Research and analysis

South Korea: trade liberalisation and barriers to business

Published 3 July 2014

0.1 Detail

A free trade phenomenon

Since ratifying its first Free Trade Agreement (FTA) with Chile in 2004 Korea has agreed 12 FTAs, covering 47 countries. Currently 35% of Korea’s exports go to FTA partners, and once recent agreements with Columbia, Australia and Canada are ratified this will rise to 55%.

Korea has expressed interest in joining the Trans-Pacific Partnership (TPP), and already has bilateral agreements with all twelve potential members, except Japan, Mexico and New Zealand. Korea’s main focus, however, is on a deal with China which accounts for 25% of Korea’s exports. Observers expect a Korea-China FTA to be agreed by the end of 2014.

Many Korean exporters are feeling the benefits. For example, since the EU-Korea FTA came into force in 2011, Korean exports to the EU of cars, car parts and chemical products increased by 31%, 104% and 19% respectively.

Not everyone is convinced, pointing to a decline in exports to many FTA partners (total Korea-EU trade fell 12.4% since 2011). These figures, however, are misleading and mainly due to non-FTA factors such as the downturn in global shipbuilding orders, or the relocation of key exporters’ production sites from Korea to South East Asia. Analysts remain convinced that the FTA plan is the correct path economically. As the OECD noted in its recent Economic Outlook report, Korea’s active FTA strategy has been a key to maintaining Korea’s strong levels of growth.

Prevailing barriers to business

However, under threat of increasing global competition, there remains some protectionist sentiment, often resulting in non-tariff barriers or a slowing of procedures for foreign firms.

Korea’s economic miracle was founded on protecting business and championing exports. Korea’s first FTA with Chile was only ratified after a year of agricultural protests resulted in government subsidies. President Park’s three year economic growth plan maintains support to exports, but also focuses on growing domestic demand and improving the business environment, with an emphasis on regulatory reform.

Backing UK business

FCO economists calculate that after China, UK exports to Korea have to see the greatest volume growth if we are to achieve the 2020 £1 trillion target. Progress is encouraging. Non-oil goods exports were up 15% in 2012 and a further 16% in 2013. But these barriers act as a restraint.

Our approach to securing the market for UK business is three pronged: (i) supporting the Korean Government’s regulatory reform agenda; (ii) working with the EU Delegation on full implementation of the EU-Korea FTA; and (iii) working directly with UK companies on specific issues.

An additional problem is the need to amend the FTA with EU to allow exports transhipped through third countries to benefit from the tariff reductions. Resolving this issue would be a significant benefit for UK exporters.

0.2 Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.