World Trade
Organization WT/REG296/1
29 March 2012 (12-1672) Committee on Regional Trade Agreements

FACTUAL PRESENTATION

Free Trade Agreement between the European Union and the Republic of Korea
(Goods and Services)

Report by the Secretariat

This report, prepared for the consideration of the Free Trade Agreement between the European Union and the Republic of Korea has been drawn up by the WTO Secretariat on its own responsibility and in full consultation with the Parties.
With total merchandise exports of US$1,788 billion and imports of US$1,991 billion (both in progression after the sharp decline in 2009), the EU was the world's largest exporter and importer compared to Korea's ranking at 5th for exports and 6th for imports (also growing rapidly from 2009, with global exports and imports of US$466 billion and US$425 billion).
1: structure of the Agreement Chapters, Annexes, and Appendixes Title/description Preamble Chapter 1 Objectives and General Definitions Chapter 2 National Treatment and Market Access for Goods ( Annex 2A: Schedules
( Appendix 2A-1 (TRQs Korea)
( Appendix 2A-2 (Entry Price Scheme EU)
( Annex 2B (Electronics)
( Annex 2C (Motor Vehicles and Parts)
( Annex 2D (Pharmaceutical Products and Medical Devices)
( Annex
2E (Chemicals)
Chapter 3 Trade Remedies ( Annex 3: Agricultural Safeguard Measures Chapter 4 Technical Barriers to Trade ( Annex 4: TBT Coordinator Chapter 5 Sanitary and Phytosanitary measures Chapter 6 Customs and Trade Facilitation Chapter 7 Trade in Services, Establishment and Electronic Commerce ( Annex 7A: Lists of Commitments
( Annex 7A-1 (EU / Cross-Border Supply of Services)
( Annex 7A-2 (EU / Establishment)

(
Annex 7A-3 (EU / Key Personnel and Graduate Trainees and Business Service Sellers)
( Annex 7A-4 (Korea)
( Attachment I: Higher Education Services
( Attachment II: Adult Education Services
( Annex 7B: MFN Treatment Exemption
( Annex 7C: List of MFN Exemptions (EU)
( Annex 7D: The Additional Commitment on Financial Services Chapter 8 Payments and Capital Movements Chapter 9 Government Procurement ( Annex 9: BOT Contracts and Public Works Concessions Chapter 10 Intellectual Property ( Annex 10A: Geographical Indications for Agricultural Products and Foodstuffs
( Annex 10-B: Geographical Indications for Wines, Aromatised Wines and Spirits Chapter 11 Competition Chapter 12 Transparency Chapter 13 Trade and Substantial Development ( Annex 13: Co-operation on Trade and Sustainable Development Chapter 14 Dispute Settlement ( Annex 14A: Mediation Mechanism for Non-Tariff Measures
( Annex 14B: Rules of procedure for Arbitration ( Annex 14C: Code of Conduct for Members of Arbitration Panels and Mediators Chapter 15 Institutional, General and Final Provisions Protocol: Concerning the definition of ‘originating products’ and methods of administrative co-operation.
European Union
Duty phase-out period Number of lines % of total lines in EU's tariff schedule Value of EU's imports
from Korea
(2008-2010) in million € % of EU's total imports from Korea
2008-2010 MFN duty free (2011) 2,316 24.
The specific duty component for some of these products (including cucumber, fresh pears and cherries, and unfermented grape juice and must) will be eliminated immediately; others including fresh or chilled vegetables and fruit will be subject to tariff elimination within 2 to 15 years of entry into force of the Agreement.
The 57 tariff lines which remain dutiable consist of lines that are excluded from the elimination commitments (16 products), and of lines for which tariffs are to be reduced to reach the level of the base rate indicated in the Parties' schedules.
The TRQ quantities for Korea in favour of EU goods shall not be counted towards the inquota amount of any TRQ provided for such goods in the Harmonised Tariff Schedule of Korea (HSK) suggesting that the TRQ commitments are in addition to Korea's WTO TRQs.
The disciplines on the determination of origin in the Protocol also set out rules on accessories, spare parts and tools (Article 8) which if part of the product and included in its price are to be regarded as one with the product; sets of goods (Article 9) which when composed of originating and non-originating products, shall be regarded as originating provided the value of the non-originating products does not exceed 15% of the ex-works price of the set; accounting segregation of materials (Article 11), or transport of goods from one Party to another including the principle of territoriality and direct transport (Articles 12 and 13) which is to be direct but trans-shipment or temporary warehousing in third parties is permitted provided that the goods are not released for free circulation and do not undergo operations other than unloading,
8 confirms the Parties' adherence to the concept of pest- or disease-free areas and areas of low pest or disease prevalence (in accordance with the WTO SPS Agreement) and establishes close cooperation on these issues with the objective of building confidence in each other's' procedures for the recognition of such areas, taking into account the relevant international standards, guidelines or recommendations.
Bilateral safeguards
A bilateral safeguard clause allows either Party to reintroduce temporarily the tariffs applied to WTO Members in case of an absolute or relative increase of imports, resulting from the reduction or the elimination of a customs duty under the Agreement, causes or threatens to cause serious injury to a domestic industry producing like or directly competitive goods (Article 3.

