The Free Trade Agreement between the Member States of the European Free Trade Association (EFTA) - Iceland, Norway, Liechtenstein and Switzerland - and the Republic of Korea entered into force today, Sep. 1, 2006 (Iceland: see footnote). The Agreement covers all major areas of the Parties' trade relations.
The EFTA States are the first European States who have a free trade agreement with Korea, the world's eleventh largest economy and Asia's third largest exporter.
According to a calculation by the Korean side, a comprehensive FTA will boost EFTA exports by an estimated 715 million USD, with most significant trade gains expected in the following sectors: machinery and mechanical appliances, steel and metal products, chemical products, fish and marine products. Similarly, Korean exports would receive a boost of 666 million USD, with particular gains in the automobile, ships and boats, electronic machinery, and textiles and apparel sectors. The impact of liberalizing services was not part of the calculation, and is expected to have an additional significant positive effect. In 2005, overall merchandise trade (imports and exports) between the two sides amounted to 3.05 billion USD, representing an 11% increase compared to 2004 in nominal value terms.
Korean exports of goods to the EFTA States increased in 2005. During that year, the value of the EFTA States' imports from Korea totalled 1.2 billion USD, representing a 27% increase (in nominal value terms) compared to 2004. The main sectors - electrical machinery, vehicles, machinery and mechanical appliances, and ships and boats - accounted for 80% of EFTA's imports from Korea.
The EFTA States' exports to Korea in 2005 amounted to 1.8 billion USD, representing a 2% increase in nominal value terms compared to 2004. The EFTA States' leading export sectors were machinery and mechanical appliances, mineral fuels, optical and medical instruments and pharmaceutical products, representing over 65% of their exports to Korea.
The free trade negotiations were launched by Ministers from the EFTA States and Korea in Dec. 2004, and the Agreement was signed in Dec. 2005. It covers all major areas of trade relations including trade in goods, trade in services, government procurement, competition and intellectual property. It also contains a chapter on dispute settlement. The EFTA States and Korea also concluded bilateral agreements on basic agricultural products, and Korea concluded an agreement on investment with Iceland, Liechtenstein and Switzerland. To supervise the well-functioning of the FTA, a Joint Committee has been established.
The EFTA States, representing only around 12 million citizens, but being the world's ninth largest merchandise trader, have concluded 16 free trade agreements with partner countries of which 14 are now in force.
Footnote: For Iceland, the Agreement will enter into force on 1 October.
Overview of areas covered by the Agreement
Trade in goods
Most industrial goods, including fish and other marine products, will benefit from duty-free access to the respective markets as of the entry into force of the Agreement. For some products imported into Korea, customs duties are to be eliminated after a transitional period or after a joint review by the Parties. The Agreement provides for liberal rules of origin and allows for the use of up to 60 per cent of non-originating input in the production of certain products. The Agreement also provides for concessions on processed agricultural products. Trade in basic agricultural products is covered by arrangements concluded bilaterally between each EFTA State and Korea.
Services
The chapter on trade in services covers all four modes of supply of a service, as defined under the GATS, and addresses all services sectors. Separate Annexes deal with specific commitments, MFN exemptions, mutual recognition, telecommunication services, and co-production of broadcasting programmes.
The lists of specific commitments of each Party will be reviewed three years after the entry into force of the Agreement, and every other year thereafter, with a view to providing for a reduction or elimination of substantially all remaining discrimination.
Trade in financial services is dealt with in a special chapter that also establishes a Sub-Committee on Financial Services. Commitments have been improved to reflect recent legislative changes by the Parties.
Competition
The chapter on competition deals mainly with the co-operation, notification, consultation and exchange of non-confidential information between the Parties. In particular, consultations are provided for when important interests of Korea or an EFTA Member State may be adversely affected.
Government procurement
In the chapter on government procurement, the Parties recognize that the WTO Agreement on Government Procurement (WTO GPA) governs the rights and obligations of the Parties in this field. The chapter also ensures that the Parties can have an "early harvest" of the outcome of the negotiations between the Parties in the context of the ongoing WTO GPA negotiations.
Intellectual property
The Agreement sets a high standard for the protection of intellectual property rights, covering areas such as patents, trademarks and copyright, and goes, in certain areas, beyond what is provided for under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and other international conventions and treaties.
Institutional provisions
The Agreement establishes a Joint Committee, which supervises and administers the Agreement and oversees the further elaboration of the Agreement. Information exchanges and consultations can take place in the Joint Committee. The Joint Committee also takes decisions in cases provided for by the Agreement or makes recommendations.
Under the Agreement, the EFTA Secretariat and the Ministry of Foreign Affairs and Trade for Korea act as focal points ("Secretariat") for communications between the Parties.
Dispute settlement
A separate chapter on dispute settlement contains rules and procedures for the avoidance or settlement of disputes arising from the Agreement between one or several EFTA States and Korea.
Investment Agreement
An agreement on investment was separately concluded between Korea, on the one hand, and Iceland, Liechtenstein and Switzerland, on the other. This agreement covers both access to markets and the protection of investments. The three EFTA States and Korea grant each other national treatment for the establishment of investors, except for a few cases where the Parties have lodged reservations based on restrictions in their national legislation. The agreement also foresees the possibility of direct dispute settlement between an investor and the Party of his investment.