S. Korea Surprised by Trade Deficit with EU After FTA

S. Korea suffered its first trade deficit with the European Union since 1997 after the bilateral free-trade agreement went into effect on July 1. Exports to the EU fell 12 percent to $4.08 bil. in July while imports surged 34 percent to $4.14 billion.

The trade deficit with the EU of $50 million was the first since September 1997, contrary to forecasts for more exports under the FTA.

But the deficit was dismissed as a one-time event brought about by the European fiscal crisis and a short-term decline in Korean ship exports. Falling consumption in the European market due to financial uncertainty led to a sharp drop in the demand for cell phones while ship exports plunged 70 percent even as other exports grew 15 percent for the month over last year. The biggest beneficiaries of the reduced tariffs are automobiles and petrochemical products.

On the other side of the trade balance, lower tariffs on European imports made cars and machinery components far more attractive, leading to a nearly 100 percent jump in July.

Overall, however, Korea’s exports and trade surplus hit record highs for the month, according to the Ministry of Knowledge Economy Monday. Exports surged 27.3 percent to $51.4billion while imports rose 24.8 percent to $44.2 billion, producing a trade surplus of $7.2 billion.

The strong growth on both sides of the trade balance is attributed to a strengthening won, which makes imports more attractive, couples with strong growth in exports of steel, petrochemicals and cars to emerging markets.