DIRECTORATE-GENERAL FOR EXTERNAL POLICIES OF THE UNION DIRECTORATE B POLICY DEPARTMENT STUDY AN ASSESSMENT OF THE EU - SOUTH KOREA FTA Abstract The free trade agreement negotiated between the EU and the Republic of Korea (EU-Korea FTA or the Agreement) is far-reaching. In terms of the scope of tariff liberalisation it goes beyond anything the EU has agreed in previous agreements. The coverage of services is also ambitious. In a range of other measures, such as the treatment of technical barriers to trade, protection of intellectual property rights including geographic indicators, as well as provisions on dispute settlement and sustainable development the Agreement breaks new ground. It therefore represents forward movement on trade at a time when multilateral negotiations in the Doha Development Agenda (DDA) continue to stagnate and international trade needs of promoting in the wake of the financial crises induced slow down. EXPO/B/INTA/FWC/2009-01/Lot7/01-02-03 consolidated July 2010 PE 133.875-850-851 consolidated EN Policy Department DG External Policies This study was requested by the European Parliament's Committee on International Trade. AUTHOR(S): LSE Enterprise Limited on behalf of the London School of Economics and Political Science and Consortium Partners Study carried out within the framework agreement between LSE and the European Parliament. Ref.: EP/EXPO/B/INTA/FWC/2009-01/Lot7/01-02-03 ADMINISTRATOR RESPONSIBLE: Roberto, BENDINI Directorate-General for External Policies of the Union Policy Department WIB 06 M 055 rue Wiertz 60 B-1047 Brussels LINGUISTIC VERSIONS Original: EN - Translation: FR, DE ABOUT THE EDITOR Editorial closing date: 14 July 2010. © European Parliament, 2010 Printed in Belgium The study is available on the Internet at http://www.europarl.europa.eu/activities/committees/studies.do?language=EN If you are unable to download the information you require, please request a paper copy by e-mail : [email protected] DISCLAIMER Any opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. Reproduction and translation, except for commercial purposes, are authorised, provided the source is acknowledged and provided the publisher is given prior notice and supplied with a copy of the publication. ii An assessment of the EU-Korea FTA TABLE OF CONTENTS LIST OF TABLES..................................................................................................... VI LIST OF CHARTS...................................................................................................VII LIST OF GRAPHICS...............................................................................................VII LIST OF ANNEXES ................................................................................................VII EXECUTIVE SUMMARY .......................................................................................... 1 1 THE EU – KOREA FTA IN CONTEXT ........................................................ 5 1.1 Ratification and implementation issues..........................................................................................................5 1.1.1 Conditional consent to the FTA.......................................................................................................5 1.1.2 Provisional application .......................................................................................................................5 1.2 Korea’s other FTAs ..................................................................................................................................................6 1.3 Comparing the scope and pace of further market access: KORUS vs. EU-Korea..............................7 1.4 Prospects for a trilateral Korea-Japan-China FTA ........................................................................................8 1.5 Costs and benefits of a delayed application/ratification of the EU – Korea FTA..............................9 1.5.1 Short-run economic issues................................................................................................................9 1.5.2 Longer run strategic considerations...........................................................................................10 2 THE POLITICAL DEBATE ON THE EU – KOREA FTA............................. 12 2.1 The perceptions of the FTA in the EU ...........................................................................................................12 2.2 The perceptions of national parliaments and the debate in the European Parliament.............14 2.3 The debate in Korea ............................................................................................................................................14 2.3.1 The Economic importance of the Korea-EU FTA in the short and long run .................14 2.3.2 Comparing the Korean views on KORUS with the Korea-EU FTA.....................................16 2.3.3 The Korea-EU FTA..............................................................................................................................18 2.3.4 Major Winners and Losers : Sectoral Analysis..........................................................................19 3 AN OVERALL ECONOMIC AND COMMERCIAL ASSESSMENT ............ 23 3.1 Effects on Income and Trade............................................................................................................................23 3.2 Social Impact..........................................................................................................................................................24 3.3 Environmental Impact........................................................................................................................................25 3.4 Issues of Interpretation: Some Cautionary Notes.....................................................................................25 3.5 Optimising implementation.............................................................................................................................26 3.6 Flanking measures...............................................................................................................................................27 3.7 Timing Considerations .......................................................................................................................................28 4 LEGAL ASSESSMENT............................................................................ 30 4.1 Compatibility with WTO obligations.............................................................................................................30 4.2 Dispute Settlement (Chapter 14)....................................................................................................................31 iii Policy Department DG External Policies 4.3 EU LAW AND THE EU – KOREA FTA................................................................................................................33 4.3.1 Role of European Parliament after the Lisbon Treaty...........................................................33 4.3.2 Legal issues relating to the bilateral safeguard clause in the Agreement....................34 4.3.3 Other international conventions .................................................................................................34 5 IMPACT ON SPECIFIC INDUSTRIAL SECTORS ..................................... 37 5.1 Motor vehicles.......................................................................................................................................................40 5.1.1 EU / Korea trade flows and what determines them .............................................................41 5.1.2 Output and employment effects .................................................................................................45 5.1.3 Positioning of business stakeholders in the motor vehicles sector ................................47 5.1.4 The detail of the ACEA position....................................................................................................48 5.2 Pharmaceuticals and the EU/Korea FTA.......................................................................................................50 5.2.1 EU-Korea Trade flows .......................................................................................................................50 5.2.2 Economic studies on the impacts of the FTA ..........................................................................52 5.2.3 Positioning of stakeholders in pharmaceuticals ....................................................................52 5.3 Chemicals................................................................................................................................................................53 5.3.1 Trade patterns in chemicals...........................................................................................................53 5.3.2 Summary of findings on chemical from the economic studies on the FTA impact ..55 5.3.3 Positioning of stakeholders in chemicals..................................................................................56 5.4 Machinery ...............................................................................................................................................................56 5.4.1 EU / Korea trade flows......................................................................................................................56