Korea: Free trade agreement with Israel, entry into force 1 December 2022
First free trade agreement between Israel and a country in Asia
Entry into force 1 December 2022
A free trade agreement between Korea and Israel is scheduled to enter into force on 1 December 2022. This would be the first free trade agreement between Israel and a country in Asia.
According to the free trade agreement, 95.2% of Korea’s and 95.1% of Israel’s exports (based on the total number of items) will incur a zero tariff within 10 years. Tariffs on automobiles (tariff rate 7%) and parts (6 - 12%), textiles (6%), and cosmetics (12%), which are Korea's main export products, will be removed immediately.
The product specific rule (PSR) is a list of working or processing operations that must be done on non-originating materials for the product to obtain originating status (and therefore benefit from the preferential tariff treatment provided under the preferential trade arrangement).
To effectively utilize the Korea-Israel free trade agreement after its entry into force, it is necessary to review the PSR for each item of the agreement and check whether the company’s main export products meet the requirement. If the PSR is met, then it is important to check the applicable tax rate to the exporting country to see if there is any benefit from using the free trade agreement.
Particularly, it is important to prepare for the risk of denial of the preferential tariff after its application by examining the provisions of the free trade agreement overall and identifying the differences between existing agreements and new agreements. If the origin status is denied because of origin verification in Korea, sanctions such as additional tax imposition or suspension of the preferential tariff treatment may be taken. Therefore, companies utilizing free trade agreements must be prepared to appropriately demonstrate at any time of verification that the goods subject to origin verification fulfil origin requirements.
Read a November 2022 report [PDF 218 KB] prepared by the KPMG member firm in Korea
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