Report: Learning by Using Free Trade Agreements – a firm and transaction-level analysis of the EU–South Korea FTA

This report focuses on the trade aspects of the EU–South Korea free trade agreement. It analyses imports and the utilisation of available tariff preferences by Swedish importers between the years 2008 and 2018. Jonas Kasteng, one of the authors of the report, tells more.

What is the theme of the report?

We have analysed Swedish companies' imports from South Korea during a ten-year period – both before the free trade agreement with the country entered into force and during its first years. The focus is on how companies use the free trade agreement (FTA) over time and the number of import transactions they have made. We believe that many of the results in the report are universal and therefore valid for most of the EU's modern FTA:s.

What are the most important results?

Our investigation shows that companies seem to learn to use the free trade agreement relatively quickly and to a high degree. The agreement is widely used already in the first year and the companies manage to take advantage of over 90 percent of the potential duty savings already after three to four years. They are thus using the free trade agreement effectively, which underlines the positive effects of the EU’s free trade agreements.

Companies mainly learn to use free trade agreements through their own practical experience, which is shown by the fact that the number of repeated import transactions is more important for the use of the agreement than the total time the company has imported. We have also studied the importance of the companies' business networks and the range of import products and found that contact with many exporters seems to make the free trade agreement being used to a greater extent. The results apply regardless of the size of the company.

Was there anything in the data that surprised you?

It was surprising to see that so many companies – almost half of all companies – only made a single import transaction, never to then return. Most of these companies did not use the free trade agreement either. Other companies were active throughout the ten-year period and proved to be particularly fast and efficient users of the FTA.

What do you hope the investigation will achieve?

We hope that the report can help to nuance the picture of how much free trade agreements are used by showing how companies with different experience use free trade agreements to different extent. Of particular interest is therefore to consider how companies can take better advantage of intermediaries with broad and extensive experience of international transactions, such as customs brokers, to increase the use of free trade agreements.

It is important that companies get help to use the free trade agreement at an early stage. Not only when the free trade agreement is new but also when it is new to companies. Authorities, business associations, customs brokers and other actors with experience in international trade transactions would need to work together to identify how companies can be supported.

Do you have any advice for companies?

It is important that companies find out early how they easily and efficiently can take advantage of the benefits that free trade agreements have to offer. There are savings to be made, but at the same time, they come with a certain administrative burden, for example in having to prove the origin of goods in order for them to be eligible for tariff reductions. One way to proceed can be to turn to actors with great experience in the field, for example to customs brokers, and thus learn from them.

If the company starts using the free trade agreement, it is more likely that the trade relation with the trading partner in the country in question will be long-lasting.