would exchange data and have further discussions. 

In  addition,  the  Dialogue  on  Intellectual  Property  provided  for  in  Chapter  10  of  the  FTA 
met for the first time on 26 September 2012. The Parties reaffirmed the primary importance 
they both attribute to intellectual property as an essential instrument to promote investment, 
creativity  and  employment.  The  meeting  allowed  the  EU  and  Korea  to  exchange  useful 
information  on  each  side's  recent  legislative  and  policy  developments  in  the  field  of 
intellectual  property.  The  EU  took  the  opportunity  to  inform  Korea  about  a  few  IP 
enforcement  issues  that  remain  a  matter  of  concern  for  European  companies,  including 
trademarks squatting, invalidation rates in the Korean patent system and the implementation 
of copyright provisions with regard to public performance rights in Korea 

A  discussion  on  ways  to  enhance  the  exchange  of  information  and  cooperation  to  support 
respective  SMEs  also  took  place.  The  Parties  briefly  exchanged  views  on  current 
developments at multilateral level (WTO and WIPO) too. 

On 27 September 2012 the Committee on Trade in Services, Establishment and Electronic 
Commerce  as  well  as  the  Working  Group  on  Mutual  Recognition  Agreements  on 
Services  met  in  Seoul.  The  Committee  and  the  Working  Group  meetings  provided  a  useful 
exchange  of  information  between  the  Parties,  on  the  implementation  of  both  Parties' 
commitments  resulting  from  the  FTA  in  sectors  including  financial  services,  professional 
services, telecom, environmental services, postal and logistics services as well retail services. 

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On  16  October  2012  the  second  EU-Korea  FTA  Trade  Committee,  co-chaired  by 
Commissioner Karel De Gucht and the Korean Trade Minister Bark Taeho, met in Brussels. 
The  Committee  reviewed  the  implementation  of  the  EU-Korea  FTA  in  light  of  the  work 
carried out by the Specialised Committees and Working Groups and agreed that these bodies 
should  advance  the  implementation  of  the  FTA  and  be  result  oriented.  The  Committee 
addressed implementation issues related to the non-tariff annex on motor vehicles and parts, 
the  non-tariff  annex  on  pharmaceuticals,  the  direct  transport  clause,  mutual  recognition  of 
Authorized  Economic  Operators,  Outward  Processing  Zones  on  the  Korean  Peninsula, 
services,  in  particular  financial  services,  postal  and  retail  sectors.  Other  issues  affecting 
bilateral trade between the EU and Korea were also discussed.  

Before  the  end  of  the  year  2012  two  more  institutional  bodies  met:  the  second  EU-Korea 
FTA  Customs  Committee  and  the  first  EU-Korea  FTA  Working  Group  on  Trade 
Remedy Cooperation. 

With  regard  to  the  Committee  on  Cultural  Cooperation  in  the  context  of  the  Protocol  on 
Cultural  Cooperation,  first  steps  were  undertaken  with  the  Korean  side  towards  its 
establishment and a Commission proposal for a Council Decision on the establishment of the 
Committee  and  its  rules  of  procedure  was  presented  at  the  Council  for  discussion  on  23 
August. 

4. 

FULFILMENT  OF  OBLIGATIONS  UNDER  CHAPTER  13  OF  THE  AGREEMENT 
CONCERNING TRADE AND SUSTAINABLE DEVELOPMENT 

Senior officials of the EU and Korea met on 26 June 2012 for the first meeting of the Trade 
and  Sustainable  Development  Committee  under  the  FTA.  The  meeting  proved  a  useful 
opportunity  to  exchange  information  on  each  side's  initiatives  in  the  area  of  trade  and 
sustainable development, discuss the implementation of the chapter to date, and agree on next 
steps. In addition, the Committee discussed some procedural issues. 

Both sides stressed the importance of maintaining appropriate communication channels with 
the civil society bodies established under the Trade and Sustainable Development chapter. In 
this regard, the Committee agreed to exchange information on the outcome of the respective 
Domestic  Advisory  Groups'  (DAGs)  meetings  and  to  meet  regularly  with  the  Civil  Society 
Forum (CSF) – starting from the CSF's first meeting, which was held on the 27 June 2012.  

The Committee agreed that the first meeting was both positive and productive. The important 
details of establishing the operation of the institutional mechanisms with regard to the Trade 
and  Sustainable  Development  chapter  have  now  been  agreed.  There  was  also  a  detailed 
discussion on substance concerning trade-related labour and environmental issues. On this we 
have  a  good  basis  on  which  to  proceed  and  the  Committee  looks  forward  to  the  respective 
DAGs' as well as the CSF's engagement in this regard also. 

