The European Union (EU) practices various types of preferential trade schemes to promote the economic growth of developing countries through trade. The EU classifies developing countries into three groups by their income level, economic and social status and applies the Generalised Scheme of Preferences (GSP), which is a non-reciprocal preferential trade scheme to reduce or exempt tariffs on goods exported to the EU or remove quotas. The EU also signs Economic Partnership Agreements (EPAs) with developing countries in the African, Caribbean, and Pacific (ACP) regions, which have long historical relationships with Europe, to open European markets to partner countries and support their trade capacity building. Major advanced economies, including the EU, implement a wide range of preferential trade schemes targeting Africa, which has the positive effect of strengthening Africa's trade capacity, supplying cheaper goods to their consumers, and supporting their entrepreneurs' investment in Africa.
   In the midst of the recent changes we are seeing in the African trade environment, trade policies like preferential tariff schemes can be used in Korea’s long-term trade strategy with Africa. On May 30, 2019, the African Continental Free Trade Area (AfCFTA), entered into force with a range of coverage extending across the entire African continent, and starting from July 2020 most tariffs on goods trade within the African market with a 1.2 billion population will be eliminated. Reacting to these changes, emerging countries such as Russia, China, India, and Turkey, as well as advanced countries implementing preferential trade schemes such as the GSP, are rapidly expanding their trade and investment in Africa. As a result of the changes in the trade environment surrounding Africa, major countries in the world are evaluating and adjusting their Africa strategy, while Korea still lacks any economic cooperation strategies or policies in Africa except for development cooperation policies. Korea’s bilateral trade-promoting policies widely used so far, such as free trade agreements (FTA), may not be appropriate for the circumstances in Africa, where regional economic communities are formed in each part of the continent, and import regulations are widespread for the economic development of African countries. Thus, Korea needs a long-term trade strategy with Africa that can enhance Korea’s interests in a manner that also suits the circumstances and demands of the continent.
   In this context, this study aims to investigate the current state of preferential trade schemes of the EU to establish Korea's trade strategy for Africa. While the United States has implemented the African Growth and Opportunity Act (AGOA) as its preferential tariff scheme for African countries, the EU sets up different economic cooperation strategies by grouping African countries and regions according to their economic development and income level. In particular, the EU’s EPA policy to asymmetrically and gradually open markets of middle-income countries in Africa might be a good model policy for Korea.
   Chapter 2 examines the EU’s non-reciprocal and bilateral preferential tariff schemes and agreements and its trade relations with African countries. The EU divides developing countries into three groups and applies different preferential tariffs. The standard GSP reduces tariffs for exports of about 66% of products from developing countries to the EU market. Among countries eligible for standard GSP, the ones that meet the vulnerability and sustainable development standards can apply for GSP+, the framework that fully exempts tariffs for GSP-applicable products. Furthermore, least developed countries can enjoy full access to EU market for all of their export products except armament, according to the Everything But Arms (EBA) policy.
   The EU is also promoting EPAs as bilateral trade agreements with regional economic communities in the ACP region, including Africa. The EU already has implemented EPAs with some countries in Southern Africa (SADC), West Africa, Eastern and Southern Africa, and Central African regions, and has concluded EPA negotiations with East Africa. Under the EPA, the EU market is open immediately for most items to partner countries, while the markets of the partner countries in Africa will open later gradually and partially, as an asymmetric market opening principle. In particular, high-income countries, which are ineligible for EBA privileges, can also benefit from trade privileges under these EPAs for their EU exports. For instance, South Africa enjoys significant tariff reductions on its agricultural and fishery exports through the EU-SADC EPA. In addition to trade, EPAs strengthen and monitor the economic policy capacity of African countries, in terms of labor, environment, investment, and competition policies, to create a business environment where European entrepreneurs prefer investing in. Several EPA signing African countries, including Cote d’Ivoire, are actively attracting investment from EU entrepreneurs through EPAs. However, some African countries, including Nigeria, are postponing their ratification of the EPA, with the result that it is only in force on a provisional basis within the countries that have ratified it. All EPAs that the EU has entered into or negotiated with African countries include development cooperation and economic development in Africa. However, most of Africa’s exports to the EU are still raw materials such as petroleum and agricultural products. Aid for Trade (AfT) and efforts to attract the investment of EU companies in Africa still remain important agendas.
