South Korea and the United Kingdom agreed in Seoul on Monday to continue the terms of the current EU-South Korea free trade agreement, bilaterally, after the United Kingdom leaves the European Union.
The agreement, reached on Monday between South Korea’s Trade Minister Yoo Myung-hee and visiting British counterpart Liam Fox, marks the biggest preliminary post-Brexit FTA deal yet agreed by London in Asia, or, indeed, globally.
Last year, the trade relationship between the UK and South Korea was worth US$18.5 billion and has increased by an average of 12% per year since the EU-Korea FTA was signed in 2011, according to a communique from the UK’s Seoul embassy.
At a time when London is scrambling to reduce the risks posed by Brexit, G11 South Korea is the most significant economy among 12 nations and trading blocs that the UK has so far agreed to establish free trade agreements with after the country leaves the EU.
With the UK’s ruling Conservative Party in the midst of a leadership contest amid an atmosphere of general political disarray, the format Brexit – the UK’s exit from the EU – will take is as yet unknown. While it may be a negotiated deal, it is possible that the UK may “crash out” of the EU without an agreement, a scenario some business leaders consider calamitous.
While the UK is set to Brexit on October 31, it is also possible that date may be extended. Amid such uncertainty, the agreement signed in Seoul was hailed for offering both British and South Korean businesses predictability.
“The deal is significant as it eased uncertainties sparked by Brexit, amid the already challenging environment for exports on the escalating trade row between Washington and Beijing,” South Korean Trade Minister Yoo Myung-hee said, according to the Yonhap news agency. “We will make our best efforts to help South Korean businesses maintain their operations with Britain without troubles.”
“Providing continuity in our trading relationship will allow businesses in the UK and Korea to keep trading without any additional barriers, which will help us further increase trade in the years ahead,” said the UK’s International Trade Secretary Fox, according to a communique from the British Embassy in Seoul.
“As we face growing global economic headwinds, our strong trading relationship will be crucial in driving economic growth and supporting jobs throughout the UK and Korea.”
The agreement had a thumbs up from exporters of both UK products and services.
Corporate Relations Director, Asia Pacific, Paul Kelleher of alcoholic beverages firm Diageo said he “warmly welcomes” the agreement, according to the communique, while Grant Hughes, the managing partner of law firm Clifford Chance, said: “We are pleased to hear the news of a trade deal which will allow for firms such as ours to maintain our local presence.”
With trade giant South Korea a G11 economy and home to such powerhouse global brands as Samsung and Hyundai, the agreement may be touted by the UK’s pro-Brexit ruling Conservative Party as a triumph heralding a freer UK hand in cutting trade deals.
However, the irony that the future deal will be closely modeled on an EU-South Korea deal signed in 2010 – when Brexit was not even a speck on the political horizon – is unlikely to be overlooked.
Biggest deal so far
Monday’s deal, which agrees to continue the terms of current EU FTAs post-Brexit, is the 12th signed between the UK and its trade partners, a source at the British Embassy in Seoul told Asia Times.
According to the communique, this means the UK will have secured agreements with countries that account for 63% of trade now covered by EU agreements, for which the UK is seeking continuity – an increase from 28% only three months ago.
But beyond South Korea, the trade blocs and countries with whom agreements have been reached are not, in the main, star global economies.
According to the UK government, they are: the CARIFUM bloc – encompassing a clutch of Caribbean islands and Central American states – Chile, the Eastern and Southern Africa trade bloc, the Faroe Islands, Iceland and Norway, Israel, Liechtenstein, Pacific States, the Palestinian Authority and Switzerland.
Strikingly, the EU-Japan FTA, which entered force this February, is not included in the list. A source at the UK embassy noted that Monday’s agreement to transition the EU-South Korea FTA to a South Korea-UK FTA, post-Brexit, does not provide a model for further transitions – such as the EU-Japan FTA.
And how detailed the outlined South Korea-UK deal – described as a “joint statement” in the British communique – is, remains unclear. It also appears to be preliminary: “This marks the end of formal trade discussions and the UK-Korea Free Trade Agreement will be subject to final checks before it formally signed,” the communique read.
The South Korea-EU FTA took three years to negotiate, was signed in 2010 and entered implementation in 2011.
After the UK exits the EU, any final agreement to carry over the 2010 agreement will need to be ratified by both parliaments before taking effect.