Source: EURLEX
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# 52015DC0139

**REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Annual Report on the Implementation of the EU-Korea Free Trade Agreement /\* COM/2015/0139 final \*/**

  

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

1 July 2014
marked the third anniversary of the Free Trade Agreement (FTA) between the EU
and its Member States and the Republic of Korea (‘Korea’), which has been
provisionally applied since July 2011[1].
It is the first of a new generation of FTAs, characterised by its far-reaching
and comprehensive nature. It is also the EU's first trade deal with an Asian
country.

The FTA has
already seen its first amendment. The Additional Protocol to the FTA to take
into account Croatia’s EU accession was signed in March 2014 and is
provisionally applied since 26 May 2014. It will be concluded once Korea has notified
the EU of the completion of its internal procedures.

This is the
third Annual Report on the implementation of the FTA, in accordance with the
provisions of 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 Korea[2].
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 and those
sectors to which monitoring has been extended. This report therefore combines
these two reporting requirements.

The report also
gives an overview of the activities of the various committees and working
groups established under the FTA to monitor the implementation of the
agreement. Since most of these committees and working groups met in the second
half of 2014, this report covers the period July 2013 until December 2014, as
far as the activities of the FTA implementation bodies are concerned.

2.           Overall assessment:
evolution of trade after three years of FTA implementation

2.1.        Methodology used for the
analysis

The below
analysis of the bilateral trade flows between the EU and Korea is based on a
comparison of data for the third year of implementation of the FTA (July 2013 –
June 2014) with the 12-month period before the FTA took effect and is
provisionally applied (July 2010 – June 2011).

It should be
noted that changes in trade flows cannot be attributed solely to the FTA, as also
other factors influence trade flows. However the figures provided below give a
good indication of how the FTA has worked so far.

2.2.        Overall evolution of trade
in goods

EU exports to
Korea increased by 35%, from 30,6 billion EUR in the 12-month period before the
FTA took effect to 41,4 billion EUR in the third year of the FTA
implementation.

During the same
period, EU exports to Korea of products that were fully or partially
liberalised by the FTA grew more than the overall exports, i.e. by 46% and 37%
respectively.

Graph
1: EU Exports to and Imports from Korea, July 2010-June 2014 (in million EUR)

                                            Source: COMEXT

In the third
year of FTA implementation, EU imports from Korea totalled 37,9 billion EUR,
which is roughly equal to the 12-month period before the FTA took effect.
However, in the third year imports increased by 6% compared to the previous
year.

It is worth
noting that in the third year of the FTA implementation, EU imports from the
world decreased by 4% compared to the previous year. In fact, EU imports from
its 14 main suppliers decreased, with the exception of Korea and Turkey (6%
increase each) and China (1% increase).

In contrast to
the development of overall imports to the EU from Korea, imports of products
that were fully or partially liberalised by the FTA grew by 21% and 26%
respectively, whereas EU imports from Korea of products subject to zero MFN
tariff decreased by 23%.

Overall, the 7,6
billion EUR trade deficit with Korea turned into a trade surplus of 3,6 billion
EUR in the EU's favour during the third year of FTA implementation.

The EU's share
in Korea’s total imports from the world increased from 9% before the FTA to 11%
in the third year of the FTA implementation. Over the same period of time, the
EU's share in total exports from Korea declined from 11% to 9%.

In terms of EU
exports, the most important categories of products were:

§
"Machinery and appliances" (TDC[3] 16), accounting for
almost 34% of total EU exports to Korea. These exports increased by more than
23% in the third year of FTA implementation compared to the 12-month period
before the FTA took effect.

§
"Transport equipment" (TDC 17), where
exports increased by over 56% after the FTA took effect, with the main
increases occurring in the last two years of FTA implementation. They represent
16% of total EU exports to Korea.

§
"Chemical products" (TDC 06), where
exports increased by 9% in the third year of FTA implementation, accounting for
over 12% of total EU exports.

§
Other categories of products for which EU
exports increased significantly since July 2011 are "Mineral
products" (more than 1.000%[4]),
"Wood" and "Pearls and precious metals"[5]
(approximately 120%).

