Korea-Bulgaria Economic Relations in the Context of a Korea-EU FTA

1. Korea-Bulgaria Economic Relations in the Context of a Korea-EU FTA 3 May 2007 Heungchong KIM Head, European Studies Korea Institute for International Economic Policy

2. Table of Contents I. Korea in the First-round FTA Partner of EU II. Korea’s FTA Policy III. Current Status of Korea-EU Economic Relations IV. Korea-Bulgaria Economic Relations V. Korea-EU FTA: a feasibility VI. Korea-EU FTA: current situation and prospects VII. Future Prospects of Korea-Bulgaria Economic Relations

3. I. Korea in the First-round FTA Partner of EU • Key Economic Criteria of new FTA partners • Market potentials in terms of economic size and growth • The level of protection against EU export interests • The progress of their negotiations with EU competitors • The types of FTAs that the potential partners pursued: high-level and comprehensive. Based on these criteria, ASEAN, Korea and Mercosur are chosen in the first round of the FTA negotiations, India, Russia and GCC emerged to be in the second wave.

4. II. Korea’s FTA Policy • Why does Korea pursue FTAs now? • Korea: strongly supported multilateral trade negotiations as it is one of the greatest beneficiaries of the GATT/WTO – heavily dependent on foreign markets, but just ignored FTAs • Regionalism revived and making fortress in foreign markets, so urgent need to change its trade policy to take new markets and not to lose existing ones. • Emerging China and Korea’s choice • A sense of urgency = “Already late, but don’t be too late.” • Basic Strategy of Korea’s FTAs • Should take a multi-track pursuit with a high-level and comprehensive • Forming FTA networks with giant economies and emerging markets • FTAs supporting MTN

5. II. Korea’s FTA Policy • Why does a high-level and comprehensive FTA? • To create an FTA harmonizing worldwide trade and investment liberalization, why? • FTA as a domestic negotiation – only high-level and comprehensive FTA induce domestic reform and active remedy support for the groups - contribution to a worldwide liberalization in WTO

6. I. Korea’s FTA Policy

7. II. Korea’s FTA Policy • Korea’s FTA Networks in the Future • FTA Networks with more than 50 countries in the World including….. • Small but strong countries such as Chile, Singapore, EFTA and Canada • Giant economies of ASEAN, US, EU, Japan and China • Emerging Markets of India, Mexico, MERCOSUR and Russia

8. III. Current Status of Korea-EU Economic Relations • Achievements in Trade • Official diplomatic relations in 1963 => 43 year “celebration” of diplomatic relations; great achievements in trade and investment • Korea’s exports to the EU increased by 566 times in 1971 to 2005; Korea’s imports from the EU also increased 117 times over the same period. • In 2006, Korea's exports to the EU amounted to $49.2 billion, while its imports totaled $30.2 billion, making the total volume of its trade $79.4 billion. This is composed of nearly 12.5% of Korea’s total trade volume in 2006.

9. III. Current Status of Korea-EU Economic Relations • Achievements in Trade • As of 2006, the EU was Korea’s second biggest exporting partner next to China and ahead of the U.S. It is also the second biggest trading partner next to China, and ahead of Japan and the U.S. • Korea is the 8th trading country for the EU. • U.S., China, Switzerland, Russia, Japan, Norway, and Turkey stood ahead of Korea • Korea is the biggest country of MFN status except giant economies of the US, China and Japan

10. III. Current Status of Korea-EU Economic Relations • Achievements in Investment • Before 1990: Japan was the largest investor to Korea – almost half of total investment record since 1962, much ahead of the U.S.(28.5%) and EU(12.5%) • Since 1991, the EU and US spurred up to the biggest investors in Korea • As of 2006, the EU stood as the largest investor in Korea with a registered investment stock of US$40.5bn in 2006; 31.9% of foreign capital in Korea • Korea’s ODI to the EU totalled US$9.4bn or 13.6% of Korea’s total ODI– not so conspicuous (compared with some 24% to the US or China), but much developed mainly to the CEECs - more than 60% of Korea’s ODI to the EU goes to new member states recently

11. III. Current Status of Korea-EU Economic Relations • Recent Developments in the Relations • EU’s strategic paper on Korea in 1993 and the Asia Strategy initiative in 1994 • The Korea-EU Framework Agreement for Trade and Cooperation established in 1996 between the two • The Joint Committee Meeting has been taken place since 2001. - 2001, 2003, 2004, 2005 and 2006 • Big trade issues including shipbuilding, trade remedy and others have settled down, but cosmetics, SPS, IPRs and other issues including NTB… still remaining

