European Union (Definition of Treaties) (Republic of Korea Free Trade Agreement) Order 2012
Baroness Wilcox
That the Grand Committee do report to the House that it has considered the European Union (Definition of Treaties) (Republic of Korea Free Trade Agreement) Order 2012.
Relevant document: 33rd report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, increasing trade and investment is essential for generating strong, substantial and balanced growth. The United Kingdom has been influential in making sure that trade liberalisation is central to the European Union’s growth strategy. In the absence of a multilateral deal, free trade agreements are the main vehicle for doing this. The European Union is pursuing an ambitious range of free trade agreements across the globe and the European Union’s South Korea Free Trade Agreement is the most ambitious trade agreement ever concluded by the European Union. It will be good for Europe and good for Britain, boosting the United Kingdom’s economy by an estimated £500 million pounds a year.
South Korea is the European Union’s fourth largest export market outside Europe, despite the high barriers to trade: industrial tariffs averaged 6.6 per cent, agricultural tariffs averaged 48.5 per cent and there were extensive regulatory barriers. The free trade agreement eliminates the vast majority of these barriers to trade. The agreement will boost growth and create jobs across the economy. It is estimated that the agreement will bring £17 billion of opportunities to European Union goods and services exporters, of which £2 billion will accrue to the United Kingdom. This is why almost all European Union and UK business groups support this agreement.
The United Kingdom is well placed to benefit. South Korea is already a valuable trading partner for the United Kingdom. In 2010, bilateral trade was an impressive £6.5 billion. South Korea is the UK’s seventh largest export market in Asia, and in 2009 the United Kingdom was the largest single investor in South Korea, but we want to strengthen this relationship further.
The free trade agreement will create opportunities where the United Kingdom has a distinct competitive advantage: in legal and financial services; in ICT, where UK firms can take their world-class technology and cutting-edge designs to South Korea; in automotive components; in whisky; in pharmaceuticals; in aircraft engines; and in low-carbon technology, to name just a few. The agreement will dramatically increase our access to a market of 50 million people, with growing disposable incomes and an appetite for British goods.
Following the free trade agreement coming provisionally into force on 1 July 2011, the United Kingdom Government have been working closely with UK businesses and the South Korean Government to ensure that the United Kingdom extracts the full benefit from the deal. BIS and Foreign Office Ministers have hosted a range of events with UK business and the Government of South Korea. UKTI is working hard to promote the deal, including through its report on 100 opportunities for UK companies in Korea.
The coming into force of the EU-South Korea Free Trade Agreement provides the United Kingdom with a tremendous set of opportunities. It will boost UK growth, and create UK jobs through enhanced two-way trade and investment. It will strengthen our strategic relationship with an important global player, and it will lay the ground for future trade agreements between the European Union and other parts of the world. I therefore commend the order to the Committee.
Lord Edmiston
My Lords, if I may, I will make a few comments and I declare an interest as an importer of Far Eastern cars for the past 35 years, some of which were Korean—in fact, we imported Hyundai. We indeed were a beneficiary of “free trade” in those days. It was not free trade, but we had import duty free status for a period of years while industry in the Far East was growing. My perception is that this agreement may be more beneficial to Korea than to us. I am concerned as to whether we should be encouraging people to set up assembly facilities here. For instance, Toyota and Honda have set up facilities here. Does it prejudice their situation when Korean cars will come in duty-free? What impact does that have? I am concerned about that aspect of it and if the Minister can make some comments about that, it would be useful.
The second issue I have some concern about is that having been involved in a legal dispute in Korea, their legal system has—if I may put it this way—a few question marks over it. If British firms dealing in Korea were to be encouraged to use an international court, that might be very helpful. Those are my comments.
Lord Dykes
My Lords, I thank the Minister as well from this side of the Committee, and on behalf of the other part of the coalition, for making that brief statement on the Korea trade agreement. As she quite rightly said with a positive tone in her voice, which was justified, this is a really important agreement with a really important country. As we see from the documentation, the free trade agreement between the European Union and Korea is the most comprehensive free trade agreement ever negotiated by the EU. Enormous progress has been made on the learning curve, in the EU, in other countries and at the WTO. I believe I am right in saying that some of the UK members of the negotiating team on behalf of the EU, through the European Commission, were particularly complimentary about how progress was made in those detailed discussions with their Korean counterparts.
However, it is not all late in the day for this. It is still early days, as this agreement started provisionally only in July and is running until agreement is reached finally, once these orders have been ratified by the parliamentary process. It remains to be seen exactly what will happen. In the UK, there is a problem that we should all really work hard at, both in government and elsewhere, such as in industry—not to resolve it completely, which is probably impossible, but to mitigate it in the future. That problem is that the United Kingdom normally has a trade deficit with most other advanced territories in the world. There are some exceptions to that, which I will not go into in detail because otherwise I would speak for too long, but that is the reality. Of course, we make up for that overall position of net deficit in physical goods and exports by our invisibles and other matters in the City and elsewhere, which cover that position. Normally, we hope that those give us at least a reasonable current-account position even if not an overall surplus, which happens from time to time.
