Almost eighteen months after the official signing of the free trade agreement between Israel and South Korea, the National Assembly of South Korea ratified the agreement yesterday, and it will come into force on December 1. This is Israel’s first free trade agreement with an Asian country.
When the agreement comes into force, there will be mutual cuts in customs duties on goods, alongside measures to make trade easier in other areas, such as services, investment, and standards. Among other things, the 7% duty on the import of vehicles from South Korea will be scrapped.
Vehicles produced by South Korea’s Hyundai Group, under the Hyundai and Kia brands, currently account for about a third of new vehicle sales in Israel, and represent a substantial component of the balance of trade between Israel and South Korea. In practice, however, a considerable proportion of these vehicles comes to Israel from the group’s factories in EU countries to which the duty does not apply, and so the agreement will not affect prices, at least of the models imported from those countries.
Nevertheless, the free trade agreement will affect electric vehicles manufactured in South Korea, such as the Hyundai Ioniq 5 and the Kia EV6. These vehicles are subject to a low rate of purchase tax, so that the customs duty represents a material proportion of their prices. Other models that could benefit from the customs duty cut are the Hyundai Elantra, Kia Picanto, Hyundai Sonata and Santa Fe, and Kia Niro. Industry sources say that the positive effect on the prices and competitiveness of the South Korean models exempt from customs duty will be felt from January onwards, but it could be offset by other variables, such as exchange rates and the manufacturer’s prices.
The Foreign Trade Administration in the Ministry of Economy and Industry said in a statement: “The agreement will give Israeli companies active in the Korean market a competitive advantage, and is expected to increase and diversify Israeli exports to Korea and to encourage Korean investment in the Israeli market.”
Foreign Trade Administration director Ohad Cohen pointed out that South Korea is one of the world’s leading economies and an important trading partner for the State of Israel. “I am delighted with successful conclusion of the long and complex process of achieving a free trade agreement with a very important market for the Israeli economy,” Cohen said. “The value of Israeli exports to South Korea has been on the rise in recent years, and the assessment is that the trade agreement will strengthen the rising trend in Israeli exports and trade between the two countries in general. The trade agreement reflects the ministry’s policy of assisting in the diversification of exports and the opening of new markets for Israeli industry. In this context, the ministry is currently engaged in negotiations on trade agreements with other countries, among them China, Vietnam, and Britain.”
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When the agreement comes into force, over 95% of Israel exports to South Korea will be exempt from customs duties. The benefit to exporters and the saving for importers and consumers are estimated at NIS 500 million annually.
In 2021, the value of trade in goods and services between the two countries was $3.5 billion, 35% more than in 2020. Of this, exports of goods and services from Israel to Korea amounted to $1.5 billion in 2021, 42% more than in 2020.
Published by Globes, Israel business news – en.globes.co.il – on September 28, 2022.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.
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