5. 

IMPLEMENTATION OF REGULATION (EU) NO 511/2011  

Regulation  (EU)  No  511/2011  is  the  EU's  internal  legislation  to  implement  the  bi-lateral 
safeguard  clause  of  the  EU-Korea  FTA.  The  Regulation  also  includes  the  possibility  to 
introduce  prior  surveillance  and,  pursuant  to  Article  3  of  the  Regulation,  requires  the 
Commission to monitor the evolution of import and export statistics in sensitive sectors, also 
potentially affected by the duty drawback. 

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5.1. 

Safeguard and prior surveillance measures 

During  the  first  year  of  implementation  of  the  FTA,  the  Commission  did  not  receive  any 
request for the initiation of a safeguard investigation, and thus no measures were applied. 

It  should  be  noted,  however,  that  on  4  August  2012,  i.e.  shortly  after  the  first  year  of 
implementation of the FTA, France submitted to the Commission a request to introduce prior 
surveillance on imports of cars originating in Korea.  

The French request was based on a legal provision requiring the existence of an increase of 
imports  concentrated  in  one  or  several  Member  States  (Article  6(2)  of  Regulation  (EU)  No 
511/2011). This request was, however, based on statistics for a very limited time period, and 
more  importantly,  did  not  include  any  indication  of  a  concentration  of  imports  into  one  or 
several Member States as required by the legal provision invoked by France. 

The  Commission,  nevertheless,  carefully  examined  the  development  of  imports  from  Korea 
into  the  EU  and  France  over  the last  five  years,  and  concluded  that  the  legal  conditions  for 
such  a  measure  were  not  fulfilled  since  no  increase  in  imports  concentrated  in  one  or  more 
Member  State  could  be  established.  On  this  basis  it  was  decided  not  to  introduce  prior 
surveillance measures. 

5.2.  Monitoring 

As provided for by Articles 3 and 11 of Regulation (EU) No 511/2011, the Commission has 
been monitoring the evolution of imports and exports of Korean products in sensitive sectors, 
such as cars, textiles, and consumer electronics, potentially affected by duty drawback. Since 
the  provisional  application  of  the  FTA  the  Commission  has  been  sharing  the  results  of  its 
monitoring with the Member States, the European Parliament and the relevant stakeholders on 
a bi-monthly basis. 

It should be noted that the scope of the monitoring has been extended to car parts, following a 
duly justified request received from the industry concerned. 

a) 

Evolution of Korean imports into the EU in the sectors covered by the monitoring 

The  results  of  the  monitoring  during  the  first  year  of  implementation  of  the  FTA  are 
summarised below. The corresponding graphs are enclosed to this report. It is noteworthy that 
for the purpose of the monitoring, the comparison of trade data has been made on year-to-year 
basis and thus some figures may differ from the general trade analysis in paragraph 2 above, 
where a different method of comparison was used to eliminate the impact of the crisis. 

(i) Car sector 

Imports  of  cars  increased  by  41%  in  the  year  following  the  provisional  application  of  the 
agreement  (July  2011-June  2012)  compared  to  the  previous  year  (July  2010-June  2011).  It 
should  be  noted,  however,  that  the  absolute  level  of  imports  during  the  first  year  of 
implementation of the FTA is still far below the  level  of imports  four years earlier. Indeed, 
imports in the period July 2011-June 2012 accounted for only 72% of imports in the period 
July 2007-June 2008. This confirms the analysis of import trends under paragraph 2.3. 

The analysis based on quarterly figures shows that the increasing trend observed in the recent 
years already started before the provisional application of the FTA. 

As  regards  car  parts,  imports  increased  by  47%  in  the  year  following  the  provisional 
application  of  the  agreement  (July  2011-June  2012)  compared  to  the  previous  year  (July 
2010-June 2011). This increase is a continuation of the increasing trend which already began 
in the period July 2008-June 2009. The increase seems however to have intensified since the 
provisional application of the FTA. Looking at  the figures  on  a quarterly basis, following a 

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slight  decline  in  the  end  of  2011  the  increasing  trend  continued  in  the  first  two  quarters  of 
2012.  

