Transcript Korea Free Trade Agreement Sustainability Impact Assessment

European Union – Korea Free
Trade Agreement
Sustainability Impact
Assessment
Presentation to Public Meeting
March 14, 2008
1
Outline
Overview of Phase I
Economic Context
Social Context
Environmental Context
Baseline and Impact Assessment
Selection of Sectors
Horizontal Negotiating Issues
Liberalisation Scenarios
2
Phase II
Analysis of Sectors:
automobiles,
agri-food products,
financial services, and
environmental goods and services
Analysis of Horizontal Issues
Rules of origin
Technical Regulations and Standards
Intellectual Property Rights
Investment
3
Phase III Sustainability Impact Assessment
Economic
Social
Environmental
4
Phase III Conclusions and Recommendations
FTA related Measures
Phasing
Rules of origin
TBT SPS
IPR
Investment
Sustainable Development
Enhancing measures
Economic
Social
Environmental
5
Economic Context: European Union
Largest Global trader especially services
In recent years had overall balance of trade with
large surplus with NAFTA and large deficit with East
Asia
Challenges of adjustment of global imbalances
Korea is the fourth largest trading partner outside
Europe but accounts for less than 3 percent of EU 25
external trade
Dynamic expansion of trade within the EU 27 with
Enlargement
6
Economic Context: Korea
Good economic growth since the financial
crisis a decade ago
Exports and imports have grown strongly
Currency Exchange rate has appreciated
significantly
Overall trade surplus has remained stable
7
Economic Context: Bilateral Dimensions
and Asymmetries
EU is a more important trading partner for Korea
than Korea is for the EU
Bilateral Trade surplus has increased in Korea’s
favour
Growth in Korean exports to, and investment in,
NMS has been significant
Trade between the EU and Korea has a
significant intra-industry component
EU is the largest foreign investor in Korea
8
Economic Context: Global and
Regional Dimensions
The role of global imbalances and longer term
adjustment
Emergence of regional trade and production networks
in East and South East Asia
Third country and multilateral effects are very
important
9
Social Context : Europe
EU has considerable variation in income per capita
among member states
In a number of EU member states agriculture is still
an important source of employment and income
EU population is ageing and total labour force will
start to shrink -- key role of Lisbon agenda in raising
labour force participation
10
Social Context: Korea
Korea has shifted from a rural agrarian society to an
urban industrial society
Korean society is rapidly ageing and faces challenges
of demographic transition
Korea has high levels of educational participation and
attainment
By Human Development Index Korea ranks closer to
EU median than by per capita income
11
Social Context: Gender and Income
Distribution
Korea has low female participation in the labour
force and lower educational attainment for women
Korea has a relatively low level of income
equality
Korea is close to the median of EU member states
in income equality
12
Environmental Context
Korea has made significant progress in environmental
protection and pollution control especially in the last
decade since joining the OECD
As a densely populated urbanised society Korea has
further needs for environmental protection
Korea depends heavily on imported energy and
renewable energy could play a more active role
Korea participates actively in multilateral
environmental agreements
13
Common Environmental Challenges
Common interest in Multilateral Environmental
Conventions
Challenges of the post Kyoto phase on climate
change
Reducing use of carbon sources of energy and
improved environmental technologies
14
Baseline and Methodology
Baseline is built upon the CGE GTAP modelling
framework
Strengths and Weaknesses
Complementary industry studies and market
segmentation
Dynamic Modelling and Endogenous Technology –
role of investment
Sector Selection
15
Sector Selection
Automobiles
Agriculture
Financial Services
Environmental Goods and Services
16
Horizontal Issues
Rules of origin
Intellectual Property Rights
TBT/SPS
Investment
17
Liberalisation Scenarios
Scenario 1 Comprehensive FTA remove all tariffs on
industrial products, few agricultural exceptions, and
liberalisation of services
Scenario 2 Deep FTA includes Comprehensive
Agreement and addresses behind the border issues
18
Consultations
Consultations
Meetings in Brussels 30 November, 21 February and
14 March
Workshop in Korea December 14
Consultations in Europe and Korea with stakeholders
Briefs from stakeholders
Sector Studies
19
Overview of Phase Two
Analysis of Sectors
Analysis of specific segments, partial equilibrium analysis
Economy wide modelling of specific sectoral impacts
Incorporation of “behind the border”, FDI and technology
effects
Sustainability impact assessment
Analysis of horizontal issues
Identification of sectoral aspects
Sustainability assessment
Overall impacts
20
Automotive Sector
Growing role of FDI in the base case, e.g. Renault Samsung and
Hyundai/Kia investments in Central Europe
Global context for automobile production and trade is important:
Spreading technology development costs over volume
Emergence of China, India, SE Asia, Russia in production
Economic Impact: Model based estimates show large
increases in trade volume but our estimates are much lower
than Copenhagen economics study.
Market segment analysis with competitive responses by EU
producers, technology changes, third country effects, and FDI
shows less impact on trade volumes but offers potential
economic gains
Implications of preferences under KORUS and potentially with
Korean FTA with Japan
21
Automobile Sector
Dealing with behind the border issues especially technical
regulations and standards are important to the sector
Social Impact: relative shift to skilled labour from unskilled
labour in EU although overall impact is modest
Difficult to separate the incremental impact of the EU
Korea FTA on employment in the sector from other factors
Overall social impacts and adjustment are limited with
tariff phasing and dealing with technical regulations
Environmental Impacts: The EU and Korean industry face
similar challenges in reducing CO2 emissions and achieving
higher levels of fuel efficiency.
