A new free trade agreement between South Korea and Israel came into force in Israel under a Customs Tariff Order published December 5, 2022  (Customs Tariff Order and Purchase Tax Exemptions for Goods (Amendment) 2022, (Kovetz Takanot 2045)).

The free trade agreement runs to over 500 pages and deals not only with customs duty exemptions, but also rules of origin, customs procedures, trade remedies, dispute settlement, government procurement, investments, cross border services, temporary of business persons, telecommunications, e-commerce, intellectual property, the environment, transparency, technical cooperation and more.

In 2021 bilateral trade in goods and services totaled around USD 3.5 billion, around 35% more than in 2020. Of this USD 1.5 billion was exported by Israel, around 42% more than in 2020.

According to the Foreign Trade Administration at the Israeli Economy and Industry Ministry, the resulting customs reductions are expected to benefit Israeli purchasers of Hyundai and Kia automobiles, toys and games, soy sauce and much more. Israeli exporters are expected to benefit to the tune of NIS 500 million approximately. Israeli companies will enjoy a competitive advantage on the Korean market, and Korean investment in Israel will be encouraged.

Over 95% of Israeli exports to Korea should be exempted from Korean customs duty, including electrical and mechanical equipment, fertilizers, medical devices, cosmetics, plastics, fruit juices and wine. Korea exports to Israel machinery and parts, refrigerators for industry, medical devices, electronic components, plastic products and chemicals.

Intellectual Property:

The agreement states that each country shall endeavor to maintain intellectual property (IP) regimes that aim to:

(a) facilitate international trade and economic, social and cultural development

through the dissemination of ideas, technology and creative works; and

(b) promote certainty for rights-holders and users of intellectual property in

respect of the protection and enforcement of intellectual property rights.

The countries recognize the need to achieve a balance between the rights of intellectual

property right-holders and the legitimate interests of intellectual property users.

The agreement contains detailed additional provisions regarding IP. For more details, see Chapter 14 of the agreement.

How much will Israeli exporters benefit from the agreement?

Here are a few examples. According to the Israeli Foreign Trade Administration, customs duties in Korea should immediately be drop to zero for some Israeli products, such as: Israeli fertilizers (previously 6.5% Korean customs), wine (previously 15% customs), Gamma medical cameras (previously 8% customs). The Korean customs duty on Israeli lipsticks, eye shadow and skin care products will be reduced from 6.5% to zero over 5 years. The Korean customs duty on medical monitoring  equipment will be reduced from 8% to zero over 3 years.

How much will Israeli consumers benefit from the agreement?

According to the Israeli Foreign Trade Administration, the customs duties in Israel should immediately drop to zero for some Korean products such as automobiles (previously 7% customs), refrigerators and freezers for industry (previously 12% customs), soy sauce (previously 4% customs). The Israeli customs duty on Korean equipment for industry bath tubs and sink units should be reduced from 12% to zero over 3 years.

Comments:

In principle the Israel’s free trade agreement with Korea is good news, as Korea is an important trading partner and a friend of Israel.

However, we took the liberty of inquiring into the price of new Korean cars (both big makes), only to find that apparently no 7% reduction has yet been factored into list prices. We were given a variety of unconvincing reasons: perhaps in January 2023, perhaps in June 2023, perhaps prices will go up due to global inflation, perhaps the agreement does not apply to car orders yet while inventories are cleared. The last reason seems regrettably inaccurate as there are currently low car inventories in Israel and nearly all delivery dates are months into the future. The message is: if you intend buying a Korean car or other Korean products, do ask about price discounts reflecting Israeli customs duty reductions.

Next Steps:

Please contact us to discuss any of the above matters further, or any other matter.

As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.

(c) Leon Harris 14.12.22