The UK and South Korea have agreed to extend a range of zero- and low-tariff provisions in their existing trade deal, ahead of negotiations on an enhanced trade deal later this year, the Department of Business and Trade (DBT) announced on Monday (16 October).
The extension will enable continued frictionless trade across a number of industries, which should especially benefit car manufacturers.
Nigel Huddleston, minister for international trade, described the extension as “fantastic news for UK businesses”.
As with many post-Brexit deals, the existing arrangement with South Korea was rolled over from the UK’s previous provision through the EU.
To facilitate smoother trade upon the UK’s transition out of the bloc, diminished rule of origin requirements had been in place, allowing UK goods to be manufactured with a higher proportion of EU parts without incurring any tariffs.
Ana Sofia German, trade agreement & trade preference specialist at the Institute of Export and International Trade, describes the extension as “vital” to UK and South Korean businesses, but “especially beneficial for the UK”. car manufacturing industry whose.
She notes that UK car manufacturing “production is still very closely intertwined with the EU”, with 80% of the UK automotive components imports of EU-origin in 2020, according to the European Automobile Manufacturers’ Association (ACEA). She added:
“Without this extension, UK exporters would have incurred additional costs from tariffs, requiring them to adapt to changing regulation.
“Ultimately, this not only affects current exporters but could have also discouraged businesses looking to export.”
The allowances were originally set to expire on 1 January 2024.
Mike Hawes, chief executive of the Society for Motor Manufacturers and Traders (SMMT), welcomed the news, saying the body “looks forward to the start of negotiations”. He added that he hoped for “a modernised trade deal that delivers more benefits to our respective automotive sectors, in particular boosting trade in EVs and related technologies”.
Reuters reports that South Korea is the UK’s seventh largest export market for British-made cars and also the third largest supplier of cars, making an extended agreement mutually beneficial.
In addition to car manufacturers, voices from the UK’s food and drink industry also welcomed the development for “giv[ing] continued certainty to exporters until a new and ambitious agreement is negotiated”.
According to DBT figures, South Korea is the 13th largest economy in the world. Although the IMF has released a gloomy raft of projections for national economies and the broader global outlook into 2024, South Korea is still predicted to grow 2.2%.
In the year up to March 2023, DBT estimates that trade between the UK and South Korea was worth £17.1bn, an increase of almost 12% on the previous year. This was made up of £7.3bn worth of UK exports, driven by an expanding middle class which is set to see the import market grow 45% by 2035.
It’s expected that the talks for the new free trade deal will begin this year.