22
Agri-food Sector: Economic Impacts
Earlier FTAs such as Korea-Chile have had significant effects in
certain sectors such as wine.
An EU-Korea FTA is not expected to have as much of an effect
on the agriculture and fishery industries of Korea as the KORUS
FTA.
The EU is expected to concentrate on expanding exports of
processed foodstuffs such as alcoholic beverages and processed
dairy products such as butter and cheese.
Any increase in the export of Korean food products to the EU is
expected to be small, and concentrated in non-sensitive areas
such as ramyon (instant noodle) and kimchi.
23
Agri-food Sector: Social and Environmental
Impacts
The expansion of specific exports from the EU such dairy
products, pork, wine or spirits could have regional impacts on
employment in the exporting regions in the EU
Some restructuring of the Korean food processing sector may be
necessary, but such adjustment would be already occurring with
KORUS. Limited impact on primary agriculture in Korea.
The adverse social impact in Korea could be on older workers in
segments of the agri-food sector
Environmental Impacts: Given the relatively small scale of
the potential export expansion and the associated production
response, it is doubtful that there would be significant
environmental impacts. EU exports to Korea currently account
for about 1.5% of the EU total, and about 0.1% of total industry
turnover.
24
Financial Services
In our view the main effect of liberalisation of
financial services will be increased FDI.
Economic Impact: The Copenhagen study foresees
contraction in Korean financial services sector and
expansion of EU exports
In our analysis output will increase in both EU and
Korea in financial services
25
Financial Services
Social Impact: If FDI is taken into account then the effects of
Korean financial services liberalisation are likely to be an
increase in efficiency and in output and economic activity. This
will lead to increased demand for skilled labour in the financial
services sector in Korea.
Environmental Impact: effect of financial liberalisation on
environment is ambiguous since the liberalisation has
environment impacts through many channels.
Direct environmental impact is extremely difficult to assess as
financial services are typically low-energy consumption and lowCO2 emitters industries. Thus, expansion of the share of
financial services in the economy can be said to have a positive
environmental impact.
When financial liberalisation leads to higher economic growth
and employment, it may have negative impacts on environment
26
Environmental Goods and Services
Korea has made significant progress in environmental protection and
pollution control especially in the last decade since joining the OECD,
As a densely populated urbanised society Korea has further needs for
environmental protection
Korea depends heavily on imported energy and renewable energy
could play a more active role
Environmental Goods are included in machinery sectors where Korea
had a trade surplus and shows strong output gains under the
Copenhagen study – SIA CGE modelling shows limited impact on EU
Environmental goods are products where the tariffs are lower and the
EC has a positive trade surplus in a number of products and in
environmental services
Economic impacts: Strong pattern of overlapping intra-industry trade,
which suggests mutual benefits from trade expansion
Environmental impacts: Liberalisation of environmental goods and
services offers benefits in exchange and development of clean
technologies
27
Rules of Origin
It is appropriate to have high content requirements
for Pan EuroMed rules with Cumulation for countries
contiguous with EU or for regional blocs eg EPAs
High content requirements are a challenge for Korea
due to the structure of the economy and distance
from the EU
High content requirements are more warranted in
sectors with high and dispersed third country tariffs
28
Technical Regulations and Standards
Technical regulations and standards are important in
specific sectors
Automobiles
Cosmetics
Electronics
Technical regulations and standards should make
greater use of international norms
Development of Mutual Recognition of Conformity
Assessment
29
Intellectual Property Rights
Legal framework in Korea needs to be strengthened
in a few areas such as Regulatory Data Protection
and patent linkage
Better enforcement of IPRs including for counterfeit
goods is a priority
30
Investment
Increased Foreign Direct Investment will contribute
to economic benefits from the FTA
Increased FDI is likely to be the most significant
mode for trade in services
Increased FDI can also contribute to aggregate
investment and improved economic growth
31
Conclusions : Economic Impacts
The overall economic effects of the EU-Korea FTA are
likely to be modest because both partners already
have very open economies and highly integrated into
the world economy.
Second, the emergence of Korea as a developed
economy and the degree of overlap that has
developed in the industry structure for goods and for
services between the EU and Korea suggests that
there are increased opportunities for intra-industry
specialisation, scale effects, pro-competitive effects
and induced investment and innovation effects.
32
Social Impacts
There are unlikely to be large inter-industry shifts in
output and employment that could lead to disruption
of labour markets at either a national or regional
level.
In the medium to longer term both the EU and Korea
face common challenges to increase productivity and
labour force participation and employment rates in
order to sustain economic growth with a stable and
aging population.
33
Environmental Impacts
The convergence in economic development levels is
leading to greater commonality in concerns about
protection of the environment between the EU and
Korea.
The potential economic benefits of increased
productivity and enhanced technology could translate
into the development of, and the increased use and
diffusion of clean technologies.
34
Phase III Sustainability Impact Assessment
Trade models show significant trade effects and
modest welfare gains with greater proportional gains
to the smaller economy
Increased FDI is an important channel
Role of specialisation and induced technological
innovation
35
Social Impacts
Limited employment impacts
Modest positive effects on gender in Korea e.g.
financial services
Very modest price effects and overall positive
36
Environmental
Limited mitigation challenges incremental energy use
the only significant one identified
Common multilateral challenges
Focus on energy efficiency and climate change
37
Phase III Conclusions and Recommendations
FTA related Measures
Phasing
Rules of origin
TBT SPS
IPR
Investment
Sustainable Development
Enhancing measures
Economic
Social
Environmental
38