EU, SOUTH KOREA RESUME FTA TALKS

South Korea and the EU started their fourth round of free trade agreement (FTA) talks this week in Seoul, with differences primarily on auto trade and the extent and speed of tariff cuts.

The EU has been urging Seoul to make concessions on goods trade comparable to those in the FTA it signed with the US earlier this year (see BRIDGES Weekly, 4 April 2007). Though local press reports suggest that both sides are using that accord as a sort of guideline for the negotiations, South Korean negotiators have been quick to assert that any agreement with the EU will be distinct from the US FTA due to very different trade volumes, structures and sensitivities.

Auto market liberalisation has been at the heart of the current negotiations. "The key to success will be how to broaden mutual understanding about differences over tariff concessions on goods, especially autos," South Korea's chief negotiator Kim Han-Soo said. Tariffs aside, automotive standards have been another sticking point in the talks. South Korean companies sold 74,000 cars in the EU market last year, but only 15,000 vehicles went in the opposite direction.

More broadly, the EU has proposed phasing out all tariffs on imports from South Korea over the next seven years, with tariffs on 80 percent of total trade volume removed within the next three years. But South Korea has only offered Brussels a 68-percent decrease over the next three years, with special exceptions for pork and dairy products. EU negotiators are unhappy with this proposal, which is lower than what Seoul agreed to with the US.

The US-South Korean FTA is set to eliminate tariffs on 94 percent of total trade volume over the next three years, but has yet to be ratified by both nations' legislatures.

Further differences at the negotiations centred on goods produced at the Kaesong industrial complex in North Korea, albeit with South Korean financing. Seoul would like those goods to be covered by the prospective deal with the EU.

Both parties are hopeful that a deal can be brokered by the end of the year.

ICTSD reporting; "S. Korea, EU resume free trade talks," AGENCE FRANCE PRESSE, 15 October 2007; "Fourth round of S. Korea-EU FTA talks opens in Seoul," THE HANKYOREH, 16 October 2007.

UNCTAD'S INVESTMENT REPORT POINTS TO FDI BOOM, HIGHLIGHTS EXTRACTIVE INDUSTRY

The United Nations Conference on Trade and Development (UNCTAD) reports that foreign direct investment (FDI) flows worldwide have increased substantially in the past year, approaching the peak levels seen in 2000, marked by a rise in South-South investment, especially in extractive industries.

Released on 16 October, the 2007 World Investment Report released noted that the high investment levels were at least partly due to the wave of mergers and acquisitions (M&As).

FDI inflows to developed countries increased by 45 percent since 2005, totaling $857 billion; those to developing countries rose by 21 percent, hitting a new high of $379 billion. Inward FDI growth was particularly steep in Africa and West Asia. Transition economies saw FDI inflows grow by 68 percent, totalling $69 billion. Developed countries FDI recipients were led by the US, UK, and France. China, Hong Kong and Singapore led the developing countries, while Russia was top among the transition economies.

UNCTAD found that developing countries are emerging as a major source of FDI, led by large transnational companies (TNCs).

Soaring commodity prices, especially those for metals, oil, and natural gas, have led to a boom in FDI in the extractive industries. FDI flows to resource-rich countries, notably in Africa, have grown. Many of the TNCs involved in FDI are based in or owned by developing country governments, with China and India especially active in searching abroad for resources to fuel their rapidly growing economies.

UNCTAD cautioned that TNC investment in the extractive industry can be a double-edged sword. Such FDI can create some jobs, improve infrastructure (electricity, running water, ports and transportation systems) necessary for extraction. It can also have negative social, political, and environmental impacts. The report recommends the use of product-sharing agreements (PSAs), which allow foreign TNCs to extract resources, but also allow governments to collect revenue that can be reinvested in domestic institutions and policy goals.

Overall, the report predicts that FDI inflows and outflows will continue to rise across the board in all areas and geographic regions, though the increases are expected to be more moderate in 2007. UNCTAD's World Investment Prospects Survey of TNCs indentified East, South, and South-East Asia (especially China and India) as the most attractive locations for FDI.

The report is available online at http://www.unctad.org/Templates/WebFlyer.asp?intItemID=4361&lang=1.

ICTSD reporting.