Analysis On The Economic Effect Of South Korea-eu Fta

Economic globalization and regional economic integration is the two major trends of economic development now. Under the background of economic crisis, the trend of trade protectionism increased, so more and more countries and regions inclined to sign free trade agreements to speed up tariff reduction and liberalization of market access, promote trade, investment and economic growth, and to maximize the benefits of economic globalization.EU is the world's largest regional trading blocs, while the EU is South Korea's second largest trading partner, and South Korea is the EU eighth largest trading partner. Korea-EU bilateral trade value is more than 90 billion U.S. dollars in 2008, trade growth rate remained at 7.5%. Korea-EU Free Trade Area is established on realistic foundation.The paper will analyze the economic effect of Korea-EU FTA. It is based on customs union theory, free trade zones theory and other related trade theory.Firstly, the paper review the process of FTA negotiations, and compare Korea-EU FTA with Korea-US FTA. Secondly, we put research on trade in goods, services, and foreign direct investment between Korea and EU. Then we analyze economic openness, trade integration degree, industry trade index, and apply gravity model to predict Korea-EU trade potential. Through constructing FTA model to study static effect and dynamic effects, we estimate trade creation and diversion effect by using partial equilibrium formula. At Last, we estimate trade diversion effect from Korea to China and from EU to China as response to Korea-EU FTA.Based on existing research results, there are some innovative aspects:first, the research question is novel because of timeliness of topics. Meanwhile South Korea-EU FTA has just reached and is likely to officially implement this year, so that the research article has strong practical significance. Second, this research integrates methods of qualitative analysis, quantitative analysis, comparative analysis, and partial equilibrium formula to analyze the effect of free trade area. Third, the most important meaning of the topics is to study effect on China' trade.Based on standard theoretical and empirical research, it reaches the conclusion:both South Korea and EU has high foreign economic openness. Korea's trade dependence on the EU is higher than the EU'. There is inter-trade for the industrial products. There is potential trade between South Korea and Denmark, Romania, Portugal, Bulgaria, Latvia, Estonia, Lithuania, Luxembourg. Korea's benefit will increase after establishment of FTA, while EU remains production and consumption. On the base of Korea-EU trade value in 2008, Korea's trade creation is 9 billion U.S. dollars and trade diversion is 4 billion U.S. dollars, while EU' trade creation is 7 billion U.S. dollars and trade diversion is 0.8 billion U.S. dollars.