The current
level of EU exports to Korea would have incurred duty payments of 1,6 billion
EUR in the third year of FTA implementation had the FTA not been in force.

As far as EU
imports from Korea are concerned, the main product categories are:

§
"Machinery and appliances" (36% of EU
imports from Korea), where EU imports decreased by 20% since the FTA took
effect.

§
"Transport equipment" (26% of total EU
imports from Korea), where EU imports have fluctuated during the three years of
FTA implementation. In June 2014 they were almost at the same level as in June
2011.

§
Significant increases were noted in EU imports
of plastics, mineral and chemical products (around 51%, 112% and 48%
respectively since the FTA took effect).

2.3. Trade in services and Foreign
Direct Investment (FDI)

Trade statistics
for services lag behind and are not yet available for the third year of FTA
implementation.

In 2013 EU
exports of services to Korea were equal to10,6 billion EUR, having increased by
18% compared to the previous year. At the same time, EU imports of services
from Korea were equal to 5,6 billion EUR, representing a 11% increase compared
to 2012.

In 2013 EU FDI
stocks in Korea were equal to 32,6 billion EUR, whereas Korean FDI stocks in
the EU were equal to 18,9 billion EUR.

2.4.        Evolution of trade in
motor vehicles and parts

EU exports of motor
vehicles (HS 8703) to Korea increased by 90%, from 2 billion EUR (74.600 units)
in the 12-month period preceding the FTA to 3,8 billion EUR (141.800 units)
during the third year of FTA implementation, accounting for 9% of total EU
exports to Korea. This increase took place mainly in the second and third year
of FTA implementation, during which the annual increase in exports was around
35%.

EU imports from
Korea grew by 53% from 2,6 billion EUR to 4 billion EUR or by 25% in terms of
units imported, from 300.000 to 375.000 units. Almost the entire increase (53%)
occurred in the first year of FTA implementation. Motor vehicles account for
11% of total EU imports from Korea. Over the same period, EU imports of
passenger cars from the rest of the world decreased by 7%.

Graph
2: EU Exports to and Imports from Korea of Motor Vehicles, July 2010-June 2014
(€ million)

Source: COMEXT

EU exports of
car parts to Korea amounted to around 1,1 billion EUR in the third year of FTA
implementation, having increased by 6% since the 12-month period before the
FTA, whereas EU imports from Korea of car parts increased by over 20% from 2,2
billion EUR in the 12-month before the FTA to 2,6 billion EUR during the third
year of FTA implementation. Over the three-year period, the respective imports
from the rest of the world increased by merely 3%.

2.5. Use of tariff preferences under
the FTA

Based on the
latest data available, which runs from July 2013 to June 2014, the overall EU
preference utilisation rate on the Korean market is 65,9%.

Based on the TDC
categories, the highest overall preference utilisation rates are found in
transport equipment (TDC 17) at 94% and animals and animal products (TDC 1) at
89%. The lowest overall preference utilisation rates are found in pearls and
precious metals (TDC 14) at 40%, base metals (TDC 15), hides & skins (TDC
8) and machinery (TDC 16) at around 50%.

The relatively
low use of preferences in some categories does not seem to be explained by the
restrictiveness of the rules of origin, or the EU exporters' preferential
margins vis-à-vis Korea's MFN rate. One possible reason, identified by industry
consultations, is the requirement of the FTA for exporters to apply for the
approved exporter status, in order to benefit from preferential tariffs, which
is perceived as time and resource consuming. In addition, the direct transport
clause of the FTA, which requires that the goods are shipped directly from the
EU to Korea (and vice versa), in order to be considered as “originating” in the
EU or Korea, prevents some exporters which use their regional hubs in Asia to
benefit from the FTA preferences.

With respect to
the Korean exports to the EU, the overall Korean preference utilisation rate in
the EU equaled 81,3% in 2013. The highest overall preference utilisation rates
(above 90%) were found in transport equipment and mineral products (TDC 05),
whereas the lowest overall preference utilisation rates (around 33%) were found
in pearls and hides & skins.

