After the British parliament overwhelmingly rejected Prime Minister Theresa May’s Brexit deal on Jan. 15 (local time), the United Kingdom is poised for a “no-deal” Brexit on March 29. Accordingly, the South Korean government has decided to accelerate the conclusion of a free trade agreement (FTA) with the United Kingdom.
A no-deal Brexit refers to the U.K. leaving the European Union (EU) without agreeing conditions such as tariff and customs procedure after the Brexit. If the U.K. leaves the EU with no deal by March 29, it will have a significant impact on tariff benefits and simple customs procedures South Korea has enjoyed under its FTA with the EU.
The Ministry of Trade, Industry and Energy (MOTIE) said on Jan. 16 that the no-deal Brexit will increase the tariff rate of cars from 0 percent to 10 percent and car components from 0 percent to 4.5 percent among South Korea’s major export items to Britain. The tariff rate of ships and aircraft parts will also go up to 0.56 percent and 1.7 percent, respectively. South Korea imported US$150 million (168 billion won) worth of Scotch Whisky free of duty last year but it will be subject to 20 percent tariff rate.
The tariff rate of overall exports will rise 4 percent on average, while that of British products imported by South Korea will increase 5.46 percent, according to the MOTIE. However, the government and experts expect that there will be no significant adverse effects as trade with the U.K. form a small proportion of Korea’s total trade. South Korea’s exports to the U.K. stood at US$5.44 billion (6.09 trillion won) from January to November last year, accounting for a mere 0.98 percent of the total. Cars, ships, aircraft parts and car components took up more than half of the total exports. The country’s imports amounted to US$6.18 billion (6.92 trillion won), accounting for 1.26 percent of the total. Crude oil took up one third of the total imports, followed by cars and medicines. South Korea’s tariffs on imported U.K. crude oil will go up 3 percent, cars 8 percent and medicines 6.5 percent.
MOTIE will hold a director-level meeting with the U.K. on Jan. 30 to 31 in London to discuss plans for the Korea-U.K. FTA in response to the no-deal Brexit. The volume of trade between South Korea and the U.K. hit a record high at US$14.44 billion (16.17 trillion won) in 2017 thanks to the FTA between South Korea and the EU.