This article examines imports by Swedish firms and the utilization of the tariff preferences offered by the EU–South Korea Free Trade Agreement. To benefit from tariff preferences, the importer must make a formal request to use the preferences and also document the origin of the imported products (with a certificate of origin provided by the foreign exporter). This may be costly, and some importers choose to pay import tariffs even when tariff preferences are available. Hence, the preferences are not fully utilized. Using a detailed firm–transaction level data set on Swedish imports from South Korea, we analyse the determinants of preference utilization and how firms learn to use preferences. The results show that preference utilization is strongly correlated with potential duty savings, which depend on the preference margin and the size of the import transaction. From a learning perspective, we find that preference utilization is closely related to the number of import transactions undertaken by the firm, suggesting a learning-by-doing mechanism. The length of time the firm has been involved in importing activities plays a smaller role.

The degree to which firms make use of preferences in exporting to a partner country under a Free Trade Agreement will in good part depend on the restrictiveness of the underlying Rules of Origin (ROOs). Focusing on the post-Brexit Trade and Cooperation Agreement (TCA) signed by the United Kingdom and the European Union, we examine how access to zero preferential tariffs has been impacted by ROOs. We do so by constructing a ROO restrictiveness index which varies across products. We find that the TCA has an overall moderate degree of ROO restrictiveness. Using product-country level trade data, we find that preference utilization under the TCA has risen over time, and exhibits a positive correlation at the product level with the EU Common External Tariff. Regressions on the determinants of preference utilization indicate that more restrictive ROOs are associated with a lower degree of preference utilization by UK firms in the EU market and this effect is more evident for consumption goods. Preference utilization is also driven by the size of the preferential margin, the size of the trade flows, and the extent to which exports are undertaken by producers as opposed to distributors, as well as the degree of firms’ engagement in value chains.

The tariff preferences in FTAs do not apply automatically to all imports. Instead, importers can request to use the tariff preferences, but must then show that the imported goods fulfil the formal requirements (e.g. rules of origin) of the FTA. This is costly, which is a likely reason why tariff preferences are not always used. This research note examines preference utilization under the FTA between the EU and South Korea, which was formally ratified in 2015 (but had been provisionally applied from 2011). We use firm and transaction level data for Swedish imports from South Korea during November 2016 to answer the question ‘Who uses the EU's FTAs?’ With information on firm size, product category, import mode (direct imports or customs warehousing), preference margin, potential duty savings, and transaction size, we provide a detailed picture of when firms choose to utilize the tariff preferences. The results suggest that the differences across importers are not primarily related to firm size, as is sometimes suggested in extant literature. We also find that it is the size of the import transaction rather than the size of the preference margin that determines preference utilization.