EU FTA to bring cheaper wine, luxuries

By Kim Tong-hyung

South Korea and the European Union have finally signed their free-trade deal and Korean wine lovers will certainly raise their glasses to that. Also delighted are fashionistas, whose days of sweating it out at duty free shops for shoes, leather and perfume look to be coming to an end, judging by the details of the deal that went through Wednesday (KST).

Although Korea is quickly becoming a wine-drinking nation, vinophiles have been complaining about the heavy tax imposed on imported bottles that force them to pay a premium for mediocre Bordeaux.

However, with the free trade agreement (FTA) with the EU having Korea immediately lifting its 15 percent tariff on wines, consumers here can expect to get more bang for their buck. Granted, this doesn’t mean that the European bottles will be getting precisely 15 percent cheaper.

Aside of the duty, imported wines are also tagged with a 30-percent liquor tax and 10-percent education surtax, all before importers and retailers look for their margins. This complicated pricing structure often has the prices bloat to three-fold or more when they reach consumers.

Wine importers, nonetheless, believe that that the effect of the FTA will be visible in the price tags. Although there are varying estimations, the consensus seems to be that European wines will get around 13 percent cheaper on average. Thus, a mid-level Mouton Cadet red, currently selling for around 38,000 won (about $34) to 40,000 won, will soon be available at 32,000 won or lower.

It remains to be seen whether the Korea-EU FTA will lead to a serious jolt in the sales of European wine here and allow France to regain its status as Korea’s most popular wine source, a title that is now owned by Chile. The sales of Chilean wine have been growing significantly in Korea since the inking of the FTA between the two countries.

While France still holds an edge over Chile in terms of revenue, as its bottles are generally more expensive, Chile passed its European rival by the measure of tons last year.

Korea’s 20 percent tariff on whisky will also be suspended immediately when the FTA goes into effect, which is inspiring news for Scotch lovers here.

The FTA between Korea and EU, its first with an Asian nation, is expected to go into effect on July 1, 2011. Policymakers here believe it could potentially double trade between them and inspire other Asian states to enter trade pacts with the 27-nation EU.

``After the FTA goes into effect, French wine here will be allowed a second renaissance, with wine lovers being provided a wider choice of quality mid-level wines. This will also be important to inject new life into the wine market here, as sales have dipped during the recent economic downturn,’’ said an official from Keumyang International, one of the bigger wine importers here.

The free trade pact requires Korea to immediately eliminate its 13 percent tariff on imported shoes, and the country must also can its 8 percent tariff on leather bags, if not immediately then within three years. But it remains to be seen whether the changes will have a direct effect on the prices of luxury items, as brands like Chanel, Prada and Christian Dior have complicated pricing strategies for different markets.

Still, there is no reason to think Chanel’s 4.6 million won Classic Caviar Medium handbag won’t become slightly more affordable, although the buyer will still be paying significantly more than for just the leather.

The Korea-FTA deal is expected to be a boon for Korean automakers like Hyundai, which eyes better penetration in the lucrative European markets. Korean car buyers will also benefit from the elimination of tariffs on European cars that will come three to five years after the deal goes into effect depending on the size and type of the vehicle.

The 8 percent Korean tariff for imported vehicles will be eliminated within three years for cars with engines larger than 1,500cc. Cars smaller than 1,500cc or powered by hybrid engines will be duty-free five years after the deal goes into effect.

So in theory, Volkswagen’s Golf TDI sedan, which is selling for around 33.9 million won here, will be available at around 30 million won in the next few years, a similar price to the K7 passenger cars sold by Korea’s Kia Motors.