After its official signing almost two years ago, a new free-trade deal between Israel and South Korea went into effect, making it the first trading agreement with an Asian country. This is fantastic news, as South Korea is Israel’s important business partner and closest ally.

In 2021, bilateral trade in products and services reached approximately $3.5B, approximately 35% higher than in 2020. Out of the total turnover, Israel sold $1.5B worth of goods, a 42% increase over 2020.

With the new agreement in place, over 95% of Israeli exports to South Korea should be exempt from local customs duties, including fertilisers, cosmetics, electrical and mechanical equipment, plastics, fruit juices, and wine. Korean exports to Israel include medical devices, industrial refrigeration equipment, machinery and parts, electronic components, chemicals, and plastic items.

According to the Economy Ministry’s Foreign Trade Administration, the consequent savings in customs duties are projected to benefit Israeli buyers of Hyundai and Kia autos, toys and games, soy sauce, and many more products produced in South Korea. In addition, around NIS 500M is expected to be saved by Israeli exporters.

The new agreement will enable Israeli consumers to immediately enjoy certain popular South Korean products at cheaper prices. These include industrial refrigerators and freezers (subject to 12% Israeli customs duty in the past), cars (7%), and soy sauce (4%).

It is worth noting that vehicles produced by the Hyundai Group, under the Hyundai and Kia brands, currently account for about a third of new car sales in Israel and represent a large component of the balance of trade between the two countries. In reality, however, a significant number of these vehicles are imported to Israel from the group’s factories in Europe, to which the new agreement does not apply. Nonetheless, the main benefactors of zero customs duties will be future owners of South Korean-made electric vehicles produced by the group, such as the Hyundai Ioniq 5 and the Kia EV6.

Other products’ customs duties will be eliminated during the next few years. For instance, over the course of three years, the Israeli customs duty on bathtubs and sink units manufactured in South Korea for industrial use will be cut from 12% to 0%.

According to the Foreign Trade Administration, some Israeli items, such as wine (which was previously subject to a 15% S. Korean customs duty), Gamma medical cameras (8%), and fertilisers (6.5%), will be immediately exempt from S. Korean customs duties.

Other products, including medical monitoring equipment (currently subject to 8% S. Korean customs duty) and Israeli lipsticks, eye shadow, and skin-care products (6.5%), will be reduced to zero over the period of three and five years, respectively.

Overall, it is anticipated that this new agreement will boost South Korean investment in Israel and provide Israeli firms with a competitive edge in the South Korean market.