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 3 Apr 2009

Korea-EU FTA talks to be wrapped up this month

South Korea and the European Union (EU) will seek to finalize their free trade accord later in the day, wrapping up negotiations that began in May 2007, South Korean state news agency Yonhap quoted officials as saying Thursday.

South Korean Trade Minister Kim Jong-hoon and his EU counterpart Catherine Ashton will meet in London to narrow differences on some sticky issues, including a so-called duty drawback scheme.

Both sides announced late last month that they had reached a provisional free trade accord and would seek to finalise the deal this month.

Seoul is seeking a provision in the agreement that would allow import tariffs to be returned to companies that use imported materials to make products for exports. But Brussels opposes the provision, saying it would favor South Korean exporters.

The EU does not allow duty drawbacks under its existing free trade accords with Mexico and Chile.

The two sides are also expected to narrow differences on rules of origin, with both reportedly agreeing that a product is considered manufactured by a trading partner only if at least 45 percent of the finished item is made in that country.

During a high-level meeting last month, Seoul and Brussels reached a tentative agreement on eliminating or phasing out tariffs on 96 percent of EU goods and 99 percent of South Korean goods within three years. They have also agreed to abolish tariffs on all industrial goods within five years after the deal takes effect.

One of the most sensitive issues has been auto trade. After much wrangling, the two sides agreed to eliminate tariffs on cars with an engine displacement of over 1.5 liters within three years. Tariffs for smaller cars with an engine displacement of less than 1.5 liters would be lifted after five years.

South Korea currently imposes an eight percent import duty on European cars, while the EU imposes a 10 percent duty on autos from South Korea.

The EU was South Korea's second-largest trading partner after China last year, with two-way trade reaching more than $98 billion.

If the pact is finalised, it will boost South Korea's exports by $11 billion and gross domestic product by 3.08 percent, according to a forecast by the Korea Institute for International Economic Policy.

South Korea, Asia's fourth-largest economy, reached a free trade deal with the United States in March 2007, shortly before it launched talks with the EU, but the deal has remained stalled in both legislatures.




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