2020欧洲杯体育足彩外围app

How the success of a UK-South Korea trade deal is tied up with the EU

2020欧洲杯体育足彩外围app A Free Trade Agreement (FTA) with South Korea depends on a number of complicating factors

South Korea and UK flag handshaking and EU flag
Trade between the UK and South Korea totalled £14.6bn in 2018 Credit: The Telegraph

South Korea, the world’s 12th largest economy, was the first country in Asia to sign a preliminary post-Brexit deal with the UK, marking an early win for trade negotiators.

However, Seoul-based experts have cautioned that whilst the “continuity” agreement has minimised disruption to business in the near future, its transition into a full Free Trade Agreement (FTA) is still tied to the uncertain outcome of the UK’s trade deal with the European Union.

Delays to trade talks because of the coronavirus pandemic could also shift the political and negotiating landscape in unforeseen ways.

Sealed in June 2019 between Liam Fox, the then International Trade Secretary, and Yoo Myung-hee, his South Korean counterpart, the transitional arrangement replicates the existing Korea-EU free trade agreement, a showpiece deal signed in 2011.

2020欧洲杯体育足彩外围appThe Koreans have taken a positive, pragmatic approach to talks so far, but the UK’s challenging trade negotiations with the EU, which have now been hit by an increasingly uncertain timeline thanks to the pandemic, could create some bumps along the road.

The two camps' frequently divergent negotiation positions are set here.

Before the virus dominated the global business agenda, complications over ‘rule of origin’ provisions were one of the few details still to be ironed out in Seoul’s agreement with London.

As it stands, the stopgap deal falls short of guaranteeing permanent tariff-free trade in all circumstances, especially for goods with content from both mainland Europe and the UK.

2020欧洲杯体育足彩外围appIn addition, any tightening of current immigration rules could hamper business operations or prove detrimental for the lucrative education sector.

Power dynamics 

Sean Blakely, chief executive of the British Chamber of Commerce in Korea, says that while there were few potential areas of conflict, the pandemic had the potential to change the stakes.

“One variable in Korea is – depending on how long things take – you may have an entirely different administration in power,” he said.

If coronavirus destabilised the economy and the next government were to swing to the right and become more conservative in its approach, the UK could face new challenges.

“But to be honest their position on FTAs has always been quite politically neutral,” he says. “Korea has signed and ratified 52 FTAs so it’s all very practical in the way it does its business.”

2020欧洲杯体育足彩外围appOn the Brexit front, a “hard” departure from the EU could have consequences for large companies like Samsung, who manufactured in Eastern Europe before shipping their goods to the UK.

This “could factor into a different response from Seoul in terms of its position on a bilateral trade deal” but there was no perceptible concern about that for now, says Blakely.

Short of any signalling coming out of Seoul that it intends to depart from the terms of the EU-Korea FTA, “the only real interest of our members is not to win any incremental battles in terms of fighting for more, it’s actually just to maintain and replicate”,  he adds.

2020欧洲杯体育足彩外围appTrade between the UK and South Korea, a manufacturing powerhouse and base for many major global brands, totalled £14.6bn in 2018.

South Korea, a global leader in electronics, steel and the auto industry, exports mostly cars and ships to Britain, while it imports crude oil, cars and whisky.

Writing in the Telegraph in August,  shortly after signing the preliminary deal, trade secretary Liz Truss pointed to the triumph of classic British brands in South Korea. In 2018, Scotch whisky had a shipment value worth approximately £70m and British potters exported £17m worth of goods.

2020欧洲杯体育足彩外围appBentley has seen incredible success in Korea in recent years, enjoying a 30-fold increase in exports over the last decade.

“British businesses stand to make huge gains from this deal. They will be able to continue trading on the same terms as they did before, and I hope moving forward we can work to build on this agreement and take it to new levels in the future,” wrote Truss.

2020欧洲杯体育足彩外围appMartin Bell, deputy director of international trade at the Scotch Whisky Association, says there have been “no issues” disrupting business during the transition period so far.

He adds that the association is optimistic about “ambitious liberalisation” to be negotiated over the next few years, under a provision enabling either party to propose accelerating or broadening the scope of tariff elimination three years after the end of the Brexit transition period.

“We believe the FTA affords an excellent opportunity to agree future liberalisation on both sides that will further benefit both Korean and UK business.”

Muddied picture

Others take a more guarded view, however. Dr Tony Michell, the Seoul-based Asian managing director of the Euro-Asian Business Consultancy, warns that in the worst-case scenario of a below par EU-UK deal, trade with South Korea could be reduced.

Companies like Hyundai, the multinational car manufacturer, who made their products in the EU for export to the UK, will be watching developments closely.

2020欧洲杯体育足彩外围app“For Hyundai the UK is a very good market but if the UK is going to be stupid about what kind of agreement it has with the EU, then the Hyundai car market can be wrecked,” he warns.

2020欧洲杯体育足彩外围appThe impact of the coronavirus also threatens to muddy the picture.

“The Covid situation will seriously damage Korea's trade relationships. As a result, Korea will be eager to re-engage on making the agreement as comprehensive and viable as possible,” Michell says.

Seoul may wish to beef up guarantees to allow Korean companies in the EU to continue to supply the UK regardless of the EU-UK agreement. Its exports suffered a 10.4pc year-on-year decline in 2019, and the regime will be keen to shore up further losses.

It may seek to emulate the new EU-Vietnam FTA now being ratified, which takes special notice of Korean inputs into Vietnamese exports to ensure that production counts within the country of origin specifications, Michell explains. If the UK-Korea deal were to be extended, then Korea may also want its ownership of car and electric vehicle factories in the EU recognised in the agreement.

The tightening of immigration rules under Priti Patel, the home secretary, could also have a negative impact on trading conditions, he argues.

“If Ms Patel does things with immigration so that people who want to have offices can’t easily get visas for residence purposes with their wives and kids, then that will be a further problem,” Michell says.

“And the same for education, because education is one of the things that the UK wants to continue to provide to the world and Korean mothers like to go with their children.” 

2020欧洲杯体育足彩外围app“If that gets more difficult, there is always a danger of tit-for-tat. The whole visa situation is kind of a reciprocal process so it could actually make it more difficult for UK businesspeople to set up businesses.”

Another challenge would be the exchange rate. A weaker pound would mean Korean exporters to the UK having to decide whether to cut prices to support sales, or raise them to protect profit margins.

Je Hyun-jung, deputy general manager at the Centre for Trade Studies and Cooperation of the Korea International Trade Association, agrees that rule of origin provisions and increased red tape linked to the registration of Korean businesses in the UK and EU are potentially “problematic”.

In the existing EU trade agreement, there is a provision that covers Korean businesses manufacturing products that use material from multiple countries. This would have to be replicated in future by the EU, UK and Korea, she says.

2020欧洲杯体育足彩外围app“I’m not sure whether they will consider this in future negotiations but for the purpose of business I think we need that kind of arrangement.”