Rethinking Free Trade
Controversy is simmering surrounding the effectiveness of the Korea-E.U. FTA, which went into effect in July 2011, with Korea’s surplus in trade with the eurozone being much less than expected.
According to KOTRA’s recent report, Korea’s exports to the E.U. have continued to decline since July 2011. Specifically, the year-on-year decrease added up to 0.4 percentage points from July 2011 to June 2012 and 5.6 percentage points between July 2012 and June 2013. This is why some economists regard the Korea-E.U. FTA as a failure.
However, their argument can be refuted when exports from China and Japan to the E.U. are taken into account. For example, the year-on-year decrease totaled 1.1 percentage points for Japan between July 2011 and June 2012, and expanded to no less than 13.8 percentage points in the next one-year period. Also, China’s exports to the E.U. dropped 1.6 percentage points from July 2011 to June 2012. Both Japan and China have yet to sign a free trade agreement with the E.U., and the drop in Korea’s exports to the E.U. during the period cannot be considered a problem limited to Korea.
“The main culprits are the increasing unemployment and worsening consumer sentiment in the eurozone that have followed the recent fiscal crisis,” a KOTRA representative explained, adding, “The decrease in the exports from Korea has been smaller compared to other countries, and it can be said that the positive effects of the free trade deal have offset the negative ones.”