That is the reality. Even after the devaluation of the past five or six years, which has been in the 20 to 25 per cent range, we still find that is so. I believe that I am right in saying that the latest trade figures were, once again, the widest ever or they may have been the widest for quite a few years. I did not have time to look in the Library for those figures, but it is either one or the other. Either way, it is disturbing that after yet another devaluation post-war in the United Kingdom—some of them formal devaluations; others in the market place only—we are still not exporting enough in terms of physical goods and services. Korea will be sending more to us, and the amount that we will send to Korea will be less, except, of course, in services and in what legal and accounting firms and others can contribute to this trade agreement.
Will the Minister outline which groups in the UK did not support this free trade agreement? She said that most groups had supported it. Some £500 million of benefits per year to the UK is a modest figure in comparison with our objectives in the Far East. I hope that she is optimistic about a rate of growth. Finally, will she indicate to the Committee the Government’s understandable apprehensions about whether tensions now between the Republic of Korea and the Democratic People’s Republic of Korea will affect some of these aspects of growth and trade between the UK and the EU as exporters to Korea? What is the situation in Korea with regard to trade and business?
Lord Young of Norwood Green
My Lords, I, too, would like to thank the Minister for her statement. I am not opposing this statutory instrument, but I am, like a number of noble Lords, interested in the value of UK trade with Korea. The impact assessment shows a £0.2 billion deficit. Those are the figures under the heading:
“Value of UK trade with Korea”,
on page 10 of the document. In goods, there is nearly £1 billion excess on imports. In services, we have some advantage.
The noble Lord, Lord Dykes, was right to describe the boosting by £500 million a year as somewhat modest. While I do not want to pour cold water on the enthusiasm of the Minister in this area—I note what she said about BIS and Foreign Office Ministers hosting events, which is a good initiative—I would be interested in hearing from her whether BIS and UKTI will give any special assistance to business exporters and potential exporters of both goods and services.
The point that the noble Lord, Lord Edmiston, raised is that these are both—aggressive might not be the right word—enthusiastic and successful exporters. We should not underestimate that. Again, I do not want to sound as though I am opposing the concept of free trade: I am not. But we ought to be cognisant of the nature of competition and understand the importance of giving every assistance and encouragement to our own exporters both in goods and services.
Baroness Wilcox
My Lords, I would like to thank noble Lords for their contributions today. I did rather expect that I would hear from someone with experience and expertise in the motor industry like my noble friend Lord Edmiston. Let us start by recalling that the free trade agreement is an excellent deal overall for the UK—worth £500 million a year in UK GDP. As well as eliminating South Korean automobile tariffs, the free trade agreement contains the most ambitious disciplines ever negotiated by the European Union to tackle non-tariff barriers. South Korea will now accept international standards as being equivalent to Korean regulations, saving considerable time and expense retesting EU cars once exported to Korea.
At the same time, Korean car producers must comply with all EU rules and standards, and the free trade agreement prohibits the introduction of any new unjustified barriers to trade. As well as the EU market access committee, a working group on automotive trade will be established to monitor and increase regulatory co-operation. Furthermore, the European Union has secured a range of provisions in response to the industry’s concerns, including a slower phasing of tariff reductions and a bilateral safeguard clause, which will protect any industry from harm due to the free trade agreement. For these reasons, we believe that the EU has secured a possible outcome and an excellent deal overall.
Lord Young of Norwood Green
Again, I do not want to dispute the £500 million boost that the Minister referred to—I am sure that we welcome that—although the figure is fairly modest. However, over what period of time is that forecast to take place?
Baroness Wilcox
That is a very good question, to which I shall give an answer. On the £500 million each year, that will come into force over time. I hope that that is of some help to the noble Lord.
Lord Edmiston
Is the Minister aware of certain practices that used to exist in South Korea? It may be that this does not happen any more, but in previous years anyone who drove a non-Korean-manufactured car could look forward to a visit from the tax inspector and a thorough investigation. There were various means by which South Korea managed to keep a very high percentage of local cars in its market. Is the Minister aware of other practices of that nature?
Baroness Wilcox
We are aware of difficulties that have happened in the past. When the noble Lord reads about the matter in Hansard, I hope that he will realise that we have put in place various restraints and careful practices with which we will ensure that the Koreans have to comply if we are to trade with them. We hope that they will want to trade with us even more than we will want to trade with them. I realise that the motor industry is a very sensitive issue, but we have a range of actions that we may take if we see that there is danger of unfair trade taking place.
The EU-South Korea free trade agreement is ground-breaking in its approach. We have reached an agreement that responds adequately to EU concerns on such things as diesel emissions and post-market surveillance of safety standards. We have tried where we can to write as many things as possible on to the face of the agreement to ensure that, if we feel that there is unfair practice going on, industry in this country can quickly tell us and we can quickly return to see whether we can quickly sort out the problems.