United Kingdom and Korea Sign Continuity Free Trade Agreement

On August 22, 2019, the United Kingdom (UK) and the Republic of Korea (Korea or South Korea) signed a continuity Free Trade Agreement (FTA).^[1]In the event of a no-deal Brexit on October 31, 2019, the UK – Korea trade agreement will enter into force, allowing British and Korean businesses to continue to trade on the same preferential terms under the European Union (EU) – Korea FTA.

To seek continuity for existing EU trade agreements to which the UK participates as an EU Member State, the UK has so far signed 13 trade agreements with 38 countries, for instance, with Chile and Switzerland.^[2]South Korea is the first Asian trading partner to sign a trade continuity agreement with the UK to be applied after Brexit.

The UK – Korea trade agreement replicates the EU – Korea FTA, as far as possible, with some technical changes. Below we provide a brief description tariff rules, preferential origin, agricultural safeguard measures and intellectual property under the new UK – Korea FTA. The full text of the agreement is available here.^[3]

Tariffs

The UK and Korea agreed to apply in the new agreement the same concessions that existed under the EU – Korea FTA, which has been applying since July 2011. Under the EU – Korea FTA, zero tariffs are applied to all the industrial goods and 98% of agricultural goods.^[4] This will be equally applicable to bilateral trade between the UK and Korea under the UK – Korea FTA.^[5] Accordingly, 99% of British products would enter the Korean market without tariffs, and vice versa. In particular, automobiles and automotive parts will be exported without tariffs.

Rules of Origin

The UK and Korea further agreed that UK products with EU-27 contents would benefit from preferential treatment under the UK – Korea FTA.^[6] This rule is temporarily applicable for three years.^[7] This is meant to allow British and Korean companies to use EU parts and still benefit from preferential UK-Korea FTA origin, for a transitional period that is long enough to enable them to adjust their supply chains.

Note that to date the EU has refused to do anything similar, and that the European Commission has repeatedly stated that UK goods will cease to be considered as originating immediately after Brexit.

Agricultural Safeguard Measures

Compared to those under the EU – Korea FTA, the UK and Korea lowered the aggregate volume of imports that would trigger agricultural safeguard measures in the form of a higher import duty. The lower aggregate volume would apply when introducing agricultural safeguard measures with respect to beef, pork, apple, malt and malt barley, potato starch, ginseng, sugar, alcohol, and dextrins.^[8]

Intellectual Property

The UK and Korea also agreed to continue to recognize and protect geographical indications for two spirits made in the UK –  Scotch Whisky and Irish Whisky, and 64 Korean agricultural products – including Boseong Green Tea (보성녹차), Sunchang Traditional Gochujang (순창전통고추장), Icheon Rice (이천쌀), and Korean Red Ginseng (고려홍삼).^[9]

Looking Ahead

The trade agreement between the UK and Korea now needs to be ratified by both parliaments before entering into force. After approval from the legislative branch, the agreement will take effect either on October 31, 2019in the event of a no-deal Brexit, or at the end of the transitional period if the UK ratifies the Withdrawal Agreement.

As the UK – Korea FTA replicates the EU – Korea FTA, the UK and Korea have agreed to re-open negotiations within two years to revise the UK – Korea trade agreement to go beyond the EU – Korea FTA. In particular, if the UK leaves the EU with the Withdrawal Agreement, the UK and Korea agreed to start negotiations promptly during the transitional period.

Accordingly, it remains important to monitor these re-negotiations, in particular rules of origin, since the UK – Korea FTA merely allows UK products with EU-27 contents to benefit from preferential treatment under the agreement temporarily for three years.

Nevertheless, the UK – Korea FTA is a very welcome development. It has eliminated some uncertainty over no-deal Brexit and provides a modicum of stability to British and Korean companies in what is a very volatile environment. It also shows the other trade partners of the EU a pragmatic example of what they could negotiate themselves with the UK.

Reed Smith’s trade team is uniquely positioned to help businesses understand the UK – Korea FTA in comparison with the EU – Korea FTA, assess the risk on operations, and provide feasible solutions.

[1]  UK Department for International Trade (DIT), UK and Korea to sign trade continuity deal to ensure businesses are ready to trade post-Brexit (21 August 2019), https://www.gov.uk/government/news/uk-and-korea-to-sign-trade-continuity-deal-to-ensure-businesses-are-ready-to-trade-post-brexit.

[2] UK DIT, UK trade agreements with non-EU countries in a no-deal Brexit (15 August 2019),  https://www.gov.uk/guidance/uk-trade-agreements-with-non-eu-countries-in-a-no-deal-brexit#signed-trade-agreements. The rest include Andean countries in the western part of South America, some Central American countries, the Caribbean Forum (CARIFORUM) trade block, Eastern and Southern Africa (ESA) trade bloc, Faroe Islands, Iceland and Norway, Israel, Liechtenstein, Pacific states, and the Palestinian Authority.

[3] FTA Korea, UK – Korea FTA, http://www.fta.go.kr/main/situation/kfta/lov3/uk/2/. While the website is in Korean, it provides the English text of the UK – Korea FTA by chapters.

[4] Under the EU – Korea FTA, Article 2.5 states the elimination of each party’s customs duties in accordance with schedules included in Annex 2-A. See tariff schedule of Korea and the EU under the EU – Korea FTA.

[5] Similarly, under the UK – Korea FTA, Article 2.5 states the elimination of each party’s customs duties in accordance with schedules included in Annex 2-A. See the tariff schedule of Korea and the UK under the UK – Korea FTA (only available in Korean).

[6] Under the UK – Korea FTA, Protocol Concerning the Definition of ‘Originating Products’ and Methods of Administrative Cooperation (Protocol on Rules on Origin) provides rules of origin. Article 3.1 of the Protocol on Rules on Origin under the UK – Korea FTA states:

_{Notwithstanding Article 2, products shall be considered as originating in a Party if such products are obtained there, incorporating materials originating in the other Party or in the EU, provided that the working or processing carried out goes beyond the operations referred to in Article 6. It shall not be necessary that such materials have undergone sufficient working or processing. (emphasis added)}

[7] Footnote to Article 3.1 of the Protocol Concerning the Definition of ‘Originating Products’ and Methods of Administrative Cooperation under the UK – Korea FTA states:

_{Cumulation with the EU as provided for in Article 3 will cease to apply three years after the entry into force of this Agreement. Not later than two years following the date of the entry into force of this Agreement, the Parties shall commence a review of this Article. The Parties shall continue to seek and work towards mutually beneficial and business-friendly rules of origin in the future which facilitate trade between Korea and the UK. (emphasis added)}

[8] Under both the EU – Korea FTA and the UK – Korea FTA, Article 3.6 provides rules on agricultural safeguard measures, and Annex 3 provides aggregate volumes of imports that would trigger agricultural safeguard measures and a list of relevant agricultural goods. See Article 3.6 and Annex 3 of the EU – Korea FTA, and Article 3.6 and Annex 3 of the UK – Korea FTA.

[9] Article 10.17, Annex 10-A and Annex 10-B  of the UK – Korea FTA.