The newest EU trade strategy promoted by TradeCommissioner Karel De Gucht is to create bilateral agreements with severalcountries including South Korea, Vietnam and Singapore. The Free TradeAgreement (FTA) with South Korea has seen negotiations completed between thetwo sides, with parties aiming to have it entered into force by years end.Only a few political obstacles with the European Parliament remain, whichlawmakers hope can be shortly cleared away.


These proposed FTAs are expected to bring massivetrade opportunities for consumers and the bilaterally participating countries.They will open up borders for greater trade flow between the EU and eachrespective Asian country thanks, in part, to lowered duty rates. A spin-off ofthis could be that Hong Kong and mainland Chinese manufacturers and exporterswill be faced with tougher competition from their neighbours. However, perhapscompetitors can also take advantage of the benefits in the future FTAs withlower duties or no duties on electronics, textiles, toys and footwear, justto name a few sectors.


Below is an overview of the steps being taken tocreate FTAs between the EU and South Korea, Vietnam, Singapore and India.


The EU-South Korea bilateral tradeagreement is being labelled the most comprehensive FTA that the EU evernegotiated. Import duties are eliminated on nearly all products. Specificcommitments to eliminate and to prevent non-tariff obstacles to trade have beenagreed on for goods such as automobiles, pharmaceuticals and electronics.


The EU-South Korea FTA provides for the removalof customs duties over a transitional period; highlights of this processinclude:


  • 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 signsimilar bilateral agreements with other ASEAN countries, and to make thathappen, De Gucht recently visited Vietnam and Singapore to meet withpoliticians there to encourage them to start negotiating their own FTAs withthe EU.


Now Vietnam has agreed to launchbilateral free trade agreement negotiations after the EU Trade Commissioner metthe Vietnamese Prime Minister Nguyen Tan Dung in Hanoi earlier this month. EUand Vietnamese officials are approaching a formal start to negotiations as wellas an agreed framework for the talks. The EU Commissioner will first discussthe next stages with the European Council and the European Parliament in orderto further deepen trade relations between the two parties.


After visiting Vietnam, the EU TradeCommissioner met the Singapore Minister for Trade and IndustryLim 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 isoptimistic about closing a free trade deal with India. On 4March, he met with his Indian counterpart in New Delhi, trade minister AnandSharma, and commented, at a press conference that the EU is aiming for aconclusion of a bilateral FTA for October this year. Although the aimed-fordate seems ambitious, negotiations not having progressed far or smoothlybetween these two trading blocs, we will speed up the negotiations said DeGucht, although perhaps rather optimistically. Some highly sensitive issuesstubbornly remain to be unravelled, the main ones being, on the Indian side,high customs duties, other non-tariff barriers, environmental concerns, abuseof intellectual property rights, and child labour. Nonetheless, Hong Kongsellers can see that eventually, whether this year or in the near futurethereafter, 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