3.           Activities of the FTA
implementation bodies

The
institutional provisions of the FTA established seven Specialised Committees,
seven Working Groups and an Intellectual Property (IP) Dialogue. The annual
EU-Korea FTA Trade Committee at ministerial level plays a supervisory role and
ensures that the FTA operates properly. In 2014 all committees and working groups,
as well as the IP Dialogue, took place, most of them in Brussels, as summarised
below.

The Working
Group on Motor Vehicles and Parts met on 17 June 2014 in Brussels. Most
issues discussed were market access issues, rather than FTA implementation issues.
These included, inter alia, the Korean legislative proposals for fuel economy,
emission fleet average systems, tyre marking, the new regulation in Korea on
energy efficiency of tyres, auxiliary braking systems for large-sized buses,
vehicle width limit and truck tractors. The parties also discussed the update
of Annex 2-C of the FTA to take into account the revised EU legal references
with regard to towing hook and devices for securing driver’s visibility, and
agreed that the Trade Committee should agree on the update.

The Working
Group on Pharmaceuticals and Medical Devices which met on 18 June 2014 in
Brussels discussed the Korean pharmaceuticals pricing system and appropriate
recognition of the value of innovative drugs, the revised Korean price volume
agreement, implementation by Korea of serialisation for drugs, Active
Pharmaceutical Ingredients (APIs), the methodology for cutting reimbursement
prices of medical devices in Korea and the EU’s draft amendment to the Medical
Device Legislation. After the meeting of the Working Group an experts’
discussion took place to identify opportunities for
regulatory harmonisation in the pharmaceuticals and medical devices sector.

On the the same
day, on 18 June 2014, the Working Group on Chemicals met in Brussels to
exchange information on each side’s REACH. The Korean side informed the EU side
about the timeline and the process of implementing the K-REACH Act and the EU
side provided information about the supporting measures to SMEs that have been
developed in the EU for REACH implementation. The Committee also agreed on
further technical cooperation on chemicals between the Korean Ministry of
Environment and The European Chemicals Agency (ECHA).

On 18-19 June
2014 the Customs Committee met in Seoul. It discussed the procedures and
methods of origin verification and rules of origin, including the direct
transport rule where the EU side recalled the
importance of revising the current direct transport rule into a non-alteration
rule, which would allow splitting of consignments in a third country. The
committee also discussed the interpretation of 'primary ingredient' of
processed surimi and the transposition of Product
Specific Rules (PSRs) on origin, from HS code 2007 to HS code 2012. The possibilities to conclude a Mutual Recognition Agreement of
Authorised Economic Operators were also discussed.

On 16 September
2014, the Committee on Trade in Goods met in Brussels. The Committee
endorsed a draft Decision of the Trade in Goods Committee on the adoption of
the rules on Tariff Rate Quota (TRQ) administration. The Committee also
discussed various FTA implementation and bilateral trade issues, for example
equivalency of organic agricultural products, the review of Appendix 2-B-3
(electonics) of the FTA, the Korean safety certification requirements for
machinery, and cosmetics. The EU also reiterated its request for amending the
FTA by revising the direct transport clause, inserting a clause on goods
re-entering after repair and including truck-tractors in the scope of the
non-tariff annex on motor vehicles and cars (Annex 2-C).

On 17 September
2014, the Committee on Outward Processing Zones (OPZ) on the Korean
Peninsula met in Brussels. Korea gave an update on the recent developments
in the Gaeseong Industrial Complex, the inter-Korean factory park located in
North Korea. The Committee reviewed the conditions for futher economic
development and discussed establishment of criteria for OPZ and the
establishment of a maximum threshold. The EU side took note of the Korean
proposals and explained the political constraints in the EU. Both sides
acknowledged the political sensitivity of the issue but agreed to continue
discussions at working level.

The IP
Dialogue took place in Seoul on 25 September 2014. Both sides gave an
update about the legislative and policy developments in the IP area, notably on
patents, trade marks, designs and copyrights. The EU recalled the FTA
implementation issue concerning the provisions on public performance rights,
and the need for aligning Korean legislation with the FTA. The dialogue also
covered IP enforcement issues. In addition, the parties discussed their
respective approach and strategy towards IP issues in third countries.

