Assessment of the EU - Rep. of Korea FTA Dr Stephen Woolcock LSE, CEPS, Maastricht Uni. and Institut der deutschen Wirtschaft Presentation for the European Parliament Hearing; 23rd June 2010

An EU lead on trade Forward movement when DDA remains stalled Comprehensive agreement Extensive liberalisation of goods and services Breaks new ground on rules

Compatibility with WTO Consistent with broadly accepted interpretation of GATT Art XXIV and GATS Art V Rules also compatible with WTO principles Some areas WTO-plus (e.g IPR esp. GIs) FTAs can reduce incentive for multilateral negotiations

Welfare effects research suggests order of magnitude < 1% of GDP for Korea < 0.1% of GDP for EU order of magnitude Korea gains more because it’s a smaller economy with higher protection

Trade effects (EU export growth) more EU sectors gain from trade than lose significant share of gains for services machinery, pharmaceuticals, chemicals and agri-foods also stand to gain overall export gains for EU of around Euro 33bn benefits depend on effective reduction and containment of Korean NTBs/regulatory barriers

Trade affects Korean export growth overall export gains Euro 23 bn studies show concentration in automotive exports to a lesser extent in textiles and electronics but Korean FDI in EU contributing to a significant reduction in Korean exports not accounted for in the quantitative studies duty drawback equivalent to an export subsidy for Korea auto sector of around 1-1.5%

Provisions on NTBs and rules TBT provisions break new ground sector arrangements; equivalence; Korean acceptance of int. standards; moderators Intellectual property rights effective enforcement of international conventions; but TRIPs plus on GI with registers for wines and spirits and agri-foods Competition: WTO plus; cooperation in enforcement and subsidies Procurement: GPA plus on coverage Dispute settlement faster remedies than available under the WTO

Sustainable development provisions on labour standards breaks new ground for EU FTAs promote the application of core labour standards Korea has not yet ratified key core labour standards cooperation in promotion of multilateral environment agreements

Timing issues potential gains from early application short term gains for sectors including automotive first mover advantages, especially for the service sector / mechanical engineering general competitive gains on market access KORUS not ratified Korea not yet concluded agreements with China, Japan and ASEAN early application would provide EU with a lead set precedent for other agreements

Summary balance seems favourable to the EU all trade agreements entail adjustment costs these are modest compared to other adjustment pressures could be eased through provision of adjustment assistance export growth for EU will depend on effective implementation of provisions on NTBs and rules