South Korea has signed a Free Trade Agreement (FTA) with the United Arab Emirates (UAE), marking its first such agreement with a Middle Eastern country and its 24th FTA overall.
The Ministry of Trade, Industry and Energy announced that Ahn Deok-geun and Thani bin Ahmed Al Zeyoudi concluded Comprehensive Economic Partnership Agreement (CEPA) negotiations and signed a joint declaration on Oct. 14. CEPA is a type of FTA.
Both nations have agreed on a high level of market liberalization. By product count, South Korea will eliminate 92.8% of its tariffs, while the UAE will do away with 91.2% of its tariffs, with the aim of total elimination within a decade. For Korean exports to the UAE, such as cars, refrigerators, and washing machines, the tariffs will be progressively reduced from 5% to 0% over a 10-year period.
Korea’s major imports from the UAE, primarily crude oil, will also see a tariff reduction from 3% to 0% over the next decade. Last year, Korea imported crude oil worth US$9.2 billion from the UAE. The removal of these oil tariffs is expected to enhance the stability of Korea’s oil procurement and boost the price competitiveness of the domestic refining and petrochemical industries.
The UAE has also agreed to South Korea’s request to open up its service market, which includes sectors like online gaming, medical services, content creation, and construction.
Beyond market opening, both countries included annexes in the agreement to expedite a “special strategic partnership,” focusing on five core areas of cooperation: energy and resources, bioeconomy, smart farms, healthcare, and advanced industries.
The CEPA signed between South Korea and the UAE signifies more than just an expanded export market. In a world where energy security is paramount, securing a stable oil source, while solidifying an “economic alliance” with the UAE, is considered a notable achievement.
Both countries have agreed to fully eliminate the 5% tariff that the UAE imposes on Korean products such as cars, car parts, refrigerators, and washing machines over a maximum of 10 years. With fierce competition from Europe, China, and Japan, Korean cars now stand at a competitive advantage. Cars are the largest item of Korea’s exports to the UAE. Last year, car exports amounted to US$338 million, a surge of 81.5% from the previous year.
South Korea will also abolish or reduce tariffs on UAE products. Approximately 60% of imports from the UAE by value are crude oil and 30% are naphtha, a raw material for the petrochemical industry. Crude oil tariffs will be lowered from 3% to 0% over 10 years, and naphtha tariffs will be halved from 0.5% to 0.25% over five years. This will boost the cost competitiveness of domestic companies importing these raw materials.
From an energy security perspective, the removal of the crude oil tariff is a plus for South Korea. Ahn Deok-geun stated, “Thanks to the long-built trust in the energy sector with the UAE, they have exceptionally included energy and resource cooperation in the CEPA,” emphasizing the significance of the agreement, especially amid concerns in the Middle East, such as the Israel-Palestine conflict.
This agreement also includes “bioeconomy cooperation,” a first in any FTA that South Korea has signed, serving as a pioneering model worldwide. This lays the foundation for the growth of the bio-industry, a next-generation growth engine.
The agreement is expected to further strengthen the strategic relationship between South Korea and the UAE. The swift negotiation reflects the UAE’s strong will, emphasizing its commitment to adopt the Korean-style open economy model.
There are also growing expectations that the UAE, which is planning further nuclear power plant construction, might once again choose Korean-style nuclear reactors following this agreement.