The Working
Group on Government Procurement met for the first time on 26 September 2014
in Seoul. Both parties exchanged information on the current domestic government
procurement market situation and prospects and evaluated the current market
access situation in their respective markets as well as the implementation of
the government procurement chapter of the FTA. The parties also discussed the
current market barriers and constraints and how to address them as well as how
to increase participation in both sides’ government procurement markets.

The Committee
on Sanitary and Phytosanitary Measures took place on 10 October 2014 in
Brussels. The Committee discussed Korean exports of chicken-ginseng soup and
live olive flounder to the EU, confidence building and cooperation on animal
welfare issues, transparency, the EU exports of beef to Korea, the outbreak of
African Swine Fever in Poland and the EU’s request to apply regionalisation
principles, the “born and raised” clause and the EU exports of raw milk dairy
products and fruits and vegetables to Korea.

On 10 October
2014, the Committee on Cultural Cooperation had its second meeting in
Seoul. It approved the arbitration panel, referred to in Article 3bis of the
Protocol on Cultural Cooperation to the FTA. The parties also exchanged views
on their respective cultural policies and discussed cultural and creative
industries, artists’ residencies as well as audio-visual co-productions. In the
latter field it was agreed to take a number of actions to inform the film
professionals better. It should be noted 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.

On 6 November
2014, the Working Group on Geographical Indications (GIs) met in
Brussels. Substantial progress was made on the draft rules of procedure, which
can be adopted once both parties have completed their internal procedures. Both
parties submitted and discussed their respective lists of new GIs to be added
to the list of protected GIs under the FTA.

On 8 December
2014, the Committee on Trade and Sustainable Development met in
Brussels. Both sides exchanged views on their respective environment and labour
policies, including in the area of climate change, green growth and the
circular economy. The Committee also discussed a number of key Multilateral
Environmental Agreements and exchanged information on wildlife trafficking and
illegal logging. Furthermore, labour issues were discussed, including ILO
fundamental Conventions, in particular on freedom of association and collective
bargaining and on forced labour, including measures to address unfair labour
practices. Finally, they discussed the implementation of the international
guidelines and principles in the area of Corporate Social Responsibility (CSR).

On 9 December
2014, the Working Group on Trade Remedy Cooperation met in Seoul. Both
sides discussed the overall status of trade remedy measures in force in terms
of bilateral trade between Korea and the EU. They also exchanged views on their
respective overall policy direction, including recent changes. In addition, a
technical discussion took place regarding dumping and injury investigations.
Finally, both sides discussed the latest developments regarding third country
cases.

On 16 December
2014, the Committee on Trade in Services, Establishment and Electronic
Commerce met in Seoul. Both sides discussed a broad range of issues in the
areas of postal and courier services, financial services and distribution
services. As regards postal services, both parties agreed to engage in order to
deliver the principles of regulatory framework by the next Trade Committee. The
Committee also discussed the review of the investment legal framework, pursuant
to Article 7.16 of the FTA and the general business climate in the services
sector.

On the same day,
16 December 2014, the Working Group on Mutual Recognition Agreements (MRA)
for Services gathered, also in Seoul. The meeting was preceded by a discussion
between professional associations of engineers and architects from both sides.
Both sides exchanged views on their respective MRA initiatives with other
countries and took stock of the progress in MRA discussions between
professional associations. Both sides agreed that the professional associations
should be encouraged to continue working together. They also agreed to continue
the useful exchange of information on MRAs under both party’s respective
bilateral agreements.

The Trade
Committee took place on 16 October 2014 in Brussels. It was co-chaired by
former Commissioner for Trade, Mr Karel De Gucht and Korea's Minister for
Trade, Industry and Energy, Mr Yoon Sang-jick. The Committee assessed the
development of bilateral trade after three years of implementation of the FTA
and agreed that the FTA has had positive effects, in particular when looking at
fully or partially liberalised trade where exports on both sides have gone up.
The EU reiterated its request to amend the FTA and to find a mutually
beneficial amendment package. Both sides agreed to proceed with the technical
amendment of the non-tariff annex on motor vehicles and parts (Annex 2-C) by
updating obsolete legal references in the equivalency tables to give legal
certainty to economic operators.

