The First Year after the Korea-EU FTA and Its Prospects

Korean exports to the EU, which had been increasing after the global economic crisis, began to decline from the latter half of 2011. During the 11 months the Korea-EU FTA has been in effect, Korean exports to the EU have decreased 11.5%, but imports from the EU have increased 14.8%. Exports to the EU have been decreasing in East Asian countries, including China, Japan, and Taiwan, where manufactured products account for the majority of exports, due to a drop in import demand in the EU caused by the economic recession. Korean exports to the EU are concentrated in ships, electronics, and automobiles. However, despite an increase in exports of automobiles, exports of ships and electronics, which account for 38% of total exports, have sharply declined, causing an overall decline in exports. Imports from the EU are increasing for various types of goods. For certain items, imports have rapidly increased, causing a decrease in trade surplus. An analysis of changes in imports from and exports to the EU after the implementation of preferential tariff rates shows that items with tariff reductions resulted in an increase in both exports and imports, but that items without tariff reductions resulted in a significant decline in exports and an increase in imports. (Exports to the EU) The tariff reduction rate was high for automotive items, resulting in a significant increase in the export of such items. There was a significant reduction in exports of electronics and electricity-related items despite tariff reductions, and the drop in overall European demand for ships caused exports in this area to plunge significantly. (Imports from the EU) There was a significant increase in imports with high tariff reductions, such as refined petroleum, machine parts, and bags. Despite low tariff reductions, imports of crude oil, meat and planes have greatly increased as well. For Korea's FTAs with large industrialized countries, it would be necessary to set up medium and long-term goals, such as improving productivity and maintaining competitiveness in exports, beyond the short-term goal of increasing exports. The long-term focus of trade and industrial policy needs to be changed from increasing exports to promoting technical cooperation to improve productivity. Moreover, assistance needs to be provided for domestic small and mid-size enterprises (SMEs) to attract and acquire technology. As the size of trade and investment grows on both sides, the need for regulatory cooperation to remove non-tariff barriers is expected to grow. In this context the Korea-EU FTA can be used in upgrading domestic regulations.