An agricultural safeguard may not be applied on the same good at the same time as a bilateral safeguard (see above), a global safeguard (see above), or a special safeguard applied under Article 5 of the WTO Agreement on Agriculture.
Cooperation between the Parties in customs and customs-related matters is reinforced through various provisions including the harmonization of documentation and data elements used in trade according to international standards, exchanging customs personnel, intensifying cooperation between their customs laboratories and working towards the harmonization of customs laboratories methods, developing joined training programmes on customs-related issues, to promote strong and efficient intellectual property rights enforcement by customs authorities, and working together to reinforce the customs related aspects for securing the logistics chain of international trade.
Unless it can demonstrate, based on scientific or technical information, that a new technology or new features of motor vehicles create a risk for human health, safety or the environment, neither Party shall prevent or unduly delay the placing on its market of a new product (Article 6 of Annex 2C).
In addition, "measures affecting the cross-border supply of services" include measures affecting (a) the production, distribution, marketing, sale and delivery of a service; (b) the purchase, payment or use of a service; and (c) the access to and use of networks or services which are required by the Parties to be offered to the public generally.

While the first mode of provision of services (cross-border trade in services) and to a certain extent mode 2 (consumption abroad) are covered by Section B, and while some specific disciplines related to mode 3 (commercial presence) are contained in Section C - on establishment -, mode 4 - related disciplines (temporary presence of persons) are concentrated in Section D (on Temporary presence of natural persons for business).
1
Temporary entry and stay per Category of personnel
Category of personnel Period of temporary entry and stay Intra-corporate transferees Up to three years Business visitors 90 days in any 12 month period Graduate trainees One year Business service sellers Up to 90 days in any 12 month period
Annex 7A-3 contains the EU's list of reservations related to its commitments regarding key personnel and graduate trainees (Article 7.
In all EU Member States except Hungary and Poland, eligibility for subsidies from the EU may be limited to juridical persons established within the territory of an EU Member State or a particular geographical sub-division thereof.
need to obtain a licence, universal service obligations, need to obtain recognition of qualifications in regulated sectors and need to pass specific, including language, examinations), even if not listed, apply in any case to services and service suppliers of Korea.
As far as the temporary presence of key personnel and graduate trainee and business service sellers is concerned, the EU's commitments do not apply in cases where the intent or effect of their temporary presence is to interfere with, or otherwise affect the outcome of, any labour / management dispute or negotiation.
Similar: Similar commitments made under the Agreement as those under the GATS (though with minor improvements).
Compared to its GATS commitments, the EU improves its commitments in recreational, cultural and sporting services, by reducing the number of limitations (in particular by individual EU Member States), while Korea, which had not bound the sector under the GATS, opens its market to EU services suppliers, partly for entertainment services and news agency services and more broadly for recreation park services.
Nothing in the Agreement requires the Parties to provide confidential information, the disclosure of which would impede law enforcement, or otherwise be contrary to the public interests, or which would prejudice legitimate commercial interests of particular enterprises, public or private.

