The EU's free trade agreement with South Korea, one of the most economically important free trade agreements, has now been in force for ten years. The National Board of Trade Sweden has asked companies how they use this free trade agreement. Senior Adviser Jonas Kasteng, one of the authors of the report, tells more.

You have investigated how Swedish companies that trade with South Korea use the EU-South Korea free trade agreement. Which are the main observations?

We are pleased to note that most companies that are aware of the free trade agreement also use it. This is true for all companies, regardless of size. We have also noticed that importers in particular seem to be less aware of the free trade agreement than exporters. Almost 50 percent of the importers who currently trade with South Korea are unaware of the free trade agreement, even though importers are the ones that mainly benefit from the tariff reductions in the free trade agreement.

Also among the micro companies (companies with a turnover of up to 2 million euro and up to ten employees), awareness of the free trade agreement is low and only about half of the micro companies that trade with South Korea are aware of the possibility of tariff reductions. However, in that group, nine out of ten companies use the tariff reductions that the free trade agreement provides for.

What particularly surprised us was that the fact that companies using customs brokers – who are specialists in customs procedures – does not seem to correlate with their use of the possible tariff reductions in the free trade agreement, compared to companies that do not use customs brokers.

What could be the reasons behind the free trade agreement not being used?

It is often argued that complicated rules of origin make it difficult for companies to use the tariff reductions in free trade agreements, but this is not confirmed by our study. On the contrary, most companies, regardless of size, find it easy to comply with the rules of origin and the related customs procedures. The main reason why the companies we have asked do not use the free trade agreement is rather that they do not know that it exists and what opportunities it provides.

In addition, there may be rational reasons not to use the free trade agreement, for example if the product already benefits from zero duties or if it contains input materials which means that it may not be covered by the free trade agreement.

What do companies need in order to use the free trade agreement?

Companies need readily available information and expert support for their first import or export transactions in order to start using the tariff reductions. Companies have made several suggestions about what would facilitate their use of the free trade agreement.

One question that I think would be interesting to investigate further is whether customs brokers inform companies about the possibility of using the free trade agreements. A majority of companies use customs brokers, in particular importers and micro companies, but they do not know whether the customs broker uses the free trade agreements or not.

Do you have any piece of advice for Swedish companies as a result of the survey?

I would like to urge companies to take the first step. Once they made use of the free trade agreement, it will be much easier the next time. And there could be considerable amounts of money to be saved. The average customs duty is about 4–5 percent of the import price, depending on which goods are imported and how often the imports take place. In the case of exporters, their products generally become cheaper for the importer which could contribute to a competitive advantage.

Why did the National Board of Trade conduct this survey?

It is important to get a better understanding of how companies think and behave, and not get stuck with "truths" such as small companies do not use free trade agreements due to complicated rules of origin. Our survey shows rather the opposite. It also shows where information efforts may be targeted in order to increase awareness of the possibilities of the free trade agreements.

It is also important to understand what drives companies' use of free trade agreements. In our opinion, the role of importers should not be underestimated, in particular the importers in the partner country. In order for Swedish and European exporters to be able to sell their goods within a free trade agreement, it is most often the case that it is the importer in the partner country that requests the tariff reduction.