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European Commission

Karel De Gucht

European Commissioner for Trade

EU-South Korea: A Powerful Deal for Growth

First Korea-EU Forum / Brussels

19 September 2012

Members of Parliament, Minister Kim, Ladies and gentlemen,

I am delighted to be here with you today.

I am delighted, as always, to be in the European Parliament. The Parliament is our connection to Europe's people and a place that was my own home for many years.

I am also delighted to be able to discuss one of the most important topics on Europe's trade agenda today – the EU-South Korea Free Trade Agreement.

You may ask yourself why this agreement - which we have already negotiated, agreed and signed, and which has been in force for more than a year - can still be one of the most important topics on Europe's trade agenda.

But it is true, for two reasons. Because of what it means for our fourth largest economic relationship outside the continent. And because of what it means for our wider trade agenda.

Let me tackle those points in order.

This agreement represents an enormous boost to the EU-South Korea relationship.

As we assess its impact it is important to remind ourselves just what we managed to achieve as a result of our intensive negotiations over two years: that is, the most comprehensive free trade agreement we have ever negotiated and our first with a partner in Asia.

First, for trade in goods: Four years from now just under 99% of our trade will be duty free. Not 90% or 85% but 99%. That is real liberalisation.

Second, we dealt with many complicated and barriers to trade in services. The agreement provided new market access for exports of telecommunications, environmental services, shipping, finance and legal services.

Third, we removed barriers to investment in both services and in industrial sectors.

Fourth, we made ground-breaking progress on one of the biggest items on the to-do list of global trade policy – regulatory barriers to trade.

That is an area where small details matter a great deal. If a country's standards are even a little different from international standards, that can imply enormous costs for the companies wishing to enter that market.

That is why we went down into the weeds in this agreement and cleared away many significant barriers to trade, particularly in sectors where these are very important, like automobiles, pharmaceuticals and electronics.

Fifth, we made sure that the final text included measures to enhance the protection of intellectual property rights – including in the key area for Europe of geographical indications.

Sixth, we delivered new market access in government procurement – an area where Europe has historically been very open but others have not.

With these and the many other improvements to the bilateral trade environment that we have agreed, we can expect to see significant increases in economic integration between the EU and South Korea over the coming years.

But as we assess those effects it is important to understand that this type of agreement is not something that changes the world overnight.

Trade agreements take time to show their real results – companies need to adjust their business models to take account of the new opportunities and consumers must become aware of new brands and offers.

Agreements must also be implemented. One of the strengths of this agreement is that it put structures in place to allow South Korea and the European Union to jointly supervise each other's progress. And the good news is that this process is moving forward well in most cases.

However, there are a number of areas – in relation to customs, automotive and in the sanitary and phytosanitary area, for example – where we in Europe would like to see more progress on the Korean side.

It is my hope that we will be able to announce positive steps on all these dossiers at the meeting of the EU-South Korea Trade Committee in October.

I know that South Korea understands how closely this agreement's implementation is being watched in Europe. Approving it was not an easy process given the context of the economic crisis and the way some perceived its likely impact. I am sure South Korea will want to make a clear gesture of good faith in that light.

But if those are the provisions of the agreement, the next logical question, of course, is: how are we doing in practice?

The simple answer is, very well – on the basis of the information we have.

We need to remember, of course, that that information is still very partial. It covers only the first nine months of the operation of the agreement. The situation is complicated, too, by the lingering effects of the economic crisis. Trade dropped dramatically in 2009 before rebounding in 2010 and 2011, though not to pre-crisis levels for many products. Finding the right benchmark to measure our progress is therefore not straightforward.

To take account of this fact, my staff has compared the trade figures from July 2011 to March 2012 with an average of the figures for the same period over the previous four years.

The result is positive. Compared to the reference period, EU exports to South Korea are up by 6.7 billion euro, or 35%. As a result, 2011 saw the smallest trade deficit with South Korea in the last 15 years, dropping from over 11 billion euro in 2010 to 3.6 billion in 2011.

We can say with some confidence that this improvement in Europe's performance is linked to the agreement. That is because our exports to South Korea of products that have been duty free since last July have increased by twice as much as those where tariffs have not yet changed. They have also increased by almost 20 percentage more than our exports of the same product to the world at large.

The Commission's economists further estimate that this increase represents about 1 billion euro in extra exports and that if we were take the increase of partially liberalised products into account the total is more like 2 billion euro.

I must stress that also in the area of cars – a sector subject to lot of discussions lately – the results have been good for EU exporters, and the picture on the import side has not been as dramatic either as some like to argue.

EU car exports to South Korea have increased 72% in value and 75% in volume during the first nine months of the agreement. This has lead EU to increase its share of imported cars to Korea by 5 percentage points (from 69% to 74%).

Korean imports have also increased, but this increase has taken place largely at the expense of imports from other partners. We also have to make a distinction between Korean cars and cars imported from Korea: 60 to 90 % of Korean cars sold in the EU or either produced in Europe or come from third countries other than Korea. For example Korean car producers have recently opened two new factories in the EU with a production capacity of 600 000 cars, which is certainly positive in terms of EU employment.

As I have said these are limited and preliminary results. Only in the medium term will we have a sense of the full impact. But I strongly believe they provide good indicator that we are on the right track. And that track is leading us towards greater economic growth in both countries - at a time when we genuinely need it.

That conclusion brings us to the second point I wanted to make today: that this agreement is also important for our wider trade agenda.

The agreement with South Korea is just the first of this type of ambitious agreements that we want to put on the books in the coming years.

We are aiming for agreements in Asia - with the ASEAN countries, India and, if Member States agree, Japan. We are also working hard to conclude negotiations with Canada and Singapore by the end of this year.

We have signed trade deals with Colombia and Peru and with Central America in the run-up to the summer; we have initialled a far reaching-deal with Ukraine, though we are holding back from implementing it until the political situation there improves.

We have also made progress with the US towards creating the conditions to launch comprehensive trade negotiations early next year.

And we are aiming to redefine our relations with the 79 African, Caribbean and Pacific countries through the Economic Partnership Agreements.

The reason we are engaged in this is obvious. The primary goal of trade policy today must be to support economic growth. And when taken together, these agreements could permanently add more than 2% to our GDP, or around 275 billion euro, every year. This is equivalent to adding a country as big as Austria or Denmark to the EU economy.

What is more, that growth translates into more than 2 million new jobs - 1% of the total European workforce. This is one tenth of the current number of unemployed people. It would effectively cancel out the increase in joblessness since the start of our debt crisis.

Of course, these benefits would materialise only as agreements are concluded and then progressively implemented.

So if we want them to become reality we need to be able to take this agenda forward.

And moving trade policy forward is a challenging task. The voices that are opposed to liberalisation are often much louder than those who stand to gain.

That must be the lesson of the South Korea-EU trade agreement.

Putting this deal on the books was not easy - I am sure that Minister Kim will agree with me there.

We had to work hard during the most acute phase of the economic crisis and not without opposition. In Europe we also had to work for the first time under the new procedures of the Lisbon Treaty, in closer partnership with the European Parliament than in the past.

Nonetheless, we prevailed – and we are now beginning to reap the benefits.

This fact should guide our work on the other areas too.

Ladies and gentlemen,

We are just at the beginning of this closer cooperation between the European Union and South Korea.

I firmly believe we will see benefits from this cooperation that we have not even foreseen – as our innovative peoples find new ways to work together.

As a result, I expect this relationship to continue teaching us about what we can expect from success in other areas of our trade policy – and therefore continue motivating us to move forward.

I, for one, look forward to those lessons.

Thank you very much for your attention.

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