On capital movements, the Parties undertake to impose no restrictions on the free movement of capital relating to direct investments made in accordance with the laws of the host country, to investments and other transactions liberalized in accordance with Chapter 7 and to the liquidation and repatriation of related capital and generated profit.
inter alia, to protect public security and public morals, to maintain public order, or to secure compliance with certain laws or regulations which are not inconsistent with the provisions of Chapter 8 may be taken by the Parties, provided they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on capital movements (Article 8.
They agree to exchange views and information on their practices and policies affecting the transfer of technology and to prevent or control licensing practices or other conditions which may affect technology transfer or constitute abuses of intellectual property rights by right holders (Article 10.
69), the Parties expand their TRIPS commitment by agreeing to comply with the Rome Convention (Articles 1-22), the Bern Convention (Articles 1-18), the WCT (Articles 1-14), and the WPPT (Articles 1-23), which they are now all Parties to.
The Agreement requires that the Parties provide, at the request of the patent owner, an extension of patent protection (at least 10 years according to the TRIPS obligations) to compensate the patent owner for the reduction in the effective patent life as a result of the first authorization to place the product on the Parties' respective markets.
These subsidiesrelated disciplines are without prejudice to the rights of a Party in accordance with the relevant provisions of the WTO Agreements to apply trade remedies or to take dispute settlement or other appropriate action against a subsidy granted by the other Party (Article 11.
12 of the Agreement establishes an institutional mechanism, through the designation of contact points, the creation of a Committee on Trade and Sustainable Development, as well as the establishment of Domestic Advisory Group(s) on sustainable development (environment and labour).
In suspending obligations, the complaining Party may choose to increase its tariff rates to those applied to other WTO Members on a volume of trade to be determined in a way that the volume of trade multiplied by the increase of tariff rates equals the value of the nullification or impairment caused by the violation.
1
European Union: Indicators of MFN tariff rates and preferential rates for imports from Korea
Origin
of goods Year ALL PRODUCTS Agricultural products a Non-agricultural products Average applied tariff Share of duty-free tariff lines (%) Average applied tariff Share of duty-free tariff lines (%) Average applied tariff Share of duty-free tariff lines (%) Overall (%) On dutiable (%) Overall (%) On dutiable (%) Overall (%) On dutiable (%) MFN 2011 4.
2 – European Union: Market access opportunities under the agreement for Korea's top 25 exports
Korea's top export products in 2008-2010 Access Conditions to EU's import markets MFN (2011) Duty-free in MFN average No.
3
Korea: Indicators of MFN tariff rates and preferential rates for imports from European Union
Origin of goods Year ALL PRODUCTS Agricultural products a Non-agricultural products Average applied tariff Share of duty-free tariff lines (%) Average applied tariff Share of duty-free tariff lines (%) Average applied tariff Share of duty-free tariff lines (%) Overall (%) On dutiable (%) Overall (%) On dutiable (%) Overall (%) On dutiable (%) MFN 2011 12.
At the entry into force of the Agreement, an additional 85 of these 221 tariff lines became duty free; eleven additional lines will become duty free in 2014, twenty-seven in 2016, and 3 in 2018.
00% Entry price component in force but not reflected in duty rate, eliminated in year 15 08055010 -- Lemons (Citrus limon, Citrus limonum) 0.
Non-originating materials not fulfilling the conditions set out in the list in Annex II may however be disregarded when their total value does not exceed 10% of the ex-works price of the product.
In the Agreement, "branch" of a juridical person means "a place of business not having legal personality which has the appearance of permanency, such as the extension of a parent body, has a management and is materially equipped to negotiate business with third parties so that the latter, although knowing that there will, if necessary, be a legal link with the parent body, the head office of which is abroad, do not have to deal directly with such parent body but may transact business at the place of business constituting the extension" (Article 7.
A "juridical person" is: (i) owned by persons of the EU or Korea if more than 50% of the equity interest in it is beneficially owned by persons of the EU or of Korea respectively; (ii) controlled by persons of the EU or of Korea if such persons have the power to name a majority of its directors or otherwise to legally direct its actions; affiliated with another person when it controls, or it controlled by, that other person, or when it and the other person are both controlled by the same person.
Footnote
1
8
of the Annex 7A-4greement
qualifies "
deemed foreign person
" as "a juridical person organised under Korean law in which a foreign government or a foreign person (including a "specially related person" under relevant Korean law) is the largest shareholder and holds 15% or more of that juridical person's total voting shares, but does not include a juridical person that holds less than 1% of the total voting shares of a facilitiesbased supplier of public telecommunications services.
approved in Singapore on 3 October 2003 of the International Association of Insurance Supervisors; (iii) the Objectives and Principles of Securities Regulation of the international organisation of Securities Commissions; (iv) the Agreement on Exchange of Information on Tax Matters of the Organization for Economic Co-operation and Development (OECD); (v) the Statement on Transparency and Exchange of information for Tax Purposes of the G-20; and (vi) the Forty Recommendations on Money Laundering and Nine Special Recommendations on Terrorist Financing of the Financial Action Task Force.
The Korean products covered by Annex 10A include green tea, black raspberry wine, garlic, red pepper and powder, gochujang, oriental melon, Chinese cabbage, rice, citron, waxy corn, mugwort, beef, pork, red, white, fresh or taekuk ginseng, red
,
white or taekuk ginseng products, apple, milk vetch root, onion, white lotus tea, black raspberry, apricot, angelica gigas nakai root, sweet potato, fig, watermelon, barley, pine-mushroom, oak-mushroom, persimmon dried, chestnut, aruncus dioicus, golden rod, fern, aster, jujube (date), boxthorn, corni fructus, and sap.
The provisions of Chapter 11 of the Agreement do not apply to fisheries subsidies, as well as to subsidies related to products covered by Annex 1 of the Agreement on Agriculture and other subsidies covered by the Agreement on Agriculture.