Why Korea Trade Agreements Matter
21 FTAs Active
Covering 59 countries worldwide
5-30% Savings
Average duty reduction on imports
95%+ Qualify
Korean goods eligible for preferential treatment
$5K-$100K+
Potential annual savings per importer
Example Impact
Without FTA: $100,000 annual imports × 10% duty = $10,000 paid With FTA: $100,000 annual imports × 0% duty = $0 paid Annual savings: $10,000 (10% of costs!)
Korea's Trade Agreement Network
Geographic Coverage
Americas (7 countries)
USA, Canada, Chile, Peru, Colombia, + Central America (6)
Europe (31 countries)
EU (27), UK, Switzerland, Norway, Iceland, Liechtenstein
Asia-Pacific (19 countries)
ASEAN (10), China, Japan, India, Australia, New Zealand
Middle East (2 countries)
Turkey, Israel
Major Trade Agreements
| Agreement | Partners | Year | Coverage |
|---|---|---|---|
| KORUS | USA | 2012 | 95%+ goods at 0% |
| Korea-EU | 27 EU countries | 2011 | 99% goods at 0% |
| Korea-UK | United Kingdom | 2021 | 99% goods at 0% |
| RCEP | 15 Asia-Pacific | 2022 | Varies by country |
| CKFTA | Canada | 2015 | 98% goods at 0% |
| KAFTA | Australia | 2014 | 95% goods at 0% |
| ...and 15 more FTAs | |||
KORUS FTA (Korea-USA) Deep Dive
Status: In force since March 15, 2012
Impact: Largest bilateral trade agreement for both countries
Key Benefits
Immediate Duty Elimination
82% of industrial goods: 0% duty from Day 1
95%+ goods: 0% duty now (2025)
Certificate Advantage
Self-certification (no government approval)
Free, 4-year retroactive claim possible
| Product | Pre-FTA Duty | KORUS Duty | Savings |
|---|---|---|---|
| Cosmetics | 6.5% | 0% | 6.5% |
| Apparel | 16.5-32% | 0% | 16.5-32% |
| Electronics | 0-2.5% | 0% | 0-2.5% |
| Auto parts | 2.5-4% | 0% | 2.5-4% |
| Food (kimchi) | 11.2% | 0% | 11.2% |
Rules of Origin - Critical!
Textiles/Apparel - "Yarn Forward" Rule
Fabric must be woven/knitted from yarn produced in Korea or USA
Qualifies: Korean yarn → Korean fabric → Korean garment ✓
Does NOT qualify: Chinese fabric → Korean garment ✗
For Most Other Products:
- Regional Value Content (RVC): 35% minimum
- OR Tariff Shift: HS code changes during manufacturing
RVC Calculation
RVC = [(FOB - VNM) ÷ FOB] × 100 ≥ 35% Where: FOB = Ex-factory price VNM = Value of Non-originating Materials Example: Product FOB: $100 Korean materials + labor: $70 Non-Korean materials: $30 RVC = (100 - 30) ÷ 100 = 70% ✓ (exceeds 35%)
Savings Example - K-Beauty to USA
$50,000 order value (FOB) Pre-FTA duty (6.5%): $3,250 KORUS duty: $0 Savings per shipment: $3,250 Annual (6 shipments): $19,500 saved
RCEP (Regional Comprehensive Economic Partnership)
Status: In force February 1, 2022
Coverage: 15 Asia-Pacific countries (30% of global GDP!)
Member Countries
10 ASEAN: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam
Plus 5: China, Japan, South Korea, Australia, New Zealand
Significance: First FTA connecting Korea-Japan-China
Key Innovation: Cumulation
What is Cumulation?