Both sides
raised their respective implementation issues, such as trade in services,
implementation of Article 13.4 of the FTA regarding multilateral labour
standards and agreements and the interpretation of “primary ingredient” of
surimi. Other issues affecting bilateral trade were also discussed, including
equivalency of organic agricultural products, Korea’s ban on imports of pork
from Poland due to the African Swine Fever, moulding of E-marks for tyres, the
EU’s market access concerns for cosmetics and Korea’s exports of live olive
flounder to the EU.

Both sides
concluded that they remained committed fully to implement the FTA.

4.           Implementation of Chapter
13 of the FTA concerning Trade and Sustainable Development

The third
meeting of the Committee on Trade and Sustainable Development (CTSD) was held
in Brussels on 8 December 2014.

In line with the
joint statement of the 2nd meeting of the CTSD, agenda space was
provided for the Co-Chairs of the Civil Society Forum (CSF) to present an update
on the work of the Domestic Advisory Groups (DAGs). The EU welcomed the renewed
membership of the Korean DAG, notably the broader representation of unions and
employers. The CTSD agreed to present the summary of the discussion of its
third meeting to the third meeting of the CSF, which took place the following
day, on 9 December.

The environment
segment was devoted to discussing emissions trading systems, green growth and
the circular economy, and a number of key Multilateral Environmental
Agreements. In the context of the launch of Korea's emissions trading system on
1 January 2015, the parties emphasised the importance of continued cooperation
on this issue, and the EU described business opportunities stemming from
emerging carbon markets in Europe and East Asia. The EU further updated Korea
on its Communication on its approach on wildlife trafficking and ongoing
stakeholder consultation on how to strengthen it, including through closer
cooperation with partner countries, while Korea introduced its national policy.
The EU outlined its main instruments to combat illegal logging and associated
trade, while Korea stated that a legislative proposal addressing trade in
illegally harvested timber was under development. Both sides agreed to exchange
experience in the light of those ongoing developments.

The labour
policy segment was introduced by a presentation of an expert from the
International Labour Organisation (ILO) on developments regarding the
ratification of fundamental (in particular those relating to forced labour, and
freedom of association and the right to collective bargaining) and up-to-date
ILO conventions and on lessons learned from other countries regarding obstacles
to ratification and ways to address them. The ILO offered to continue providing
technical cooperation and advice on these issues.

Regarding labour
issues, the CTSD discussed ILO fundamental conventions as well as the parties'
commitment under the FTA to respect in their laws and practices the ILO
fundamental principles and rights at work. The parties agreed to share, before
the next CTSD meeting, texts setting out progress to date and further intended
steps toward ratification of ILO fundamental and other up-to-date conventions,
and exchange the information with the CSF.

Regarding
cooperation under Annex 13 of the FTA, Korea and the EU discussed recent
developments regarding the launch of the negotiations on an Agreement on
Environmental Goods and reiterated their commitment to and high level of
ambition for this initiative. They also discussed Corporate Social
Responsibility (CSR) and possible areas of cooperation on Environmental Mark of
Korea and Eco-Label of the EU. Finally, the EU made a brief presentation of the
new Partnership Instrument.

The CTSD
welcomed the open and constructive discussion at its third meeting and decided
to pursue the dialogue with the CSF. It tentatively agreed to hold its fourth
meeting before the end of September 2015 in Korea and that it should meet
before the Trade Committee.

5.           Implementation of Regulation
(EU) No 511/2011

Regulation (EU)
No 511/2011 (‘the Safeguard Regulation’) is the EU's internal legislation to
implement the bilateral safeguard clause of the EU-Korea FTA.

