Dec. 15, 2025, the Korea-U.K. free trade agreement (FTA) revision talks reached a final deal. After Brexit, the two countries' trade relationship, which had been maintained by temporarily extending the Korea-EU (European Union) FTA, achieved a substantive upgrade after two years of negotiations. The regional value content (RVC) rule for automobiles was eased from 55% to 25%, and practical gains were also produced, including tariff exemptions for repaired and reimported goods and stronger transparency in export and import licensing.
Easing of rules of origin and practical improvements
The key outcome is a sharp easing of the rules of origin for automobiles. Lowered by 30 percentage points from 55% to 25%, the easing improves cost management and export conditions. As a result, companies can enjoy FTA benefits more stably. In particular, for electric vehicles, the value added varies widely depending on the price of imported inputs such as lithium and graphite used in battery manufacturing, and the eased criteria are expected to increase FTA tariff benefits for Korean companies. In addition, the rules of origin for auto parts and general machinery were eased to 40%, which is expected to have a positive impact on partner companies' exports to the U.K. Practical improvements also stand out. A tariff exemption was newly established for goods reimported after repair or modification, which is expected to reduce after-sales service (A/S) expense. Transparency in export and import licensing procedures was also strengthened, imposing an obligation on the U.K. government to publish any new licensing requirements within 30 days and to respond to corporations' inquiries within 60 days. This is expected to greatly help corporations that need to export vehicles to the U.K.
Spread of ESG-based EV subsidy regimes
Under the World Trade Organization (WTO) system, trade-restrictive measures such as domestic preference are in principle prohibited, but they are exceptionally allowed under Article 20 of the GATT when there is a legitimate policy objective such as "environmental protection" or "public morals." The recent move by major European countries to tighten eco-friendly requirements for EV subsidies can be understood in this context. France, through the 2023 Green Industry Act, differentially pays subsidies based on the carbon emissions across the entire vehicle production process, and the U.K. announced the Electric Car Grant (ECG) in July 2025, designating manufacturers' Science Based Targets initiative (SBTi) certification as a mandatory prerequisite for subsidy screening. While both systems' environmental policy intent is understandable, when implemented without sufficient prior consultation or when criteria structurally disadvantage extra-regional producers, related industries may struggle to respond.
SBTi certification for U.K. EV subsidies, results of public-private coordination
When the U.K. ECG was announced, Hyundai Motor and Kia faced major difficulties. No matter how eco-friendly the vehicles, if the manufacturer was not enrolled in SBTi, it could not undergo the subsidy screening at all. At the time, Hyundai Motor and Kia had various ESG (environmental, social and governance) credentials, including joining RE100 (renewable energy 100% initiative) and an A grade from CDP (Carbon Disclosure Project), but they had not joined SBTi. The problem was that SBTi certification was expected to take at least 12 months, and the system took effect immediately without a separate public hearing, requiring a rapid response. In response, the Ministry of Trade, Industry and Resources quickly activated government-to-government dialogue channels and pushed for a meeting between trade Ministers, while on the corporate side also pursuing multi-channel outreach, including meetings with the British Embassy in Seoul and videoconferences with the U.K. Department for Transport and Department for Business and Trade. As the government and corporations split roles and cooperated closely, by the end of Oct. last year both Hyundai Motor and Kia completed SBTi certification, creating conditions for multiple EV models to undergo subsidy eligibility screening.
Public-private cooperation is key to responding to global trade
As seen above, more countries are using "ESG criteria" to protect their domestic industries. In dealing with such non-tariff barriers in the field, one realizes that ESG investment at the corporate level alone has limits. In this context, cases such as the 2021 Korea-EU personal data protection adequacy decision and the "mutual recognition of regulatory equivalence in data protection between the two countries" concluded in Sept. 2025 are highly instructive. Institutional equivalence secured through close intergovernmental consultations can be a key to dramatically reducing administrative burdens for our corporations. Likewise, in the ESG arena, it is worth considering the establishment of a similar intergovernmental mutual recognition framework. Meanwhile, on the front lines of private corporations' operations, measures in major markets such as the United States and Europe to keep certain extra-regional countries in check can at times unintentionally affect Korean industries. If, in future trade negotiations, such issues are checked in advance and rules of origin and other elements are closely reviewed, unnecessary damage can be prevented. In addition, when a specific trade issue arises, it is very important to promptly build multi-layered communication channels among the government, corporations and associations to accurately grasp the situation and deliver a consistent external message. In that sense, the latest Korea-U.K. FTA revision talks can be seen as a successful model that reflects the industry's practical difficulties.
"Korea-U.K. FTA revision talks will contribute to expanding bilateral trade"
This negotiation can be assessed as a "mutually beneficial result." The easing of rules of origin for key export items is expected to contribute to expanding trade between the two countries. As the U.K. emerges as the largest EV market in Europe, Hyundai Motor Group will meet the ZEV Mandate and further strengthen its EV leadership. The global trade environment will become more complex, and, as in this case, multidimensional public-private cooperation that combines the government's diplomatic capacity with corporations' on-the-ground response is more important than ever. We hope that the Korea-U.K. FTA revision talks and the SBTi certification response will be remembered as a successful cooperation model that can be referenced in similar future cases.
※ This article was published in the January issue of the monthly magazine "Trade." Please search for "Monthly Trade" on Naver: Monthly Trade.