FIW-PB 10 EU-South Korea FTA - Economic Impact for the EU and Austria

The Free Trade Agreement between the EU and the Republic of Korea (EU-South Korea FTA) is the first of the new generation of FTAs launched in 2007 as part of the "Global Europe" initiative. These agreements, based on solid economic criteria, will represent a stepping stone for future liberalisation as they are also tackling issues, which are not ready for multilateral discussion and are going beyond the market opening that can be achieved in the WTO context. Accordingly, the EU-South Korea FTA is themost comprehensive free trade agreement ever negotiated by the EU. We evaluate the economic impact for the EU and Austria of this FTA with the GTAP world computable general equilibrium model. The results are as expected. Both parties win from eliminating tariffs and other trade barriers. However, as the actual trade relations with South Korea are only in the magnitudeof 2 to 2 ½% of total Extra-EU trade, the trade (total EU +0.2%, Austria +0.10%; Extra-EU: EU and Austria +1.2%) and welfare gains (only 0.04% of GDP) are modest for the EU and Austria. For South Korea the trade (+5.3%) and welfare gains (1.3% of GDP) are much higher as the EU is second largest trade partner with a share of around 12%.