   Chapter 3 compares and analyzes the US and the EU preferential tariff schemes implemented for Africa. Both have a common framework based on their GSP and require compliance with international norms such as labor rights and human rights. In addition to the application of preferential tariffs, both implement special programs to strengthen trade capacities and technical support for African countries. However, while the AGOA strictly enforces standards concerning US national interests , such as protection of US investment in Africa and the export environment supporting American firms, EU’s policies apply flexible standards for more comprehensive terms. Whereas the AGOA is provided for in the form of US domestic law in a scheme where the US government decides on target countries, EU policies determine beneficiary countries according to international standards, with the exception of the GSP+.
   There are significant differences between preferential tariff schemes of the US and the EU in terms of trade effects. An empirical study using imports data of the EU and the US from Sub-Saharan Africa, from the period of 2000 to 2015, indicates that the US AGOA had an estimated trade effect of approximately 31.0% on apparel products, while the estimated effect on non-apparel products was only about 2.4%. The trade effect of all the EU preferential tariff schemes including GSP and EPA was estimated at about 13.8%. Similar to the previous studies, the trade effect of AGOA is concentrated on apparel items. Since the share of non-apparel items is larger in terms of the number of items and the volume of trade, the trade effect of the EU policies is higher when comparing the trade effect of the US and EU preferential tariff schemes for Africa.
   Chapter 4 summarizes the results of the entire study and produces policy recommendations, including the possibility of Korea's preferential tariff schemes for Africa and how to utilize them. Korea has pursued several bilateral and regional free trade agreements (FTAs) since the late 1990s. More recently, Korea’s New Southern Policy and New Northern Policy also incorporate FTAs and Comprehensive Economic Partnership Agreements (CEPAs) with regional partner countries. Korea explored FTAs with South Africa and Egypt in the past, but failed to realize any significant progress. Considering Korea is neither geographically close to Africa nor has a large market like the EU, using the non-reciprocal preferential tariff scheme as the only strategy for increasing trade with Africa would merely have limited effects. Furthermore, even if Korea introduces non-reciprocal preferential tariff policies such as the GSP, upper-middle income countries in Africa, who have the most potential for economic cooperation with Korea, are less likely to obtain beneficiary status under such a scheme.
   For this reason, it is necessary to consider a new and alternative trade agreement framework that fully reflects the needs of Korea as well as partner countries and regions, partner countries’ income and other important characteristics of bilateral economic cooperation. In this respect, the EU's strategy of promoting EPAs with major reExecutive gional economic communities and differentiating GSPs by income level of beneficiary countries can be considered as a good model for Korea. Given that the demand for local investment and technology transfer to Africa is as significant as the need to expand bilateral trade with African countries, alternative bilateral trade agreements similar to an EPA should be developed to meet the needs and environments of different African countries and regional communities. In order to expand trade and investment between Korea and Africa, it is necessary to strengthen the trade capacity of Africa and increase access to both markets. This is also the objective of Aid for Trade, which has recently been highlighted in the area of development cooperation. Korea continues to increase its amount of aid for trade every year, but the sector remains separated from the trade strategy of Korea. It will be essential for Korea to establish a Korea-African economic cooperation strategy and implementation system that can operate beyond trade policies and development cooperation policies if Korea is to systematize aid for trade and expand trade and investment between Korea and Africa.
   Finally, we could consider integrating the various high-level Korea-African policy forums currently hosted by different Korean ministries and upgrading these to the highest level. Not only the US and the EU but also China and Japan, operate regular top-level forums with African countries to expand economic cooperation with Africa. The theme of the forums has also changed from development cooperation agenda to trade and investment agenda. In line with the emerging trend of regional centrality led by the African Union (AU), Korea’s trade agenda should place more emphasis on strengthening its consultative bodies with the AU to overcome the limitations of economic cooperation with fragmented regional economic communities. Holding these Korea-AU councils on a regular basis and expanding them appear to be a promising direction when considering recent changes in the trade environment in Africa.