South Korea eyes new Arab boom via free trade deal with GCC nations

South Korea has struck a free trade agreement with the Gulf Cooperation Council (GCC), a group of six Arab nations, paving the way for Seoul to strengthen its export competitiveness and boost energy security. The Middle Eastern countries, meanwhile, will be able to tap into the Asian country’s advanced technology.

Korea’s Trade Minister Ahn Duk-geun and GCC Secretary General Jassim Muhammad Al-Budaiwi on Thursday signed a joint declaration on the conclusion of the bilateral FTA in Seoul.

The two sides began negotiating the deal in July 2008. However, talks were suspended in 2010 and only resumed in 2022.

The FTA comes a couple of months after Korea signed a bilateral Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates.

Industry officials said Korean President Yoon Suk Yeol’s recent state visit to Saudi Arabia and Qatar aimed at strengthening business ties also contributed to the successful conclusion of the deal with the GCC.

The Gulf group comprises six Arab countries – the UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.

KOREA’S RIVAL CHINA, JAPAN YET TO SIGN FTA WITH GCC

Korea’s free trade deal with the GCC, which has yet to sign similar deals with other major Asian countries such as China and Japan, will significantly boost its exports of vehicles, auto parts, machinery and weapons to the Arab nations, according to Seoul’s Ministry of Trade, Industry and Energy.

The FTA will also pave the way for cheaper energy imports from the Arab nations, enhancing Korea’s energy security and the competitiveness of its exporters, the ministry said.

Under the free trade agreement, Korea has committed to eliminating tariffs on 89.9% of all items from the GCC, with a particular focus on energy products such as liquefied natural gas and petroleum.

In return, the GCC will remove tariffs on 76.4% of all products from Korea, including 4.1% of goods traded.

Specifically, GCC countries will phase out a 5% tariff on Korea’s major export items such as automobiles, auto parts, machinery and weaponry over a period that extends up to 20 years depending on items.

Crude oil was exempt from the list of products benefiting from the free trade deal, Seoul said.

K-DEFENSE, K-BEAUTY, K-FOOD

Korea expects a significant boost in its projects in the Middle East, particularly in sectors such as defense, biotechnology, healthcare, cosmetics and food.

Korea Aerospace Industries Ltd. and other Korean defense companies are expected to gain from zero tariffs on most weaponry as Saudi Arabia is the world’s second-largest weapons importer and Qatar ranks third, analysts said.

The GCC member countries combined are Korea’s fifth-largest trading partner with a bilateral trade volume of $102.6 billion at the end of 2022, according to Seoul’s trade ministry.

Currently, the GCC has free trade deals with only a handful of countries: Singapore and the four members of the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway and Switzerland.

The agreement is “a historic step towards achieving Gulf economic integration and towards strengthening economic and trade relations between the two sides,” said the GCC secretary general.

Write to Han-Shin Park at phs@hankyung.com

In-Soo Nam edited this article.