Trade Effects of the EU–South Korea Free Trade Agreement in the Automotive Industry

Abstract

The EU–South Korea free trade agreement (FTA) represents a case of comprehensive trade liberalization between two major economies with large automotive industries. This article examines and compares the total and automotive industry trade effects of the EU–South Korea FTA. The empirical gravity analysis shows asymmetric effects between the bilateral exports of EU and Korea. Trade-enhancing effects are found in both gross and value-added trade indicators of EU automotive exports, while no substantial effects are detected in Korean exports. The post-FTA trade dynamics suggest that the removal of industry-specific non-tariff barriers (NTBs) played an important role in facilitating EU automotive exports.

Keywords:

• Trade liberalization
• trade agreements
• automotive industry
• EU trade policy
• non-tariff barriers to trade

Acknowledgments

This article is a significantly extended version of the authors’ earlier working paper no. 105 (2017) in the working paper series of University of Tartu, School of Economics and Business Administration.

We acknowledge support from the Estonian Research Council’s research project PRG791 Innovation Complementarities and Productivity Growth.

Notes

1 European Automobile Manufacturers’ Association, commonly known as ACEA

2 Some recent examples of papers discussing the consequences of globalization, GVCs and networks in the automotive industry include, among others, Gorgoni, Amighini, and Smith (2018), Pavlínek (2018), Szalavetz (2019), Soejachmoen (2016).

3 Wang et al. (2013) provide further decompositions of this measure into more detailed ones.

4 For example, many services are difficult to slice up into stages that can be easily offshored due to the inseparability of production and consumption of services, and thus the need for face-to-face interactions between the provider and consumer (Gallouj 2002; Hipp and Grupp 2005).

5 As investigated in the models of the proximity-concentration trade-off of MNE activities in Markusen (1984), Brainard (1997) and Markusen and Venables (1998, 2000).

6 Full list of sample countries can be found in Annex.