As the Korean government did, the UK government welcomed the signing of the Korea-EU FTA which is estimated to bring an extra £500 million to UK businesses based on current trading levels. We at BusinessKorea interviewed with Douglas Barret, the Head of UK Trade & Investment at the British Embassy to Korea, to hear his views on the effects which the free agreement will bring about to the economies of the two countries.
Q: Could you elaborate on the status of the trade and investment between UK and Korea along with an introduction of UK’s environment for business and investment?
A: Bilateral trade between our two countries was an impressive £10 billion last year with the UK being the second largest European exporter of goods and services to Korea (second only to Germany). But there’s real potential to grow that for mutual benefit. Especially after the ratification of the Korea-EU Free Trade Agreement-one of the most ambitious trade agreements ever negotiated by the EU which will no doubt provide businesses, from both our markets, with incredible opportunities.
On the investment front, more than 200 Korean companies are already doing business in the UK. The largest investors include Doosan, Korea National Oil Company, Samsung and LG Electronics.
There are many reasons why: our flexible, skilled and diverse labour market, the speed it takes to set up a business, the ease of enforcing contracts, the access to capital, the fact that UK corporation tax is being cut year-on-year so that it is the lowest level in the G7 and, of course, the English language.
The World Bank ranks the UK as the easiest place to do business in Europe and the fifth easiest in the world. According to another survey (Cushman & Wakefield Healey & Baker, European Cities Monitor), London is the top city in Europe in terms of easy access to the market, languages spoken, and recruiting qualified staff. London has been ranked first among Europe’s cities for the last 15 years.
Q: What specific impact do you see Korea-EU FTA will give on the business link between our two countries?
A: The Korea-EU FTA has the potential to benefit the UK by £500 million annually. The FTA will remove 97% of tariffs on goods traded between the markets in just three years and will result in £1.4 billion of savings in duties per year for EU exporters.
It will result in new opportunities for UK companies where the UK has a distinct competitive advantage in legal and financial services (Standard Chartered Bank have investments totalling £2.5 billion in South Korea), ICT firms who are keen to bring their world-class technology and cutting-edge design to South Korea, automotive components, pharmaceuticals and aircraft engines.
UK low carbon firms want to work with their South Korean counterparts to research and apply technologies that tackle climate change - on projects in Korea, UK or in third countries.
Rising consumer demand also matches UK expertise, including fashion, lifestyle products, media and education. Tesco is one of the largest foreign investors in Korea with investments totalling £4.09 billion.
On the other hand, we are also confident we will see more Korean firms choosing the UK as a platform to grow their businesses in Europe, and beyond. There are opportunities for Korean companies to do business with the UK across so many sectors including: ICT, financial services, creative and low carbon industries and advanced engineering.
In particular, the UK government provides active support for pharmaceutical R&D to attract foreign pharmaceutical companies. When a company pursues business using a patent registered in the UK, the company is eligible for tax benefits regardless of its nationality. It can also have an opportunity to work with NHS, UK’s national health system. Korean life science and pharmaceutical companies, which are already acknowledged for its competitiveness in biosimilar and other areas, can enter the European market by leveraging the world’s best-class pharmaceutical and bio researchers and developers as well as the UK government’s support policies.
In addition, the UK is one of the top 6 car manufacturing countries of the world with production facilities of major OEMs such as Toyota, GM and Volkswagen. With the Korea-EU FTA, Korean companies can seek opportunities with the module supplying strategy where parts made in Korea are exported to Europe duty-free and then assembly is done in the local plants to supply to finished carmakers. When the efficient logistics system of UK is utilised, the company can supply not only to the carmakers in UK but also to those operating in other European countries.
Q: Could you elaborate on the UK macroeconomic indicators such as GDP growth, inflation, interest rates, and unemployment, etc, along with the British government's stance for financial management policy?
A: The UK has the sixth largest economy in the world, with a gross domestic product (GDP) of US$2,175 billion.
The UK is the world’s 6th largest trading nation. It is the second largest exporter and third largest importer of commercial services, and the tenth largest exporter and sixth largest importer of merchandise.
The UK economy is seeing gradual and sustained gro-wth. The IMF forecasts that from 2013 the UK will be the second-fasted growing economy in the G7 and the fastest-growing large European economy from 2012.
The UK’s labor force of over 30 million people is the second largest in the EU. Data from the OECD shows that unemployment in the UK (8%) remains well below the levels in the US (8.9%) and the Euro zone (9.9%). By 2016, the IMF predicts the UK will have the lowest rate of unemployment of major European economies.
Corporation Tax will reduce from 28% to 23% over the next four years, the lowest rate in the G7. By 2014, based on current plans, the UK will have the fifth-lowest rate of corporation tax in the G20.
Tax rates on profits from patents will drop from 28% to 10% by 2013 in order to encourage innovative business to invest in the UK.
Over the last five years, the UK has become a cheaper place to do business, thanks to the softening of Sterling against other currencies.
Q: Please explain what efforts you have made to continuously strengthen the ties between the two countries.
A: Recent surveys have suggested that over 70% of Korean companies plan to increase their market penetration in Europe once the FTA comes into effect, but that over half feel they need support to do so. As a government organisation, we will help identify the opportunities available and to offer suggestions for how best to take advantage of them.
In 2010 UK Trade & Investment team in South Korea helped over 400 British companies do business in the market, twice as many as 2008. UKTI also secured 18 inward investment projects from South Korea to the UK. Recent investments have generally been high value operations such as European HQs, research centres and design studios.
We also produced reports to offer British & Korean companies a snapshot of the most promising opportunities offered by the FTA. Many companies have already benefited from the analysis in those reports.