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European Commission

Karel De Gucht

European Commissioner for Trade

EU-Korea FTA: A Solid Foundation for Growth and Jobs

EU-Korea Business Round Table/Brussels

27 June 2012

Ladies and gentlemen,

This is a crucial time for trade policy.

As the leaders of the G20 acknowledged last week, protectionism is on the rise while we need new trade liberalisation to boost our flagging economies.

We are here today to discuss the impact of the EU-Korea free trade agreement one year after its signature.

But I think we all realise that what we say about it in public has a greater resonance.

Because this agreement is the most advanced and ambitious free trade agreement that Europe has yet achieved, in terms of content and in terms of economic value.

As a result, many eyes will be watching closely to see the results. And those results will be held up as evidence of the usefulness of our trade policy as a whole.

So it is important that when we come to assess this agreement we do so carefully and methodically – making sure that we do not leap to unwarranted conclusions for good or for ill.

We need to accept, from the outset, that we are still early in this agreement's life. A great deal of the planned opening will only come into effect gradually. Much of the ground-breaking regulatory provisions at the core of the agreement, for example, have yet to be implemented. Furthermore, we do not have all the information yet. Right now, we have only nine months of figures on goods trade and no statistics at all on services.

To make things more difficult, trade figures around the world have fluctuated wildly in recent years as a result of the crisis, dropping severely in 2009 before significantly rebounding in 2010 and 2011.

Nevertheless, I do believe it is possible to get a first sense of how this agreement is functioning so far. That is of interest to all of us as we continue to shape trade policy.

To do this, my services have first measured our trade with Korea over nine months from July 2011 until March of this year. They have then compared this with an average of the figures from the same months over the previous four years. For both imports and exports, the first data has to be set against a reasonable benchmark. This allows us to minimise the effects of the crisis and therefore have a clear idea about what is happening on the ground.

The news is good. Trade is up, and up significantly. Overall, Europe's exports to Korea – and I speak of course from a European perspective - have already increased by 35%.

And where liberalisation has actually happened the increase is even more impressive. Duties were dropped on about a third of our exports to Korea when the agreement entered into force last July and sales of those goods have increased by 46%. For many other products – just under half our exports - tariffs were only partially reduced. But even for those products our exports are up by 36%. Overall those increases translate into almost two billion euro in new trade and 350 million euro saved in duties.

If we look at some specific products the growth is more dramatic again:

  • Exports of pork, for example, are up by almost 120%, meaning new trade of almost 200 million euro;

  • Leather bags and luggage are up by over 90%, worth 150 million euro extra exports;

  • Machinery to make semiconductors is up by over 75% at 650 million euro in increased exports;

  • And cars, yes, exports of cars to Korea are up by over 70% - which translates into 670 million euro worth of new sales.

Allow me to linger on that last one for a moment.

I believe that a competitive automotive industry is very important for the European economy. I also know that the sector is facing a difficult environment right now. The European market is only slowly recovering from the crisis and was already challenging before it –heavily saturated and with limited growth prospects and much over-investment.

However, I do not believe that trade, even with such an efficient partner as Korea, presents a serious problem for the sector.

Yes, our imports from Korea have risen.

By 17% in the nine months to March.

But we should remember that well over 9 million cars were sold on the European market over the same period. A 17% increase in imports from Korea only represents around less than fifty thousand cars. That is a drop in the ocean – less than half of one per cent. In any case, our imports of cars from Korea are still only roughly half of what they were before the crisis.

What is more, Europe's car tariffs have so far only barely changed. They dropped by 3 percentage points for larger cars and 1.7 percentage points for small ones in July. That factor alone is unlikely to change consumers' choices.

It is also important to distinguish between cars imported from Korea and Korean cars on the European market. For the main brands, between 60 and 90 per cent of the cars sold in Europe are either produced within the EU or come from third countries other than Korea.

But let me be clear about one thing.

We do trade deals because we want trade to increase.

In both directions.

The reason trade is so beneficial for our economies is because it operates the levers of both supply and demand at the same time. The demand side is addressed through access to new markets. And the supply side is addressed through new imports.

Reduced input costs make companies more competitive.

Reduced prices mean consumers can buy more with their income.

We have evidence from European countries over the long term which indicates that a 1% increase in trade openness results in an gain of 0.6% in labour productivity.

That is why, even in these tough times, we see this agreement with Korea as the first in a series.

My own schedule this week will give you a flavour of our ambitions. Yesterday we signed a free trade agreement with Columbia and Peru, and also launched FTA negotiations with Vietnam together with Minister Hoang. Today I am here with you and tomorrow I leave for Honduras where I will meet my counterparts to sign the agreement with Central America.

We expect to finalise negotiations with Singapore and Canada in the near future. Others, like India, Malaysia, Mercosur and the various neighbourhood negotiations, will take a little longer but will, I am confident, be successful.

But perhaps most interestingly, we are moving towards a step change in our relations with two of our largest trading partners. In July the Commission will decide on whether to request permission from Member States to open negotiations with Japan. At the end of the year we will have to decide whether to launch negotiations for a comprehensive agreement with the United States. Both of these processes are in their infancy but given the scale of the economic relationship we have with both of them they have the potential to have an enormous economic impact.

Ladies and gentlemen,

There will be some among you who doubt our capacities to deliver on these plans, particularly given the challenging context we are facing.

But if you do have doubts let us bear the Korea example in mind.

Ambassador Kim will agree that both sides had to work hard to reach agreement on difficult issues. And we certainly had to work hard to have the agreement ratified by our parliaments.

But we pushed ahead and in the end we delivered.

And now we are starting to reap the rewards.

That, I believe, is a very solid foundation for the future.

Thank you very much for your attention.

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