SEOUL, June 29 (Yonhap) -- The free trade pact with the European Union (EU) has helped the South Korean economy get along amid the global economic slump, as exports of tariff-slashed goods to the European market served as a buffer against an overall drop in overseas demand, experts said Friday.
After negotiations of more than two years, both sides signed the deal in 2010. The trade deal took effect on July 1 last year, allowing South Korean firms to tap deeper into the world's single largest economic bloc.
According to government data, South Korea's exports to the EU fell 12.1 percent on-year in the July 1-June 15 period, with its trade surplus reaching US$1.8 billion, a sharp drop from a surplus of $14 billion a year earlier.
Experts said the sharp drop in exports was attributed to the eurozone crisis and the global economic downturn.
"A drop in exports to the EU was mainly due to an economic slump in the eurozone caused by fiscal problems in the region," said Myung Jin-ho, an analyst at the Korea International Trade Association (KITA).
But shipments of products such as automobiles and auto parts, which enjoy tariff cuts under the pact jumped 20.2 percent on-year during the cited period, the data showed.
For one, South Korean automakers' exports to the EU surged 43 percent from a year earlier to reach some 426,000 units last year. In the first five months of this year, auto exports to the region gained 12.7 percent to some 176,000 units.
In particular, shipments of jet fuel, gearboxes and petrochemical products surged more than two fold in the cited period as such products benefited from the lowered tariffs under the trade pact.
According to the report by the KITA, the EU's investment in South Korea also soared 60.5 percent on-year to reach US$3.57 billion during the July-March period, compared with a 48.8 percent plunge in the same period a year before.
"Exports to the EU area declined after the implementation of the free trade pact, but fared well given the debt crisis in the eurozone," South Korean Trade Minister Bark Tae-ho told the Yonhap News Agency. "Increased foreign investment in South Korea is also another good sign."
The policymaker said free trade pacts with advanced economies such as the EU and the United States boosted the status of the Korean economy which in turn lured more foreign investment into Asia's fourth-largest economy.
Under the deal, Seoul and Brussels agreed to eliminate or phase out tariffs on 96 percent of EU goods and 99 percent of South Korean goods within three years after the accord takes effect. They have also agreed to abolish tariffs on most industrial goods within five years of the deal taking effect.
Overall, the deal is projected to boost bilateral trade between South Korea and the EU by as much as 20 percent in the long term, according to earlier estimates by the state-run Korea Institute for International Economic Policy (KIEP).
The KIEP said the free trade accord with the world's largest economic bloc would help boost South Korea's exports by $11 billion and its economic growth by 5.6 percent while creating up to 253,000 jobs over the long haul.
"The deal will help boost our exports, especially sales of autos, electronic goods and textiles, to the European market, if the eurozone problem is resolved," said Kim Hyung-joo, a researcher at LG Economic Research Institute.
Meanwhile, imports from the EU also surged. Imports of agricultural products reached $2.63 billion in the July-May period, up 24 percent from a year earlier. Shipments of farm goods to the EU gained just 5.8 percent to $350 million, according to government data.
Also, European carmakers sold about 77,000 units in South Korea over the cited period, up around 20 percent from a year earlier, according to the data.
For years, South Korea has actively pushed to seal free trade deals with its trading partners, including the United States.
The country has eight free trade pacts already in effect, including one with the United States, and is in negotiations with other nations, including Turkey, Canada, Mexico, Australia and New Zealand.
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