Israel, South Korea conclude talks on Free Trade Agreement

Prices on Korean cars, electronics and commodities expected to drop

President Rivlin meeting with President Moon of South Korea (photo credit: KOBI GIDEON/GPO)
President Rivlin meeting with President Moon of South Korea
(photo credit: KOBI GIDEON/GPO)
In a move that could significantly lower the price of Korean cars, electronics and even soy sauce to Israeli consumers, Israel and South Korea announced the conclusion of negotiations for a Free Trade Agreement on Wednesday.
Economy and Industry Minister Eli Cohen and visiting South Korean Trade Minister Yoo Myung-hee made the declaration at a ceremony in Jerusalem. Afterwards, the two met with Prime Minister Benjamin Netanyahu, who hailed the deal, noting that it is Israel’s first Free Trade Agreement with an Asian economy.
“And what an economy,” he said. “An advanced and vibrant economy, one of the leading economies in the world.”
Israel-South Korean trade stood at $2.5 billion last year, and Netanyahu said that this agreement will “double the volume of trade” between the two countries.
The tariff free regime does not extend to Israeli goods made beyond the Green Line – as is the case with Israeli Free Trade Agreements with others, such as the EU and the US. Cohen, however, has said – and his ministry has put the obligation in writing to the Yesha Council – that the government will completely indemnify Israeli manufacturers in Judea and Samaria if tariffs are imposed on their products.
This agreement with South Korea marks a dramatic change from years past when Seoul was hesitant about cultivating close commercial ties with Israel, out of concern that it would harm their trade relations with the far bigger market in the Arab and Muslim worlds.
One diplomatic official said that this attitude began to change when Israeli trade ties began flourishing over the last decade with China and Japan, and when it became an open secret that Persian Gulf countries were cooperating with Israel on a variety of levels under the radar.
Cohen heralded the agreement as a “historic” one that reflects the policy of his ministry “to assist in diversifying exports and open new markets for Israeli industry. South Korea is an important trade partner for the State of Israel.”
South Korea is the world’s 11th largest economy, and once the agreement is signed by both governments and ratified by their parliaments – a process expected to take another year – it is anticipated that the agreement, by taking tariffs off Israeli exports, will make them much more competitive in the South Korean market.
In 2018, trade between Israel and South Korea amounted to approximately $2.5b., an almost 15% increase over 2017. It is expected that the free trade agreement will increase bilateral trade by some $100m. in the near future. Bilateral trade has increased by some $800m. over the last decade, but at a much slower rate than with other Asian economic giants such as China and Japan. In 2016, for instance, Israel’s trade with China reached $9.3b.; $3.1b. with Japan; but only $1.9b. with South Korea.
Upon the agreement’s taking effect, customs duties will be lowered on South Korean goods imported into Israel such as automobiles and automobile parts, refrigerators, medical equipment, electronic components, toys and games, plastics and chemicals, and soy sauce.
For instance, the current 7% duty on Korean cars will be completely lifted, as will the 12% tariff rate on refrigerators, freezers, video games and consoles, and the current 4% tax on soy sauce.
Likewise Israeli exports to South Korea will be exempt from customs duties, including on machinery and electrical equipment, mechanical devices, fertilizer, medical equipment, cosmetics, plastics, metals, fruit juices and wine.
South Korea currently has 15 free trade agreements with various countries and trading blocs, including the US, the EU, India and China.
Israel has a Free Trade Agreement with seven blocs or individual countries: the EU, US, Canada, Mexico, the European Free Trade Association (Iceland, Lichtenstein, Norway and Switzerland), Mercosur (Brazil, Argentina, Paraguay and Uruguay) and Turkey. In addition, three other agreements have been signed, and are waiting for ratification: Colombia, Panama and Ukraine.