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Bilateral free trade agreement between EU and South Korea

Keerati Ratanasirisawad 4904640408

Singhapan Sinhaseni 4904641091

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Latest news

• (October 15, 2009) the world biggest free-trade deal since 1994

• Under the agreement, the two sides will remove virtually all tariffs between their economies, as well as many non-tariff barriers, over a five-year period

• The trade in goods between Europe and South Korea was worth about 65 billion euros ($97 billion) in 2008, and that the deal was worth 19 billion euros to European exporters alone.

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Latest news

• the agreement will create new opportunities for European companies in services, manufacturing and agriculture

• it needs to be approved by the 27 European member states

• European car manufacturers object to the deal, arguing that dropping the EU's current 10% tariff on Korean vehicles coming into Europe would harm them

• If it passes that process it's expected to come into force next year

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Facts & Figures

European countriesSouth Korea

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Facts & Figures (Cont.) (2008)

TRADE IN COMMERCIAL SERVICES (SERVICES EXCLUDING "GOVERNMENT SERVICES")

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Market share?

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Applied theories

• Ricadian comparative advantage theory

• Specific-factor model

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Extended from the previous slide

• Korea has a comparative advantage in goods while EU has a comparative advantage in services.

Ricardian Model

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• Korea has a comparative advantage in goods

• RCA 1.073 for goods 0.705 for services

• EU has a comparative advantage in services.

• RCA 0.96 for goods 1.164 for service

Specific-Factor

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Specific-Factor

• With competition from Korea and decrease in tariff, Europe car price would decreases.

• Assume that capital is specific factor. Car industry is X while all other industry is Y. Constant return to scale with 2 inputs, capital and labor.

• Given the same capital, labor decrease so MPk decrease. Capitalist will lose out in decreases price, hence opposition to free trade.

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Specific-Factor

• For labors in the automobile industry, they’ll be better off since the wage drops at a smaller proportion than the price of automobile drops

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