Cheaper energy imports to be available through economic ties with Gulf Cooperation CouncilBy Ko Dong-hwanKorea signed a new free trade agreement (FTA) with six oil-rich Middle Eastern countries that form the Gulf Cooperation Council (GCC), according to the Ministry of Trade, Industry and Energy, Thursday.
The deal has advanced Korea ahead of Japan and China in bolstering economic ties with the giant economic bloc, and the tariff removals are expected to spur further trade and investments between the two sides.
Trade Minister Ahn Duk-geun signed the bilateral deal with GCC Secretary-General Jassim Muhammad Al-Budaiwi at Korea International Trade Association's headquarters in Seoul. Both sides started discussions over the deal in 2008. But the GCC put the negotiations on hold in 2010.
The GCC is comprised of Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Qatar, Bahrain and Oman.
The new Korea-GCC FTA outlines a gradual elimination of tariffs, implemented in stages over the next 20 years. For the first 10 years, Korea will scrap tariffs on 10,581 items imported from the GCC countries before extending the list to 11,012. The GCC will scrap tarrifs on 3,621 imported items first before broadening the list to 6,024 items. After the 20-year period, the number of tariff-free items imported by Korea will account for 89.9 percent of total imports from the GCC, and the number of tariff-free items imported by the GCC account for 76.4 percent of the total.
Korean products set to benefit from the FTA include automobiles, car parts, mechanical components (i.e. valves, steam turbines) and chemical products like synthetic resins and precision chemicals. The ministry said it will especially lower the prices of Korean cars being exported to the region. Scrapping the tariffs on key components for internal-combustion engines and electric vehicles will also attract offers from the Middle Eastern countries to build assembly plants for Korean carmakers on their own soil, the authority added.
Defense weaponry, medical devices, cosmetics and natural produce shipped by Korea to the region will no longer be levied a border-crossing fee under the deal, raising anticipation that markets in the region will grow.
The GCC, on the other hand, will see its major products like liquefied natural gas and petroleum products enter Korea without tariffs for the next two decades. Tariffs on naphtha will be lowered by 50 percent, which will reduce manufacturing costs for the country's petrochemical companies, while date palms, black tea leaves and other Middle Eastern produce will see tariffs removed.
"The latest FTA deal is a new start of our partnership with the Middle East," Ahn said. "The deal will take effect next year expanding bilateral trade and investments. We will try to continue the momentum by realizing other free trade pacts with the region's close neighbors, African nations."
The latest FTA deal designated 12 specific business sectors for special attention through "innovative and inclusive" partnerships. Notably, six of these sectors— energy and resources, bioeconomy, cutting-edge industries, smart farms, public health, and visual aid services — mandate the establishment of dedicated bureaus. This strategic move aims to ensure these sectors play pivotal roles in fostering practical cooperation and facilitating supply deals in the future.
The other six include state visits by corporate representatives, ICT, science technology, farming-forestry-fishery, construction infrastructure and international flight service.
The GCC was formed in 1981 by the six Gulf nations as a regional economic solidarity that seeks new trade ties with countries based on tariff agreements. They altogether account for Korea's fifth-largest trading partner, with trade volume between the two sides coming to $102.6 billion in 2022, according to the ministry.
It is Korea's 25th free trade deal and the second one with a Middle Eastern party following a comprehensive economic partnership agreement (CEPA) deal with the UAE in October.
Korea clinched its deal quicker than China and Japan. The GCC's has had 10 rounds of negotiations with China from 2005 until 2022 and hasn't hit a deal yet. As for Japan, the group suspended negotiations after two meetings in the late 2000s. They met last July and agreed to resume negotiations.