Seoul, Brussels reach tentative free trade accord

(ATTN: UPDATES with details in paras 6-7, 10-12)
SEOUL, March 24 (Yonhap) -- South Korea and the European Union (EU) reached a
tentative free trade agreement and will seek to finalize the deal early next
month, chief negotiators from both sides said Tuesday.
South Korea, Asia's fourth-largest economy, and the EU, the world's
single-largest economic bloc, began the talks in May 2007, with differences over
industrial tariffs and auto trade initially hampering progress. Advances were
made, however, on those and other issues during the seventh round of negotiations
in May last year.
"At the delegate-level, both sides have reached a provisional free trade accord.
Whether to conclude the negotiations will be decided at a ministerial-level
meeting on April 2," Lee Hye-min, Seoul's chief negotiator for the talks, said
after concluding the two-day meeting, the eight round of such negotiations.
Lee's EU counterpart, Ignacio Garcia Bercero, also described the tentative deal
as the "most ambitious" the EU has ever negotiated with an external partner, but
remained cautious about the conclusion of the free trade accord saying "success
is not guaranteed."
Lee said South Korean Trade Minister Kim Jong-hoon and his EU counterpart
Catherine Ashton will finalize the deal in London on April 2 to narrow
differences on outstanding issues such as import duty refunds and rules of
origin.
The free trade deal faces challenges as the two sides are still sparring on
so-called duty drawbacks. Seoul wants to return import tariffs to companies that
use imported materials to make products for exports. But Brussels opposes the
provision saying that it would favor South Korean exporters.
The EU does not allow duty drawbacks under its existing free trade accords with
Mexico and Chile.
At next month's minister-level meeting, the two sides are also expected to narrow
differences on rules of origin, with both reportedly agreeing that a product is
considered manufactured by a trading partner only if at least 45 percent of the
finished item is made in that country.
During a high-level meeting earlier this month, Seoul and Brussels reached a
tentative agreement on eliminating or phasing out tariffs on 96 percent of EU
goods and 99 percent of South Korean goods within three years. They have also
agreed to abolish tariffs on all industrial goods within five years after the
deal takes effect.
One of the most sensitive issues has been auto trade. After much wrangling, the
two sides agreed to eliminate tariffs on cars with an engine displacement of over
1.5 liters within three years. Tariffs for smaller cars with an engine
displacement of less than 1.5 liters would be lifted after five years.
South Korea currently imposes an eight percent import duty on European cars,
while the EU imposes a 10 percent duty on autos from South Korea.
European carmakers sold more than 32,000 units in South Korea last year, while
South Korean carmakers such as Hyundai Motor Co. exported around 408,000 vehicles
to the EU member states.
The two sides have also neared an agreement on allowing goods made at an
inter-Korean industrial complex in North Korea to receive duty-free status in the
European market, a sensitive issue.
The EU was South Korea's second-largest trading partner after China last year,
with two-way trade reaching more than US$90 billion.
If the pact is finalized, it will boost South Korea's exports by $11 billion and
gross domestic product by 3.08 percent, according to a forecast by the Korea
Institute for International Economic Policy.
South Korea reached a free trade deal with the United States in March 2007,
shortly before it launched talks with the EU, but the deal has remained stalled
in both legislatures.
sam@yna.co.kr
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