November 26, 2024

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South Korea's Trade Minister Ahn Duk-geun and the UAE's foreign trade minister, Thani bin Ahmed Al Zeyoudi, ink the joint statement on the conclusion of negotiations for the bilateral Comprehensive Economic Partnership Agreement in Seoul on Saturday. (The Ministry of Trade, Industry and Energy)

South Korea signed a bilateral free trade deal with the United Arab Emirates Saturday, hoping to provide a tailwind for Korean automakers' outbound shipments and to help securing stable source for crude oil.

The two countries concluded talks towards a Comprehensive Economic Partnership Agreement, a kind of FTA that covers trade in services and investment and regulatory aspects, as well as goods.

Under the deal, Korea will remove tariffs on 92.8 percent of all items traded, and the UAE will lift tariffs on 91.2 percent of all products within up to 10 years.

The UAE will remove a 5 percent tariff on on automobiles and auto parts, electrical and electronic products which are the key items that South Korea exports to the Arabic country.

The agreement is expected to fuel the expansion of the rapidly growing market for eco-friendly vehicles such as hybrid and electric vehicles, enabling Korean carmakers to benefit from the effect of dominating the market compared to competitors that have not signed an FTA with the UAE.

No other major automobile exporting economy has concluded a free trade deal such with the UAE.

“Signing the CEPA with the UAE before them will give Korea a significant competitive edge in terms of price compared to major automobile exporting countries, and Korean automobile companies will benefit, especially since the market for electric vehicles and hybrids will be more widely opened,” a ministry official said.

Even before striking the deal, automobiles have been one of Korea’s major exports, with shipments of $338 million in 2022, up 81.5 percent from a year ago.

A 3 percent tariff on crude oil produced in the UAE, Korea's top imported item from the Arabic country, will be eliminated over the next 10 years, will help boost Korean refiners' price competitiveness and ensure stable supplies.

The Korean government expects that Korea will enjoy more benefits from the deal as it has a diversified portfolio of exports than the UAE.

Of $11.5 billion, the amount that UAE exported to Korea last year, crude oil and naphtha account for 60 percent and 30 percent, respectively.

Korea's main export items to the UAE are automobiles, automobile parts and petroleum products. Automobile exports to the UAE amount to about $4 billion, with no item exceeding 10 percent. “Because Korea’s export items are evenly distributed and diversified, Korea will have a lot more items that will be benefit from the deal,” the official said.

In the service sector, the UAE has decided to open Korea's top areas of interest, such as online games, medical care, and video and music content, to the highest level among the CEPAs it has signed with other countries. In particular, the UAE was the first country to open its online game market under a CEPA with another country.

Two-way trade came to around $19.5 billion in 2022, and the UAE is Korea's 16th-biggest trading partner, according to government data.

By Park Han-na (hnpark@heraldcorp.com)