By Elijah N. Munyi
On July 1, the South Korea-European Union Free Trade Agreement became provisionally applicable. This is the most comprehensive trade treaty that the EU has negotiated with another country as part of its Global Europe trade policy. It’s also one of the first successful FTAs done by the EU after the erratic, windy Economic Partnership Agreements negotiations between the EU and the African Caribbean and Pacific (ACP) group of countries.
The speed and smoothness with which South Korea and the EU have concluded this FTA is significant on several fronts. One, it affirms the growing centrality of the so-called Singapore issues in future FTAs.
Secondly, it provides developing countries in Africa, Caribbean and Latin America some insights on what works in economic negotiations, particularly with the EU. This article explores the significance of this FTA.
The rapidity with which major industrialized economies are pursuing and concluding free trade agreements (FTAs) points to a tacit acknowledgement as to the inadequacy of the multilateral process (the Doha Round of the World Trade Organization (WTO)) to steer the global economic liberalization agenda.
As indicated by the Korea-EU FTA, the more significant content of economic agreements between states is now shifting from mere trade and tariffs, to areas such as rules on competition, non-tariff barriers, investment, sustainable development, trade facilitation and government procurement ― all of which are inadequately addressed by the WTO.
The EU is thus spearheading a shift from FTAs to more Comprehensive Economic Agreements (CEAs) that include agreements on the Singapore issues. The success of the EU in pushing its FTA partners such as South Korea for agreements on the Singapore issues is an indication of two things. First, economic sovereignty still reigns. States are more secure negotiating their position on the Singapore issues at the national level as opposed to at the multilateral level.
Forfeiting decisions to regional, supranational or multilateral institutions remains a second-best option for most governments. Thus in the short term, multilateral agreement on the Singapore issues will not materialize.
The second point however is that once major world economies have built a network of agreements on the Singapore issues among themselves, then a multilateral agreement will become easier and speedier to achieve. Multilateral agreements on the Singapore issues will thus follow and be derived from regional trade agreements reached by the biggest economies.
This portends a difficulty for many developing and least developing countries which are more reliant on the multilateral processes. Rather than wait to acquiesce to the vagaries of the multilateral process, like South Korea, developing countries too would be better off embracing the growing reality of comprehensive economic agreements and negotiate national positions during FTAs. In spite of an EU push, many ACP countries have so far opted for non-comprehensive agreements with the EU.
Over and above the content of negotiations both South Korea and the EU provide key lessons in the process of negotiation. In spite of its lack of competitiveness in rice production, Korea has quite successfully defended its almost sacrosanct rice industry.
Consistent defense of the rice industry by Korea over the years has sent a strong and unambiguous message that rice was off the table in any Korean FTAs. Both the EU and the United States seem to have got the message. A consistent, firm defense of liberalization in a narrow and specific field does seem to pay off.
The EU on the other hand was superbly adept in using the power of legitimacy to persuade Korea to accept European motor vehicle standards set by the United Nations Economic Commission for Europe (UNECE). One of the EU’s major worries has been Korea’s use of regulatory hurdles for EU car importers into Korea. By pushing Korea to accept the UNECE motor vehicle standards the EU used standards that were easily seen as impartial and above the fray of regional or national interests. Korea caved in.
From the Korea-EU FTA, one observation is that Europe is betting big on expanding agricultural exports to Asia while Asian economies are bullish about their growing industrial competitiveness. Part of the driver of the smooth Korea-EU FTA negotiations has been the two parties’ confidence in their ability to compete in each other’s markets, and hence their willingness for increased liberalization.
Any economic negotiation should thus begin by both partners gauging their convergence on what has been called “the ideology of liberalization” as a fundamental pillar to any serious economic agreement. In the case of Korea-EU FTA, convergence was high.
Elijah N. Munyi is a Ph.D. fellow at Center for Comparative Integration Studies (CCIS), Aalborg University in Denmark. He previously worked for the Korea Institute for Development Strategy (KDS). He can be reached at menyaga2000@yahoo.com.