Materials from ANY RCEP country count as "originating" - enables complex supply chains across RCEP
Cumulation Example
Traditional FTA (Korea-Australia): - Korean product using Chinese components = Non-originating - Pay 5% duty in Australia With RCEP: - Korean product using Chinese components = Originating - Chinese materials count (China is RCEP member) - Pay 0% duty in Australia ✓ Game-changer for electronics, textiles, auto parts
Tariff Elimination
- Korea-China: 90% goods eventually 0%
- Korea-Japan: 82% goods 0%
- Korea-ASEAN: 90% goods 0%
When to Use RCEP vs Bilateral FTA
Use RCEP if:
- Product doesn't qualify under bilateral FTA (due to non-originating materials from RCEP country)
- RCEP RVC lower than bilateral FTA (usually 40% vs 50%)
- Supply chain crosses multiple RCEP countries
Use Bilateral FTA if:
- Better tariff rate
- Simpler rules
- Faster/cheaper certificate
Pro tip: Check BOTH RCEP and bilateral FTA tariff schedules, use whichever is better
Korea-EU & Korea-UK FTAs
Korea-EU FTA
Status: In force since July 2011
Coverage: 27 EU countries, 99% of goods at 0% duty
| Product | Pre-FTA Duty | Korea-EU FTA | Savings |
|---|---|---|---|
| Cosmetics | 6.5% | 0% | 6.5% |
| Textiles/Apparel | 12% | 0% | 12% |
| Electronics | 0-14% | 0% | 0-14% |
| Machinery | 1.7-8% | 0% | 1.7-8% |
Important: VAT Still Applies
FTA eliminates customs duty only, NOT VAT
VAT rates: Germany 19%, France 20%, Italy 22%, Spain 21%, Netherlands 21%, Sweden 25%
Certificate of Origin - EUR.1
Type: EUR.1 form (government-issued)
Issuer: Korean customs
Cost: KRW 5,000 (~€4)
Validity: 10 months
Application Process:
- Supplier applies online at FTA Portal
- Upload: Invoice, Bill of Materials, manufacturing process
- Korean customs reviews (1-3 days)
- EUR.1 issued and sent to buyer
Savings Example - Fashion to Germany
€100,000 apparel order (CIF) Pre-FTA duty (12%): €12,000 Korea-EU FTA duty: €0 Savings: €12,000 per shipment VAT (19% on €100,000): €19,000 (still applies) Total customs costs: Without FTA: €31,000 With FTA: €19,000 Net savings: €12,000
Rules of Origin Deep Dive
Three Main Types
1. Wholly Obtained
Products entirely obtained/produced in FTA territory
Examples: Korean ginseng, seafood, minerals. Rare for manufactured goods.
2. Tariff Shift
Non-originating materials undergo HS code change during production
Example: Fabric (HS 5208) → Garment (HS 6204) ✓
3. Regional Value Content
Minimum % of value from FTA partner(s)
Thresholds: KORUS 35%, Korea-EU 45-55%, RCEP 40%, Korea-China 50%
Certificate of Origin Procedures
Government-Issued Certificates
Documents Required:
- Commercial invoice (final version)
- Packing list
- Bill of Materials (BOM) showing each component, origin, value, HS code
- Manufacturing process description
- Supplier declarations (if using imported materials)
Timeline: 5-7 days total (application to delivery)
Cost: KRW 5,000-10,000 (~$4-8) per CO
Self-Certification (KORUS, CKFTA)
Advantages
- Supplier creates certificate themselves
- No government approval needed
- Cost: Free
- Timeline: Same day
- 4-year retroactive claim (KORUS)
Trade Agreement Selection Strategy
Decision Framework
- Check if trade agreement exists - Is destination in Korea's 59 FTA partners?
- Identify applicable agreements - May have multiple options (e.g., Korea-China FTA AND RCEP)
- Compare tariff rates - Choose agreement with 0% or lowest duty
- Check Rules of Origin - Can your product meet the requirements?
- Consider certification cost/complexity - Free self-cert vs paid government cert
- Select optimal agreement - Best combination of duty savings and compliance ease
FTA Compliance Best Practices
Verification & Record Keeping
Customs Can Verify Your FTA Claim
Post-Clearance Audit: Customs requests documentation after goods released
Timeline to respond: 30-60 days. Keep all documents 5 years minimum.
What to Keep:
- Certificate of Origin (original or certified copy)
- Commercial invoice
- Packing list
- Bill of Materials
- Manufacturing process documentation
- Supplier declarations
- RVC calculations
Annual Review
Why Annual Review Matters
- Supplier may change materials sources
- RVC may drop below threshold
- Manufacturing may relocate
- Re-verify RoO compliance yearly
Case Study: Maximizing Savings Across Multiple FTAs
E-commerce Retailer Strategy
Company: Importing Korean fashion, cosmetics, electronics
Markets: USA, EU, Australia, China
USA (K-Beauty): KORUS FTA
Annual import $500,000 × 6.5% = $32,500 saved
EU (Fashion): Korea-EU FTA
Annual import $200,000 × 12% = $24,000 saved
Australia (Electronics): KAFTA
Annual import $300,000 × 5% = $15,000 saved
China (Cosmetics): RCEP
Annual import $100,000 × 10% = $10,000 saved
Total Annual Savings: $81,500 (7.6% of total imports)
ROI: Compliance cost ~$5,000/year, Net savings $76,500
Key Takeaways
- Korea has 21 FTAs covering 59 countries - Massive coverage
- 95%+ of goods qualify for 0% duty - Nearly everything benefits
- KORUS = easiest - Self-certification, free, 4-year retroactive
- RCEP = game-changer - Cumulation enables complex Asia supply chains
- Yarn Forward rule critical - Textiles/apparel to USA must use Korean/US fabric
- RVC calculations essential - Verify compliance with Bill of Materials
- Certificate of Origin required - No CO = No FTA benefits
- Multiple FTAs may apply - Choose best one (tariff, RoO, cert cost)
- Keep records 5 years - Customs can audit anytime
- Annual savings: $5K-$100K+ - Depending on import volume
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