The Trade Effects of Korea-EU FTA: Decomposition of Tariffs and Non-Tariff Effects Using Product-level Tariff Data

Purpose – This paper aims to analyze the trade effects of the Korea-EU FTA on Korean exports to the EU, focusing on both tariff and non-tariff impacts. Existing studies primarily focus on tariff reductions, neglecting the potentially significant role of non-tariff measures (NTMs). This study addresses this gap by empirically examining the distinct effects of tariff and NTM changes following the ratification of the Korea-EU FTA using disaggregated trade and tariff data. The analysis goes beyond the aggregate level, exploring the heterogeneous effects of the FTA across different sectors. Design/Methodology – Our empirical approach follows the gravity equation, employing the empirical strategy outlined by Cheong et al. (2018). It enables a separate investigation of both tariffs and non- tariff aspects associated with the Korea-EU FTA. Trade and tariff data were obtained from the World Integrated Trade Solution using SITC-5 digit product-level for 142 partners from 1996 to 2019. Findings – We demonstrate that despite the reduction in tariffs under the Korea-EU FTA, Korea’s exports to the EU declined by nearly 17.6%, which is contrary to expectations. To examine whether this decline in trade is associated with changes in non-tariff dimensions of the FTA, we isolate the trade effects of tariff and non-tariff changes. Our findings reveal that while tariff reductions under the FTA have boosted Korea’s exports to the EU, these gains were largely offset by the impact of non- tariff dimensions of the FTA. Furthermore, our analysis highlights that the overall negative impact of the Korea-EU FTA on Korea’s exports to the EU is concentrated in the manufacturing sector, whereas FTAs with other countries signed by Korea generally demonstrate positive effects in these industries. Originality/value – This paper provides initial evidence of both tariff and non-tariff effects of the Korea-EU FTA, one of Korea’s largest FTAs by economic size, using detailed product-level trade data. Our approach isolates tariff reductions from other FTA influences, such as non-tariff measures and trade facilitation, enabling a more precise assessment of trade changes. The absence of clear prior evidence on the FTA’s trade effects may stem from the failure to distinguish these impacts separately. Our findings highlight the importance of accurately attributing trade changes to specific FTA components to avoid misleading conclusions in trade policy evaluation.