(ii) Textile sector 

Imports of textiles decreased by 30% in the year following the provisional application of the 
FTA  (July  2011-June  2012)  compared  to  the  previous  year  (July  2010-June  2011).  This 
followed a significant increase during the two years preceding the provisional application of 
the agreement. It is difficult to establish a general trend on the basis of quarterly figures since 
imports fluctuated significantly. There was a significant increase of imports in the last quarter 
of 2011, but thereafter imports dropped to their initial level. 

(iii) Electronics sector 

Imports of electronics increased by 8% in the first year following the provisional application 
of the FTA (July 2011-June 2012) compared to the previous year (July 2010-June 2011). The 
absolute level of imports is however clearly below the pre-crisis level: imports in the period 
July  2011-June  2012  accounted  for  just  63%  of  imports  in the  period  July  2007-June  2008. 
The analysis of imports based on quarterly figures shows that there was an increase in imports 
in the last quarter of 2011, which may be explained by seasonal effects. 

b) 

Duty drawback 

Specific  monitoring  was  also  carried  out  on  the  issue  of  duty  drawback,  as  provided  for  by 
Article 11(1)  of  Regulation (EU)  No 511/2011,  in order to assess the foreign content in the 
Korean manufacturing process and thus in exports from Korea to the EU of final products.  

The  analysis  focused  on  quantities  of  products  subject  to  monitoring  exchanged  during  the 
first 6 months of 2012, compared to the same period in 2011, when there was no agreement, 
as these are the most relevant figures available.  

For  the  electronics  sector,  the  increase  in  imports  into  the  EU  has  mainly  involved  the 
following  codes:  8519.81,  8526.92,  8527.12,  8527.21,  8527.92  and  8528.73.  Imports  into 
Korea  of  parts  of  these  products  have  either  decreased:  for  8522,  a  decrease  from  China  (-
10%)  and  Japan  (-23%)  or,  for  8529  an  increase  from  China  (+10%)  but  a  decrease  from 
Japan (-28%). In all cases, the increase of imports of inputs is not significant compared to the 
increase of imports of the final products.  

For  textiles,  the  only  increase  of  imports  from  Korea  to  the  EU  involves  products  of  code 
5509 (+5%). For this product, the Rules of Origin would allow the importation of products of 
man-made staples fibres of 5503 and 5504. Nevertheless, imports of these inputs into Korea 
have  significantly  decreased  in  2012  (except  among  others  for  imports  in  Korea  from  some 
Member States which seem to have benefited from the FTA).  

For  cars  of  code  8703,  there  has  been  a  global  increase  of  exports  to  the  EU  (+24%  on 
average), even if this statement does not apply to all specific types of cars, depending of the 
engines  involved.  In  the  meantime,  imports  of  inputs  into  Korea  have also  increased,  either 
almost in the same proportion (+24% for China for car part of 8708, but -33% for Japan) or 
less (+8% for China for diesel engines, but -2% for Japan; +8% for China for bodies of car, 
but -12% for Japan; -35% for China for other engines and -17% for Japan).  

From  the  different  elements  summarised  above,  so  far,  for  the  products  subject  to  specific 
monitoring, the allowance of duty drawback did not seem to have any significant impact on 
the manufacturing pattern of Korea. 

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6. 

CONCLUSION 

While it is still too early,  after one  year of operation, to draw conclusions on the long term 
impact of the EU-Korea FTA, the first signs are promising; there is clear evidence that even 
only one year into the FTA, the EU has benefited significantly and its exports to Korea are on 
the  up.  During  the  first  year  of  implementation,  EU  exports  to  Korea  increased  by  37% 
overall compared to the reference period and exports of products fully liberalised as from the 
date  of  provisional  application  of  the  agreement  increased  more  than  exports  of  other 
products.  

As regards Korean imports into the EU, the current economic climate in Europe has clearly 
had a negative impact on the growth rate of Korean exports. However, on both sides, exports 
of products fully liberalised as from provisional application of the agreement have increased.  

Now  the  focus  is  being  put  on  ensuring  proper  implementation  of  the  FTA.  This  FTA 
establishes  comprehensive  monitoring  based  on  a  set  of  various  Committees  and  Working 
Groups, the majority of which have met during the first year of implementation. 

The  prospects  are  bright  and  despite  the  fact  that  some  external  –  not  linked  to  the  FTA  - 
factors  such  as  the  Euro  crisis  create  unexpected  complications,  the  situation  is  likely  to 
stabilise in the long term and allow bilateral trade to expand to its full potential.  

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