Attorney Gil Nadel, Gilad Paz
The free trade agreement between the US and South Korea has come into effect in March 2012. The agreement's objective is to facilitate trade in various types of products between the two countries. As a rule, a free trade agreement creates a very enticing environment for international trade among two (or more) countries that have entered such an agreement. The facilitation granted by such an agreement to importers and exporters from both countries, includes import and export that is customs free. As a rule, such trade agreements refer to import and export of such cargo that as a rule, is subject to customs tax payment, as per the customs rate decree of the countries in agreement. But when such trade occurs between two countries with such an agreement, the import and export is carried out in such a way that the importers are fully exempt from paying customs. Under the trade agreement signed by the US and South Korea, the majority of goods traded between the two countries are exempt from customs. Such goods include: aircraft equipment, agricultural equipment, auto parts, construction materials, chemicals, consumer products, electric appliances, environmental products, traveling gear and apparel, paper products, scientific equipment, as well as boating and transport equipment.
Another type of goods that can be traded customs free, within limit, is agriculture produce. This includes: corn, bran, cotton, cherries, orange juice, grapes and wine. This list of goods encompasses about 80% of the industrial and agricultural exports of the US and South Korea.
The trade agreement between the US and South Korea classifies the various goods into 11 categories (A-K). According to this division the customs for some types of goods (category A) will be canceled immediately while customs for other types of goods will be canceled by stages, which could take up to approximately eight years.
One of the basic requirements which the importers must fulfill in order to be granted the benefits afforded by the trade agreement is the Rule of Origin. According to this condition, the imported goods must be manufactured in their entirety within the countries who are party to this agreement. Another requirement is that the raw materials used in manufacturing the goods will be purchased from the country who is party to the agreement. Under this agreement between the US and South Korea it is possible to "accumulate", that is, it is possible to manufacture in the US using raw materials from South Korea and vice versa. In such a case the goods will still be awarded the benefits afforded by the agreement.
The trade agreement between the US and South Korea joins a long list of trade agreements signed by the US with other countries. Such countries include: Australia, Bahrain, Chile, Jordan, Canada, Singapore, and more. These agreements make life very easy for American importers who want to import overseas products. And yet, when considering the Far East, the trade agreement with South Korea is a first for the Americans (except for the agreement with Singapore).
What about Israel?
Upon perusing the internet site of the Industry, Trade and Labor Ministry of Israel, we have seen that Israel and South Korea are currently conducting intensive negotiations towards a joint trade agreement. It is safe to assume that products from South Korea are cheaper than those made in Israel, and so, if and when such an agreement will be signed between Israel and South Korea, this will open up a plethora of new opportunities before Israeli importers.
Another ramification of such an agreement would be for Israeli exporters, regarding the competition against South Korean exporters with respect to the American market. Currently, in light of the fact that Israel has a trade agreement with the US, Israeli exporters are exempt from paying customs for many types of goods that they export to the US. This gives Israeli exporters a highly significant competitive advantage in the American market. Now that the trade agreement between the US and South Korea has also come into effect, South Korean exporters enjoy the same advantages. Therefore, the competitive edge that Israeli exporters enjoyed until recently against South Korean exporters no longer exists.
In conclusion, trade agreements are a key factor in promoting and developing globalization and they are an important element for international trade. These agreements help remove obstacles to free trade among countries, and lead to a reduction in customs fees which in turn eventually leads to consumers paying less for products. Such agreements also contribute to promoting competition among markets by encouraging and promoting importation. No doubt, the signing and ratification of the trade agreement between the US and South Korea is an important step in the field of international trade.
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