As provided for
in Articles 3 and 11 of the Safeguard Regulation, the Commission has been
monitoring the evolution of imports and exports of Korean products in sensitive
sectors potentially affected by duty drawback such as cars, car parts, textiles
and consumer electronics. Since the provisional application of the FTA started in
July 2011, the Commission has been sharing the results of the monitoring with
the EU Member States, the European Parliament and the relevant stakeholders
every two months.

The Safeguard
Regulation also provides for the possibility to initiate a safeguard
investigation or to introduce prior surveillance measures, under certain
conditions defined in the Regulation. During the third year of FTA
implementation, the Commission did not receive any such requests.

5.1.        Evolution of imports into
the EU from Korea in the sectors covered by the monitoring

The results of
the monitoring during the third year of FTA implementation are summarised
below. It should be noted that for the purpose of the monitoring, data for the
third year of FTA implementation has been compared to the previous 12-month
period and thus some figures may differ from the general trade analysis under
point 2 above, where data for the third year of FTA implementation has been
compared with the 12-month period before the FTA took effect.

It should be
further noted that the comparison under the monitoring exercise is based on
quantities imported from Korea to the EU, i.e. pieces in the case of cars and
1000 kg in the case of car parts, textiles and electronics.

(i) Car sector

Imports of cars
from Korea increased by 20% in the third year of FTA implementation (July 2013
- June 2014) compared to the previous year (July 2012 – June 2013). The
increasing trend is especially marked for cars with electric engines, although
import volumes are insignificant for this category. Imports of cars with medium
– large engines increased by 50%, whereas imports of cars with small engines
decreased by 7%. It is worth noting that car imports from Korea are still at a
lower level than in the year July 2007 – June 2008.

As regards
imports of car parts, a slight increase of 6% occurred in the third year of FTA
implementation compared to the previous year. This increase is higher than in
the second year of FTA implementation. However, it suggests that import levels
have stabilised in the last three years.

(ii) Textile sector

Imports of textiles from Korea decreased by 12% in the third year of
FTA implementation compared to the previous year. This compares to a 6%
decrease in the second year of FTA implementation compared to the first year of
the FTA.

(iii) Electronics sector

While imports of electronics decreased by 13% in the second year of
FTA implementation, in the third year they increased by 31%.

5.2.        Duty drawback

The Commission
also carried out specific monitoring on duty drawback in relation to the rules
of origin as provided for in Article 11(1) of the Safeguard Regulation, to
assess the foreign content in the Korean manufacturing process and thus in the
exports of final products from Korea to the EU. Article 11(1) provides for a
procedure for the application of Article 14 of the Rules of Origin Protocol on
drawback or exemption from customs duties.

The analysis
focused on the import value of products subject to monitoring during the first
ten months of 2014, in relation to the same comparable period in 2013, as for
these periods full data are available.

In the
electronics sector, the evolution of imports from Korea to the EU has evolved
(decreased or increased) mainly under the following HS sub-headings: 8519.20,
8519.50, 8519.89, 8521.10, 8521.90, 8525.50, 8525.60, 8526.91, 8526.92, 8527.12
8527.13, 8527.19, 8527.21, 8527.29, 8527.91, 8527.92, 8527.99, 8528.41,
8528.49, 8528.51, 8528.59, 8528.69 and 8528.72. Overall, imports decreased
under the following headings: 8521 (-14%) and 8527 (-17%) while imports
increased under headings 8526 (73%) and 8528 (52%). At the same time, imports
into Korea of parts of these products mainly decreased: for HS 8522, there was
a decrease in imports from China (-10%) and an increase from Japan (4%),
whereas for HS 8529 there was a decrease in imports both from China (-3%) and
Japan (-2%).

As regards
textiles (yarns and fabrics), a significant decrease of imports could be
observed under HS 5204 (cotton sewing thread) and HS 5205 (cotton yarn not for
retail sale), At the same time a significant increase of imports could be noted
under HS 5207 (cotton yarn for retail sale), HS 5408 (woven fabrics of
artificial filament yarn), HS 5509 (yarn of synthetic staple fibres), HS 5510
(yarn of artificial staple fibres) and HS 5511 (yarn of man-made staple
fibres). Yarns benefit from the rule “Manufacture from man-made staple fibres,
not carded or combed or otherwise prepared for spinning” safeguarded by annual
quotas.

