S. Korea, EU fail to conclude free trade deal

LONDON, April 2 (Yonhap) -- South Korea and the European Union (EU) failed on Thursday to finalize their free trade deal, South Korean officials here said, adding they would seek a way to conclude the deal.

South Korean Trade Minister Kim Jong-hoon and his EU counterpart Catherine Ashton
met here to narrow differences on some remaining sticky issues, including a
so-called duty drawback scheme and rules of origin, but failed to wrap up the
agreement.
Both sides announced late last month that they had reached a tentative free trade
accord and had said they would seek to finalize the deal at today's meeting.
"Ministers focused their discussions on the remaining issues and made further
progress," both sides said in a joint statement. "Ministers also had substantive
discussions to evaluate all possible options for a compromise on the issue of
duty drawback. Despite these efforts, the gaps on this issue could not be
narrowed."
The two sides said they would seek clearance to finalize the negotiations in the
near future.
Seoul is seeking a provision in the agreement that would allow import tariffs to
be returned to companies that use imported materials to make products for
exports. But Brussels opposes the provision, saying it would favor South Korean
exporters.
The EU does not allow duty drawbacks under its existing free trade accords with
Mexico and Chile.
"Except the duty drawback issue, both sides virtually reached agreement on other
remaining issues," Kim told reporters after the four-hour meeting with Ashton.
"On the matter of the duty drawback, it's kind of a conflict of principle that
both sides cling to, rather than a matter of compromise," he said.
Kim said both sides ironed out difference concerning a provision dealing with the
origin of a product's materials, but stopped short of further commenting on the
issue.
Earlier, both sides reportedly agreed 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.
Also, South Korea wants items made at an inter-Korean industrial complex in North
Korea to be treated as South Korean goods.
The South Korean trade minister said that both sides will meet again soon to
finalize the deal, but the exact date and the venue have yet to be decided.
During a high-level meeting last 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.
The EU was South Korea's second-largest trading partner after China last year,
with two-way trade reaching more than US$98 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, Asia's fourth-largest economy, 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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