1 Bilateral free trade agreement between EU and South Korea Keerati Ratanasirisawad Singhapan Sinhaseni

2 Latest news (October 15, 2009) the world biggest free-trade deal since 1994 Under the agreement, the two sides will remove virtually all tariffs between their economies, as well as many non-tariff barriers, over a five-year period The trade in goods between Europe and South Korea was worth about 65 billion euros ($97 billion) in 2008, and that the deal was worth 19 billion euros to European exporters alone.

3 Latest news the agreement will create new opportunities for European companies in services, manufacturing and agriculture it needs to be approved by the 27 European member states European car manufacturers object to the deal, arguing that dropping the EU's current 10% tariff on Korean vehicles coming into Europe would harm them If it passes that process it's expected to come into force next year

4 Facts & Figures European countries South Korea

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6 Facts & Figures (Cont.) (2008) TRADE IN COMMERCIAL SERVICES (SERVICES EXCLUDING "GOVERNMENT SERVICES")

7 Market share?

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9 Applied theories Ricadian comparative advantage theory Specific-factor model

10 Extended from the previous slide Korea has a comparative advantage in goods while EU has a comparative advantage in services.

Ricardian Model 11 Korea has a comparative advantage in goods RCA for goods for services EU has a comparative advantage in services. RCA 0.96 for goods for service

Specific-Factor 12 OxOY LL1 M M’ N W W’

Specific-Factor With competition from Korea and decrease in tariff, Europe car price would decreases. Assume that capital is specific factor. Car industry is X while all other industry is Y. Constant return to scale with 2 inputs, capital and labor. Given the same capital, labor decrease so MPk decrease. Capitalist will lose out in decreases price, hence opposition to free trade. 13

Specific-Factor For labors in the automobile industry, they’ll be better off since the wage drops at a smaller proportion than the price of automobile drops 14

15 Thank you for your attention