The Use of Preferences under the EU - Korea FTA

Purpose - This paper describes the use of trade preferences under the EU-Korea free trade agreement (FTA) and empirically examines potential reasons for the less than full use, using data on daily EU imports from Korea at the product level. Design/methodology - We employ a probit model to analyse the relationship between the use of trade preferences on the one hand and variables such as potential duty savings, rules of origin and the characteristics of the good traded (intermediate input or final product) on the other. Findings - The paper finds that EU imports from Korea make good use of trade preferences with an overall preference utilisation rate of close to 90% in 2016, which is up from about 80% in 2012. It further shows that potential duty savings influence preference utilisation positively and that more than one quarter of the observations in our sample made use of preferences under EU-Korea FTA in 2012, despite duty savings standing at ？？10 or less. Originality/value - The finding that a non-negligible share of observations use preferences even when the duty savings are low has not yet figured in the literature. We further show how preference utilisation rates differ by importing EU Member State and by section of the Harmonised System and estimate the marginal impact of an increase in potential duty savings on the preference utilisation rate by broad product group, which is novel.