Newsletter | October 2016, Issue 3
	INTERNATIONAL TRADE & CUSTOMS
	Key Takeaways of the “Brexit” Vote
	In the United Kingdom (“UK”) European Union membership referendum held on June 23, 2016, the UK electorate voted to leave the European Union (the “EU”). The UK’s exit from the EU (“Brexit”) signifies its withdrawal from the Treaty of Lisbon, which forms the constitutional basis of the EU since the treaty took effect in 2009.
	The withdrawal process is expected to take more than two years, and there is considerable uncertainty regarding the prospects of the EU and UK, following Brexit. Nonetheless, the exit of the UK, which has accounted for over 20% of the EU’s economy, is expected to substantially impact the existing legal regimes and global market conditions.
	Potential Impact to Korea:
	When the UK officially withdraws from the EU, pursuant to the Treaty of Lisbon and the applicable territory provision of the EU-Korea Free Trade Agreement (“FTA”), the UK will no longer be bound by the EU-Korea FTA. In the interim period, both Korea and the UK are subject to all EU-Korea FTA provisions.
	What Can We Expect?
	As of 2015, the EU makes up 9.1% of Korea’s export, and the UK only makes up approximately 1.4%. Therefore, the impact Brexit will bring upon the Korean economy would be limited, but, when the Brexit is actually implemented, one can expect numerous changes regarding UK-Korea trade relations, as the EU-Korea FTA will no longer govern their relationship.
	We can also expect that the uncertainty surrounding the impact of Brexit will result in shrinkage of investment and stagnancy of business transactions. This negative effect on the global economy could both directly and indirectly affect the Korean economy.
	If the UK withdraws from the EU, UK goods will no longer be eligible for preferential tariff treatment under the Korea-EU FTA, and therefore, the Korean importer would be required to pay customs duties according to applicable non-preferential tariff rates. However, it is likely that preferential tariff rates would apply until the UK’s withdrawal from the EU takes actual effect.
	Korea mainly imports crude oil, automobiles, medical supplies, and alcoholic beverages from the UK. The UK mainly imports automobiles, machinery, and electronic equipment from Korea. Because most imported goods (such as crude oil, automobiles, and alcoholic beverages) are currently subject to preferential tariff treatment under the Korea-EU FTA, if the UK does not separately sign a FTA agreement before withdrawing from the EU, the benefits accorded under the Korea-EU FTA will no longer apply, resulting in reduced pricing competitiveness.
	Nonetheless, if the British pound continues to be weak following Brexit, the import price could be relatively lower, possibly leading to an increased import of goods.
	Because domestic importers will only receive preferential tariff treatment until the UK withdraws from the EU, they may consider response measures, including: 1) advance negotiation of prices; and 2) clarification of contractual rights and obligations to prepare for possible changes in supply & demand, price, or the general trading environment.
	Also, importers of raw material who currently receive preferential tariff treatment under the Korea-EU FTA may consider finding new suppliers while re-examining its current supply chain.
	Exporters and producers of products who currently benefit from preferential tariff treatment under the Korea-EU FTA may need to consider response measures in advance. Even if the UK withdraws from the EU, preferential tariff treatment may still be accorded if Korea and the UK sign a new FTA agreement. However, since such FTA agreement will require a new round of negotiations, it is entirely possible that the tariff concessions may not be identical from those in the Korea-EU FTA.
	It is also possible that different sets of rules of origin may apply in determining the “originating” status of the goods traded between Korea and the UK on a going-forward basis.
	Key Considerations:
	Therefore, if Brexit becomes a certainty, and Korea and the UK enter into negotiations, companies that produce, export or import goods subject to preferential tariff treatment under the Korea-EU FTA may want to carefully monitor the negotiation process on issues such as the tariff elimination rate and rules of origin, and if necessary, provide their comments and opinion to both negotiating parties.
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	If you have any questions regarding this article, please contact below:
	Joon Ho Bu jhbu@kimchang.com Hyun-Soo Joo hyunsoo.joo@kimchang.com
	For more information, please visit our website:
	www.kimchang.com International Trade & Customs Practice Group