South Korea is a step closer to a free trade agreement with the EU as the European Trade Commissioner, Catherine Ashton, and her Korean counterpart, South Korean Trade Minister Kim Jong Hoon signed a trade pact in Brussels. The trade agreement must now be approved by the 27 member countries of the EU, the European Parliament, and South Korea’s Cabinet, parliament and president

As part of the deal, South Korea will recognize European rules protecting regional products such as France’s famous Champagne bubbly, Italy’s Parma ham and Greece’s feta cheese. Conversely, some EU manufacturers – automotive in particular- are lobbying to prevent approval of the agreement as it would allow lower-priced Korean competitors into their home markets.

To ease car manufacturer concerns, Ashton said she had obtained “safeguards” to limit foreign content of cars assembled in Europe, giving EU authorities a right to impose temporary duties if they notice sudden surges of cheap car imports.

“I am very proud,” she told a news conference, “of the fact that we have been able to show not only that we were able to talk about fighting protectionism but that we were able to do the deals to open our markets.”

Under the agreement, the two sides will remove virtually all tariffs between their economies, as well as many nontariff barriers, over a five-year period.

The European Commission said that the trade in goods between the E.U. and South Korea was worth around €65 billion, or $95 billion, in 2008, and that the deal is worth €19 billion to European exporters alone. The E.U. runs a deficit with Korea in goods trade.

Ms. Ashton said that the agreement was “the first of a new generation of trade agreements” with countries that have high growth but also high entry barriers. She declined to say which country would come next

The EU-South Korea accord is the second-biggest free-trade deal ever, eclipsed only by the $1 trillion North American Free Trade Agreement between the U.S., Canada and Mexico that began in 1994.

The state-run Korea Institute for International Economic Policys estimates that Korea’s GDP may grow almost 3.1 percent in the “long term” as a result of the accord and may also lift employment by about 3.6 percent.

Additionally, according to the Financial Times:

The pact appears to match the US version quite closely. “There is no doubt the Korea-US agreement was used as a benchmark or even a model from the Korean side,” says Christopher Dent, professor of east Asian political economy at Leeds University in the UK.

The advances in the EU-South Korea trade agreement send an urgent message to the US, verbalized by South Korean Ambassador to the United States Han Duk-soo.

The United States will be at a competitive disadvantage in the South Korean market unless Congress approves a bilateral free trade agreement signed two years ago, a Korean official said on Thursday.”Korea strongly hopes this agreement will be put into effect as soon as possible,” South Korean Ambassador to the United States Han Duk-soo said.

Duk-soo also hopes that Congress will be able to approve the agreement prior to President Obama’s visit to Korea in November, after the Healthcare issues have been resolved.

EU-South Korea Trade Agreement References:

• “Europe & South Korea Take Step Toward Trade Pact” – New York Times
• “EU, SKorea reach trade pact” – AP
• “South Korea urges U.S. to approve trade pact” – Reuters
• “EU buoyed by draft South Korea trade deal” – Financial Times
• “EU, Korea Trade Deal May Be ‘Wake Up Call’ For US” – Bloomberg

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