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European Union; South Korea: Free Trade Agreement Signed

(Oct. 20, 2009) On October 15, 2009, the European Commission and the Republic of Korea (South Korea) signed a free trade agreement (FTA), following a two-year period of negotiations. The agreement is heralded as the most significant negotiated deal between the European Union (EU) and a third country. The agreement is expected to remove all tariffs and many non-tariff barriers between the two partners for the automobile, pharmaceutical, and consumer electronics industries. It will also generate new market access in services and investment. Other significant highlights of the agreement include:

· Opening of new market opportunities for European companies in manufacturing, agriculture, and the services sector, such as in telecommunications, shipping, and the environment;

· Elimination of €1.6 billion (about US$2.4 billion) in duties on exports of agricultural and industrial products to South Korea; and

· Elimination of €1.1 billion in import duties on goods entering the EU from South Korea.

(EU and South Korea Initial Free Trade Deal, TRADE ISSUES, European Commission website, Oct. 15, 2009, available at

Many details of the agreement remain undisclosed. Some concerns have been expressed, especially by car manufacturers, that a large number of small Korean cars entering the EU market could adversely affect European car manufacturers, such as Italy's Fiat, which specializes in making small cars. There was also some skepticism expressed over the mechanism of a duty drawback that the agreement gives to Korean companies. Under this clause, Korean companies have the right to claim back EU import duties on car components bought outside Korea. In response to this argument, Ignacio Garcia Bercero, the EU's chief negotiator stated that “the economic significance of this is very small at the moment” and that a safeguard clause would give the EU the option to restrict drawback claims to five percent of the total claims, in case the overall number of claims increases dramatically in the future. (Andrew Willis, EU Initials Korean Trade Deal as US Looks On, EU OBSERVER, Oct. 16, 2009, available at