S. Korea, EU initial free trade deal

BRUSSELS, Oct. 15 (Yonhap) -- South Korea and the European Union (EU) initialed
their free trade deal on Thursday, three months after concluding their
negotiations, and expect the accord to take effect next year.
On behalf of both sides, South Korean Trade Minister Kim Jong-hoon and his EU
counterpart Catherine Ashton initialed the accord.
Kim earlier said that Seoul wants the accord to be officially signed around March
next year and to go into effect in July at the earliest after all related
procedures, including a parliamentary approval of the deal.
Overall, the open trade pact is expected to boost bilateral trade between South
Korea and the EU by as much as 20 percent, according to estimates by the
state-run Korea Institute for International Economic Policy (KIEP).
Under the agreement, Seoul and Brussels will eliminate or phase out tariffs on 96
percent of EU goods and 99 percent of South Korean goods within three years after
the accord takes effect. They have also agreed to abolish tariffs on most
industrial goods within five years after the deal is ratified.
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 8 percent import duty on European cars, while
the EU imposes a 10 percent duty on autos from South Korea.
The accord permits duty drawbacks, which allow refunds for tariffs levied on
parts used by manufacturers to make products such as cars when the final product
is exported.
But the deal also includes a provision that caps refundable tariffs should there
be "dramatic changes in foreign outsourcing" within five years of the accord
taking effect.
On the issue of rules of origin, both sides agreed on the level of allowable
foreign contents at 45 percent. In case of auto parts and others, the level is
set at 50 percent.
Under the accord, a product is also required to meet either "the value-added
criterion" or "the change in tariff heading method (CTH) criterion" in order to
be regarded not to have been made in a third country.
The rules of origin determines the country of the origin of products to be traded
and is, thus, one of the most important components of any free trade agreements.
If a product does not satisfy the criteria, then it is deemed to have been
originated from a third country and can not be traded under the free trade
accord.
The two sides, in addition, agreed to establish the "Committee on Outward
Processing Zones on the Korean Peninsula" one year after the accord takes into
effect.
The committe designates outward processing zones on the peninsula under some
conditions. Products made in the inter-Korean industrial complex in the North
Korean border city of Kaesong are expected to be treated as South Korean-made
goods.
The EU was South Korea's second-largest trading partner after China last year. In
2008, two-way trade totaled US$98.4 billion with South Korea enjoying a surplus
of $18.4 billion.
The EU was the biggest foreign investor in South Korea last year with its
accumulated investment totaling $44.82 billion.
sam@yna.co.kr
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