Korea and the Gulf Cooperation Council (GCC) have finalized negotiations on a free trade agreement (FTA). The Korea-GCC FTA is Korea’s twenty-fifth FTA and the second with the Arab world after the Korea-United Arab Emirates (UAE) Comprehensive Economic Partnership Agreement (CEPA). As Korea has gained an advantage over its East Asian neighbors China and Japan in entering the Middle East, a new Middle East boom is expected to begin among Korean companies in earnest.
Korean Trade Minister Ahn Duk-geun and Jassim Al-Budaiwi, secretary general of the GCC, jointly announced the conclusion of the Korea-GCC negotiations at the Korea International Trade Association (KITA) in the Gangnam district of Seoul on Aug. 28. It came 15 years after the two sides had launched the first round of negotiations in July 2008 and one year and nine months after they resumed talks after a long hiatus in March last year. The GCC is a customs union and economic cooperation consisting of six countries in the Middle East: Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain, and Oman. Their gross domestic product (GDP) was the ninth largest in the world in 2022.
Trade between the six GCC countries and Korea amounted to US$102.6 billion last year (US$10.3 billion in exports and US$92.3 billion in imports). This means that the GCC club is Korea’s fifth largest trading partner after China, the ASEAN, the United States, and the European Union (EU). Korea mainly imports energy and resources-related items such as crude oil, liquefied natural gas (LNG), and aluminum from the GCC and exports automobile parts, weapons, and ships to the GCC.
When the Korea-GCC FTA takes effect, Korea will eliminate 89.9 percent of its tariffs and the GCC 76.4 percent in terms of the number of items. In addition, the GCC will reduce items with a 4.1 percent tariff by 50 percent. Specifically, the GCC will phase out a 5 percent tariff on Korea’s main export items, including internal combustion engine vehicles (for 5 to 20 years), auto parts (for 10 to 20 years), machinery (for 0 to 20 years), and arms (for 0 to 20 years), over a period of up to 20 years.
In particular, in the case of arms, tariffs on most products will be eliminated. They include rocket launchers, missiles, ammunition, artillery, and tanks and armored vehicles. As demand for defense products in the Middle East is high with Saudi Arabia ranking second and Qatar third among the world’s top 10 arms importers, the elimination of tariffs is expected to give stronger momentum to Korean defense companies’ rising arms exports.
A number of promising export items with high growth potential such as cosmetics, pharmaceuticals, and medical devices are also added to a list of products which will be free from tariffs. Tariffs on sunscreen, skin makeup, and face wash products will taper off. They have become popular thanks to the influence of Korean TV shows, films and music. Tariffs on painkillers and antipyretics, proteolytic enzymes, ultrasound diagnostics, blood oxygenation devices, electrocardiographs, and artificial joints will also be scratched off.
In addition to rice, milk powder, and shrimp, the GCC will open its market to beef, ginseng, oysters, dried seaweed, and frozen tuna fish cakes from Korea. Among GCC agricultural, livestock, and marine products, tariffs on products that Korea does not produce in general such as dates and black tea will be eliminated to minimize impacts to the Korean market.
The Korea-GCC FTA also adopted individual annexes to strengthen cooperation in six sectors -- energy and resources, bio-economy, high-tech industries, smart farms, the health industry, and audio-visual services. This was the first time the GCC specified energy and resources cooperation in an FTA.
The Korean government expected the Korea-GCC FTA to play a major role in diversifying Korean exports in the future. The six GCC countries are active in building non-oil industrial infrastructure to foster their domestic manufacturing, and large-scale infrastructure construction is on the drawing board. Their good examples include Saudi Arabia’s Vision 2030, the UAE’s Industry 4.0 Initiative and Energy Strategy 2050.