12. III. Current Status of Korea-EU Economic Relations • Korea-EU Relations Revisited • Trade imbalance – more than $19 billion trade surplus of Korea • Trade potentiality fully developed? - trade in goods and services • Problems in market access and investment issues • Strategic importance of the EU among the world vs. strategic importance of Korea among Asian countries • Asked a critical moment in economic relations

13. IV. Korea-Bulgaria Economic Relations

14. IV. Korea-Bulgaria Economic Relations Korea’s Main Exports to Bulgaria by HS description (2006) • (Unit: thousand US$)

15. IV. Korea-Bulgaria Economic Relations Korea’s Main Exports to Bulgaria by HS description (2006) • (Unit: thousand US$) Note: ** denotes the commodities that turn up on the list of Korea’s ten main exports to the world but is excluded in the list of Korea’s top ten exports to Bulgaria. No. 89, 27, 72 and 29 indicate (Ships, boats and floating structures), (Mineral fuels and oils, and products of their distillation), (iron and steel), and (Organic chemicals), respectively. Source: KOTIS

16. IV. Korea-Bulgaria Economic Relations Korea’s Main Imports from Bulgaria by HS description (2006) • (Unit: thousand US$)

17. IV. Korea-Bulgaria Economic Relations Korea’s Main Imports from Bulgaria by HS description (2006) • (Unit: thousand US$) Note: ** denotes the commodities included in the list of Korea’s ten main imports from the world but excluded from the list of Korea’s top ten imports from Bulgaria. These are 27 (mineral fuels and oils, and products of their distillation) 72 (Iron and steel), 29 (Organic chemicals), 26 (Ores, slag and ash), and 87 (Vehicles other than railway or tramway rolling-stock, and parts thereof). Source: KOTIS

18. V. Korea-EU FTA: a feasibility • Strategic Complementarities • Placed multilateralism first on the table but changing the mood from both sides • EU: a) growing concern about trade diversion in the Korean market caused by its active engagement in RTA (e.g. KORUS FTA) b) searching for momentum to improve market access and to solve problems arising from trade deficit c) active engagement of the EU in dynamic East Asia • Korea: a) why not the EU? from its FTA policy b) good chance to expand trade with a giant economy and create additional wealth c) good chance to make a stepping stone in accelerating the ongoing economic reform and upgrading the economic and social systems once again

19. V. Korea-EU FTA: a feasibility • Mutual Benefits Maximized* • Korea would benefit. - GDP increase by 2.02% and 3.08% GDP per capita increase by 2.16% and 2.96% - imports and exports increase by US$ 8.2 billion and 11 billion : in the improvement of Korea’s trade balance with the EU (for manufacturing goods) by US$2.9 billion - Domestic employment rises by 597,000 - FDI increase from 42 to 70% compared to the pre-FTA levels * KIEP(2005 and 2006)

20. V. Korea-EU FTA: a feasibility • EU would benefit, too. • In the agricultural sector, exports may increase (mainly in processed foods, e.g. dairy products and wine). • In the service sector, the EU shares estimated to substantially increase in telecommunication & broadcasting, legal, finance & insurance, and transportation & storage - The EU may benefit from a growing transparency in the Korean economy with the full adoption of a global standard

21. VI. Korea-EU FTA: current situation and prospects • Preliminary Talks finished and official announcement made • Feasibility studies of a Korea-EU FTA finished by both sides • no need for further joint studies on the feasibility of a Korea-EU FTA • The Joint Committee meeting in June 2006 finished • Preliminary talks on a Korea-EU FTA taken place in July and September in 2006 • Public hearing from the Korean side in November, 2006 • Council of the EU approved the start of negotiation in April, 2007 • The Korean Ministers’ meeting decided to start the negotiation in April, 2007.

22. VI. Korea-EU FTA: current situation and prospects • Factors to be Considered • Existence of strong will to evolve preliminary talks to a higher level • Development of negotiations in DDA • Further Development of the KORUS FTA • Political sensitivity in both economies • Interest groups on both sides • Time schedule • Negotiation will start next week in Seoul • 4 or 6 times negotiations by the end of this year • Hope to finish by the first half of next year

23. VII. Future prospects of Korea-Bulgaria Economic Relations • Korea-Bulgaria Relations will be Strengthened through a Comprehensive Korea-EU FTA • Korea-EU FTA will provide critical momentum in the bilateral relations of Korea and Bulgaria • Growing Bulgaria and Korea’s presence on the other side • Bulgaria: the first FTA with East Asian countries • Korea: market access • Can provide more active roles in a inter-regional and multilateral arena • In the ASEM member states, Korea can be a channel for dialogue between the two regions. • In the WTO/DDA and UN, Bulgaria and Korea can harmonize a mutually interested agenda.

24. Thank you