Regarding cars,
there was an overall decrease in imports from Korea to the EU (-1% on average)
within the HS code 8703, even though this decrease does not apply to all types
of cars but depends on the type and the size of the engine. In the meantime,
imports of inputs of car components under HS codes 8707 and 8708 from China
into Korea decreased by 67% and 9% respectively. Imports of car parts under HS
codes 8707 and 8708 from Japan into Korea decreased by 96% and 2% repectively.
Korean imports of engines from China decreased by 19% in HS 8407 and by 4% in
HS 8408. Regarding engines originating in Japan, their imports to Korea
decreased by 32% under HS 8407 and increased by 24% in HS 8408.

Based on the
above, it can be concluded that until now the allowance of duty drawback for
the products subject to the specific monitoring clause does not seem to have
had any significant impact on the manufacturing pattern of Korea. In
particular, it did not lead to a significant increase of imports of inputs to
Korea from its neighbouring countries.

6.           Conclusion

Based on three
years of implementation of the EU-Korea FTA, it is clear that the FTA has
worked well for both sides, in particular for the EU. EU exports of goods to
Korea increased by 35% in the third year of FTA implementation, compared to the
12-month period before the FTA took effect. While imports from Korea were
roughly equal to the 12-month period before the FTA, they increased by 6% in
the third year of FTA implementation, compared to the previous year. The weaker
performance of Korean exports has to be seen in the context of the decreased
demand in the EU following the financial crisis: EU imports from its 14 main
suppliers have decreased and in fact Korea is one of the few trade partners,
along with Turkey and China, whose exports to the EU increased in the third
year of FTA implementation. It seems therefore that the FTA has mitigated the
impact of the crisis on Korean exports and that without the FTA, the Korean
exports to the EU would have been hit much harder.

When looking at
the development of bilateral trade of goods which has been fully or partially
liberalised by the FTA, the situation looks brighter also for Korea, with an
increase of 21% in exports of fully liberalised goods and 26% of partially
liberalised goods to the EU.

On the EU-side,
exports of fully and partially liberalised goods have also increased more than
exports overall, with an increase of 46% for fully liberalised goods and 37%
for partially liberalised goods.

While trade is
prospering, full implementation of the FTA remains of key importance. Some
implementation and bilateral trade issues persist. For example, in the
automotive sector tackling the remaining non-tariff barriers remains a
challenge. As regards Sanitary and Phytosanitary Measures, some of the issues
encountered by EU exporters stem from the fact that Korea applies different
import conditions for EU Member States for animal and plant products, although
the legislation is fully harmonised in the EU. This delays access to the Korean
market, as EU Member States have to undergo individual negotiations. However,
there are also success stories, such as the conclusion of the agreement of
equivalency of organic, agricultural processed products at the end of 2014. As
a consequence, processed organic products processed and certified in the EU may
be sold as organic in Korea as of 1 February 2015.

The FTA
implementation structure, with its various specialised committees and working
groups has proven an effective way to discuss and seek solutions to the
implementation and market access issues. They also provide a regular forum to
discuss current and future regulatory developments and any implications these
may have on future exports.

Discussions to
amend the FTA will continue in the fourth year of implementation, with a view
to finding a balanced “package” of amendments, with economic benefits to
exporters and consumers in the EU as well as in Korea, to futher improve the
FTA and to make it more trade-facilitative.

[1]               The FTA is provisionally applied in the EU until all
EU Member States have ratified it. The state of play of the ratification can be
checked on the Council's Agreements website: http://www.consilium.europa.eu/en/documents-publications/agreements-conventions/agreement/?aid=2010036

[2]               OJ L 145, 31.5.2011, p. 19

[3]               “Tarif
Douanier Commun” (= Common Customs
Tariff)

[4]               EU exports of "Mineral
products" (TDC 05) to Korea increased mainly in the first year of FTA
implementation (around 674%).

[5]               TDC 09 and TDC 14
respectively.

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