European Premium Brands Fail to Reflect FTA in Prices

The effects of the Korea-EU FTA are already evident in the prices of anything from food to bedding, but label-addicted Koreans are aggrieved that luxury goods and premium brands are as expensive as ever. The big logos have managed to turn tariff reductions straight into profit without cutting a single won off their prices and, on the contrary, hiked them wherever they can get away with it.

A survey by the Chosun Ilbo of the prices of major goods from Europe included in the Korea-EU FTA from Feb. 15 to 17 shows that there was no price reduction among European household goods and home appliances makers like Philips, Braun, Tefal and Delonghi after the FTA came into effect last July.

When consumers complained, the makers said that these items are not part of the FTA because they are in fact manufactured in China. But they maintained the prices of premium items that are made in Europe as well.

The auto market was no exception. Several carmakers cut their prices by 1-3 percent shortly after the FTA became effective and the tariff went down from 8 percent to 5.6 percent for medium and large sedans with engine capacity of 1,500cc or more. However, many then hiked their prices again soon after.

The prices of luxury goods have paradoxically gone up since the FTA. Chanel's Vintage 2.55 handbag, which cost W5.39 million (US$1=W1,123) in June last year, now sells for a whopping W7.4 million. A 50 ml bottle of Christian Dior's Miss Dior Blooming Bouquet Eau de Toilette sold at W98,000 but is now W105,000. With the FTA, bags and cosmetics were immediately exempted from 8 percent and 6.5 percent tax, respectively.

As for wine, which was immediately exempt from 20 percent customs duty, prices dropped by about 10 percent shortly after the FTA, but the prices of some items remained the same. Prices of whisky, which also became exempt from 20 percent customs duty, remained unchanged. The industry claimed the price of alcoholic drinks is determined not only by customs duty but largely by domestic taxes, but it failed to explain why it did not get reduced even by a little.

Oh Se-jo, a professor at Yonsei University, said consumers of expensive goods tend to be royal regardless their prices, so businesses often take advantage of this to increase their profits, which led to the hike in prices despite the FTA.