In October 2009, South Korea and the EU initiated a free trade agreement that has been considered one of the boldest and most ambitious trade agreement ever negotiated. The FTA, which will establish the world's second-largest free trade agreement after NAFTA, had been expected to go into force by mid-2010, yet that was just a good old story before the European crisis struck. Now, with the Greek crisis at hand and possible sovereign default risks threatening other European countries, prospects for the EU - South Korea FTA seem to be dim. Not only has the unity among EU members on the issue waned, but also protectionism has returned in full force returned to the continent of Europe. The crisis is making it hard for this FTA to be ratified by 27 member countries of the EU. Yet, recession is looming in Europe, and the Euro is depreciating. South Korea on the other hand needs to diversify its trade. Although difficult, a prompt implementation of the EU - South Korea FTA could be key to solving both problems.
In mid-2000, when the Doha Round talks stalled, free trade agreements (usually bilateral) seemed to become a new "it" thing to do in the world trade landscape. Nonetheless, as the financial crisis began to demolish the world economy in the summer of 2007, many of free trade agreements that were in the negotiating process came to a standstill. In the wake of the crisis, countries have chosen to turn toward inward looking economic policies; a typical case of such policies is the nationalization of their own banks by individual European countries instead of cooperating as a United Europe. Furthermore in the wake of the Greek debt crisis, doubts on European integration are rising. It is as if the ultimate dream of the EU - political integration - has gone down the drain. While Germans blame peripheral states for loose fiscal policy, those states accuse Germany of lending them money with almost no limit. In the face of crisis and disunity, the implementation of the EU - South Korea FTA appears most uncertain.
However, the cost of postponing the ratification of the FTA exceeds whatever benefit there may be. Both South Korea and the EU are among the world's most competitive players in the world economy. The trade deal will allow European countries to have duty free access to the Korean market and to introduce critical clauses such as intellectual property rights and environmental protection. South Korean companies would benefit from lower costs on imported materials. According to some studies, both economies are expected to have an increase in real income, output, and GDP, which would be worth up to 100 billion Euros. With the depreciating Euro, this could be a good opportunity for the EU to increase its exports. Though the EU itself is the world's largest trading bloc, weak demand among European consumers is unlikely to absorb Europe's current output. Downgraded sovereign credit ratings worsen the situation. In an economy with fiscal austerity and without independent monetary policy tools, only a drastic improvement in external demand for goods and services would lift the burden of insolvency; South Korea can play an important role in that plan.
The EU - South Korea FTA would be the first bilateral trade agreement the EU will enter into under the new Lisbon Treaty rules. It means that the ratification of the FTA is the opportunity for the EU to demonstrate unity and take an important step toward implementing its new strategy, "Global Europe: Competing in the World." Hence, not only economic benefits but also political and tactical considerations are at stake for Europe. There has been fierce lobbying by the automotive and the textile industries in Brussels to block the agreement. It is assumed that those industries would be most negatively affected, yet they seem to have forgotten South Korean's admiration and respect for European automobiles and fashion. No one is sure how the FTA would play out, but the European Parliament is expected not to block it. It is merely a matter of when the agreement will be implemented. It is up to Europeans to decide their own destiny.
Soyen Park is a native Korean, now at Park & Company, who studied at the University of Oxford. Her academic interests include international political economy, financial markets, and public governance.
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