EU, South Korea ink one of the most ambitious FTAs

The European Union (EU) and South Korea signed one of the world’s most ambitious free trade agreements (FTA) today, expected to boost business by 30 billion euros a year.

The EU, which has been struggling to recover from the global financial crisis, is keen to boost its influence in Asia and FTAs are seen as one of the main tool by which to achieve this aim. It is thus currently negotiating a trade accord with India. An FTA with Malaysia was also formally launched a few days ago and Japan has made it known that it hopes to start trade negotiations with the EU in the spring.

Announcing the signing of the deal, Herman Van Rompuy, President of the European Council said that trade liberalisation was a key element for the recovery of the world economy.

The Korea FTA is expected to cut some 3 billion euros' worth of tariffs. Crucially, the EU’s 10 per cent tariff on Korean cars will be phased out over the next three to five years.

Although the deal is being described by EU officials as the most ambitious the bloc has ever negotiated, its passage encountered some bumpy weather with Italy threatening to veto it due to fears that clauses relating to the auto industry would harm national carmaker Fiat. Rome finally dropped its objections last month in return for a six-month delay in the FTA’s implementation. It is now due to come into provisional effect on July 1.

A US-South Korea FTA agreed to in 2007 is still languishing before the US Congress following pressure from domestic auto lobbies, making the EU-Korea deal somewhat of a coup for Europe. Mr Lee Myung-bak, President of the Republic of Korea, congratulated the EU on getting its 27 member states to agree to the accord’s conditions, stressing that this was not an easy achievement.

No comparable big-ticket announcement was forthcoming however, after the second of Wednesday’s Asia-related summits. The EU-China summit, which brought the world’s largest economy and its fastest growing rival together, ended without any movement on outstanding issues.

Bilateral trade between the EU and China is worth a weighty 296 billion euro with the EU being China’s most important trading partner. In the past this has been a relatively friction-free relationship, with the US talking tough with Beijing on a range of touchy issues from currency revaluation to human rights abuses, while Europe took more of a back seat.

However, in the aftermath of the global economic crisis, the EU has been forced to take on Beijing in a more direct manner, even as its interdependence on the Chinese has increased.

EU leaders have been urging Chinese Premier Wen Jiabao to allow the Yuan to appreciate more quickly, with the eurozone financial chief, Jean-Claude Juncker calling for an “orderly, significant and broad-based appreciation of the renminbi (yuan).” on Tuesday. Their pleas have however had scant effect.

The euro hit fresh eight-month highs on Tuesday, undercutting export competitiveness and lending urgency to negotiations with the Chinese on the currency issue.

The European side also asked for China to grant further market access to its companies in particular for lucrative government procurement contracts.

China on its end pushed the EU to grant it full market economy status, a move Brussels is opposed to since it would make conducting anti-dumping procedures against China more difficult.

In the current economic climate, protectionist moves against China have in fact been on the rise. The EU has been under pressure for example to curb the rapid growth of Chinese telecommunications-equipment makers, amid mounting complaints that they have seized a big chunk of Europe’s market with goods that are allegedly unfairly subsidized by Beijing.

In September, the European Commission said it would consider placing tariffs on imports from China of wireless modems. The commission was responding to complaints by Option SA, a Belgian company that claims its European market share shrank to 5 per cent last year from 70 per cent in 2006 in the face of competition from Chinese firms, Huawei and ZTE.

Today’s summit did not result in either side meeting its stated goals and the outcomes of the meeting were limited to announcements like an MoU on oceanic affairs and the establishment of a high level cultural forum.

However the talks have allowed for an airing of opinions on a range of issues of mutual concern that will feed into future meetings including the G-20 summit in November and the upcoming United Nations negotiations on climate change in Cancun.