European Commission welcomes adoption of negotiating mandates for new free trade agreements with India, Korea and ASEAN

European Commission

European Commission welcomes adoption of negotiating mandates for new Free Trade Agreements with India, Korea and ASEAN

Brussels, 23 April 2007

The European Commission has welcomed the formal adoption by European Member
States of negotiating mandates for a new generation of Free Trade Agreements with
India, South Korea and ASEAN. New independent research released by the European
Commission suggests that the agreements could add more than 40 billion euros to EU
exports annually and provide wide new trade opportunities for all sides. The European
Commission, which will negotiate on behalf of EU Member states, expects to launch
negotiations in the months to come.

EU Trade Commissioner Peter Mandelson said: “Combined with a successful conclusion to the
Doha Round, these agreements will open new markets to EU businesses and give a valuable
boost to global trade.”

Real benefits for EU exporters, and a boost for global trade

The initial results of analysis undertaken by CEPII and Copenhagen Economics for the
European Commission
suggest that the agreements will create significant new trade and give a
valuable boost to global trade, especially in services. Analysis released by the Commission
today concludes:

  • • The agreements will boost EU exports to ASEAN by 24.2%, to India by 56.8% and to Korea
    by 47.8%. The three deals combined could increase total EU exports (1.3 trillion euros in
    2005) by 3.23%. They offer an increase of GDP of 0.13% for the EU.
  • • ASEAN would see an increase of its exports to the EU of 18.5%, Korea would see exports
    to the EU rise by 36% and India by 18.7%.
  • • The biggest gains for the EU would include: business services to ASEAN; industrial and
    manufactured goods to India; business services to Korea. Europe’s vehicle exports to India
    are expected to increase by 700% - worth 1.8 billion euros.
  • • The three agreements will result in large net additions to global trade, with trade diversion
    effects from the three agreements likely to be minimal. By focusing on areas currently
    outside the WTO such as business services, the three agreements will complement the
    multilateral system well.

Background

A central part of the European Commission’s Global Europe trade policy framework, the new
Free Trade Agreements will complement the EU’s strong commitment to the multilateral trading
system by focusing on areas not currently covered by WTO rules such as investment, trade in
certain services and the removal of non-tariff barriers.

The key economic criteria for these FTAs is market potential (economic size and growth) and
the level of protection against EU export interests (tariffs and non tariff barriers). The EU also
takes account of potential partners’ negotiations with EU competitors and the likely impact of
this on EU markets and economies. Based on these criteria, ASEAN, Korea and India emerge
as priorities. They combine high levels of protection with large market potential.

In terms of content these FTAs are competitiveness-driven: comprehensive and ambitious in
coverage, aiming at the highest possible degree of trade liberalisation including far-reaching
liberalisation of services and investment. They will also seek stronger protection of intellectual
property rights.

More on preliminary analysis of the potential benefits of the new generation of EU FTAs below


Research shows big potential gains from new EU FTAs

Memo - Brussels, 23 April 2007

Independent research commissioned by the European Commission has illustrated the likely
economic benefits of the new generation of bilateral trade agreements proposed by the European Commission under the Global Europe Framework. The initial results of analysis, undertaken by
CEPII and Copenhagen Economics, confirm Commission analysis that new EU FTAs with India,
ASEAN and South Korea will create significant new trade for all sides and give a valuable boost to
global trade, especially in services.

The studies, based on realistic liberalisation outcomes, suggest:

  • • The agreements will boost EU exports to ASEAN by 24.2%, to India by 56.8% and to Korea by
    47.8%. The three deals combined could increase total EU exports (1.3 trillion euros in 2005) by
    3.23%. They offer an increase of GDP of 0.13% for the EU.
  • • ASEAN would see an increase of its exports to the EU of 18.5%, Korea would see exports to
    the EU rise by 36% and India by 18.7%
  • • By going beyond what is possible in the WTO, particularly in areas such as services and
    investment, the three FTAs could add as much as 40% to the benefits of a successful Doha
    Round for the EU.
  • • Further gains are to be expected from liberalisation of non tariff barriers, which cannot be
    captured by such studies due to methodological difficulties but which account for a great deal of
    actual obstacles faced by EU companies and will be properly dealt with in upcoming FTAs.
    Liberalisation of goods and services leads to big new gains
    In addition to the figures quoted above the models suggest the following potential benefits:
  • • Biggest gains for the EU would include: business services to ASEAN (a 29% increase worth 7.9
    billion euros); industrial and manufactured goods to India (a 50% increase worth 5.1 billion
    euros); business services to Korea (a 22% increase worth 4.2 billion euros). Europe’s vehicle
    exports to India are expected to increase by 700% - worth 1.8 billion euros.
  • • Biggest gains for EU partners would include: business services from ASEAN (an 80% increase
    worth 14billion euros); textiles and clothing from India (an increase of 46% worth 3.6billion
    euros); vehicles from Korea (an increase of 40% worth 5.2 billion euros).
FTA Export growth to FTA partner Total increase in EU exports Import growth from FTA partner Total increase in EU imports
ASEAN +24.2% +1.98% +18.5% 1.72%
India +56.8% +0.72% +18.7% 0.68%
South Korea +47.8% +0.53% +36% -
Total - +3.72% - +3.45%

Note: The research is based on studies that modelled the following realistic scenarios: ASEAN: full liberalisation of trade
in goods with some sensitive products excluded and a 50% cut in barriers to services markets; India: 95% of all trade
barriers removed and a 25% reduction in barriers to services markets; Korea: full liberalisation in non-food sectors, 40%
reduction in food tariffs and a 25% reduction in barriers to services markets.

A valuable boost to global trade

The three agreements will result in large net additions to global trade, with trade diversion effects
from the three agreements likely to be minimal. An agreement with ASEAN would see some trade
diversion from China and India, and Gulf states may see some trade diversion by an EU-India FTA.

There are likely to be no trade diversion effects for third parties from an EU-Korea FTA. By
focussing on areas currently outside the WTO such as business services, the three agreements will complement the multilateral system well.

Possible further benefits from productivity gains and removal of non-tariff barriers

The results of the studies probably understate the potential benefits of the new Global Europe FTAs
as none of the models takes into account the likely productivity gains from new commercial
competition. As indicated above, neither do they model the effects of new trade created by the
removal of non-tariff barriers such as discriminatory rules and regulations - an important focus of all Global Europe FTAs.

source : DG Trade

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