The newest EU trade strategy promoted by Trade Commissioner Karel De Gucht is to create bilateral agreements with several countries including South Korea, Vietnam and Singapore. The Free Trade Agreement (FTA) with South Korea has seen negotiations completed between the two sides, with parties aiming to have it entered into force by years end. Only a few political obstacles with the European Parliament remain, which lawmakers hope can be shortly cleared away.
These proposed FTAs are expected to bring massive trade opportunities for consumers and the bilaterally participating countries. They will open up borders for greater trade flow between the EU and each respective Asian country thanks, in part, to lowered duty rates. A spin-off of this could be that Hong Kong and mainland Chinese manufacturers and exporters will be faced with tougher competition from their neighbours. However, perhaps competitors can also take advantage of the benefits in the future FTAs with lower duties or no duties on electronics, textiles, toys and footwear, just to name a few sectors.
Below is an overview of the steps being taken to create FTAs between the EU and South Korea, Vietnam, Singapore and India.
The EU-South Korea bilateral trade agreement is being labelled the most comprehensive FTA that the EU ever negotiated. Import duties are eliminated on nearly all products. Specific commitments to eliminate and to prevent non-tariff obstacles to trade have been agreed on for goods such as automobiles, pharmaceuticals and electronics.
The EU-South Korea FTA provides for the removal of customs duties over a transitional period; highlights of this process include:
- The majority of customs duties on goods will be removed at the entry into force of the agreement.
- Practically all customs duties on industrial goods will be fully removed in year five of the tariff elimination schedule.
- Both sides will have achieved, by year seven, 98% duty elimination in terms of tariff lines.
- In the machinery and appliances sector, duties are saved with gains close to 450 million, and 70% of those duties will be removed as of entry into force.
- In other industrial sectors there will be considerable duty relief at entry into force including: textile exports will have 93% of duties removed immediately, glass 85%, leather and fur 84%, footwear 95% and iron and steel 93%.
The EU is taking progressive action to sign similar bilateral agreements with other ASEAN countries, and to make that happen, De Gucht recently visited Vietnam and Singapore to meet with politicians there to encourage them to start negotiating their own FTAs with the EU.
Now Vietnam has agreed to launch bilateral free trade agreement negotiations after the EU Trade Commissioner met the Vietnamese Prime Minister Nguyen Tan Dung in Hanoi earlier this month. EU and Vietnamese officials are approaching a formal start to negotiations as well as an agreed framework for the talks. The EU Commissioner will first discuss the next stages with the European Council and the European Parliament in order to further deepen trade relations between the two parties.
After visiting Vietnam, the EU Trade Commissioner met the Singapore Minister for Trade and Industry Lim Hng Kiang to officially launch negotiations for an FTA between the EU and Singapore. The first negotiating phase is already scheduled for 812 March 2010 in Singapore.
And last but not least, Commission De Gucht is optimistic about closing a free trade deal with India. On 4 March, he met with his Indian counterpart in New Delhi, trade minister Anand Sharma, and commented, at a press conference that the EU is aiming for a conclusion of a bilateral FTA for October this year. Although the aimed-for date seems ambitious, negotiations not having progressed far or smoothly between these two trading blocs, we will speed up the negotiations said De Gucht, although perhaps rather optimistically. Some highly sensitive issues stubbornly remain to be unravelled, the main ones being, on the Indian side, high customs duties, other non-tariff barriers, environmental concerns, abuse of intellectual property rights, and child labour. Nonetheless, Hong Kong sellers can see that eventually, whether this year or in the near future thereafter, a free trade agreement with India is certainly on the cards.
Hong Kong exporters will have to prepare for the entrance of steeper competition once these FTAs allow more products to flow freely into Europes markets. Other manufacturers and traders will have to try harder to win over consumers by meeting lower prices and a broader offering of products. Additionally, the deepening and strengthening of ties between these trading partners creates reliance by the EU on other countries exports and could make negotiating a tougher process for Hong Kong and mainland manufacturers and exporters.
That being said, Hong Kong traders can perhaps profit from these FTAs. The EU-South Korea FTA demonstrates the terms the EU is prepared to offer in lowering or abolishing duties on many of the same goods that Chinese manufacturers produce. With possible tie-ups with manufacturing units in, for example, Seoul and other FTA-favoured countries, Hong Kongs exporting community might be aiming for a win-win situation, without necessarily relocating their businesses and production units.
The EUs progressive trade strategy for Southeast Asia strengthens economic ties between the EU and their respective bilateral trade partners and each economy involved will likely be enlivened by the bilateral agreements. Alongside increased competition, traders too may find commercial benefits
Originally published in The Stitch Times: May 2010