ACEA

EU industries insist on improving trade deal with South Korea

The proposed FTA with South Korea offers an unfair competitive advantage to Korean industries and sets a harmful precedent for existing and future FTAs between the EU and other major trading partners. In particular, the terms undermine an important pillar of standing EU trade policy by compromising on the so-called Duty Drawback clause and Rules of Origin threshold, both essential instruments to ensure a level playing field in international trade.

Unfair competition

The Commission’s own customs and tax experts have explicitly warned against accepting the Duty Drawback clause, fearing potentially very negative effects for EU industries. Directorate General Trade, however, has failed to do a thorough impact assessment on these issues in advance.

The auto industry as well as other industry sectors and major national business associations have repeatedly warned against accepting the current trade proposals. The European business federation called for a ‘balanced agreement’, noting that several issues remain unsolved. Major trade unions have also expressed grave concerns.

• European metal and textile workers oppose trade deal with South Korea

Concerns in the US

The current deal affects EU industries far beyond the auto industry alone and poses a severe risk to the manufacturing base of Europe. This is unacceptable, and even more so in a time when all efforts are aimed at getting through the current economic crisis. By contrast, the United States of America currently refrain from signing off an agreement with South Korea on the basis of similar concerns.

The current proposals, furthermore, do not sufficiently improve access to the South Korean market, allowing South Korea to continue to introduce its own unique requirements instead of applying international standards.

Non-tariff barriers

Only this summer, Korea announced new rules on vehicle emissions that would severely limit the possibilities for foreign cars to enter its market. This constitutes an important non-tariff barrier to trade. The EU negotiating mandate for an FTA with South Korea stipulated that non-tariff barriers be eliminated, including the possibility to introduce new ones in the future.

The political process

The 133 Committee of EU Member States representatives has not yet given the green light to closing trade negotiations with South Korea. Contrary to the interpretation by the EU trade commissioner and the Swedish EU presidency in July, no full deal was concluded. A significant number of Member States expressed clear concerns regarding the content and several asked for further improvements, including changes in the actual text.

Their request comes in addition to opposition voiced recently by several EU Commissioners and other Commission services. The European trade commissioner will have to seek improvements in the text in order to get the required unanimity among Member States to close negotiations with South Korea.

About the FTA

Automotive is the largest component in the EU/South Korea trade relationship. Automotive represents 14% of the total EU/South Korea trade volume, with 17% of all Korean exports to the EU consisting of cars. EU car exports represent 4% of total exports to South Korea. The EU27 has consistently had a trade deficit with Korea:  €14.8 billion in 2007, €19.9 in 2006, €14.2 in 2005, €12.7 in 2004. Of the trade deficit, 40% stems from the huge disequilibrium in automotive trade.

For South Korea, automotive is the centre piece of the FTA. Automobiles are the most important export product of the South Korean economy. The South Korean car industry is focused on exports, with a production of 3.5 million cars per year, of which 2.5 million (73%) are exported. By contrast, 80% of cars produced in the EU are also registered in the EU. The EU is a key target market for Korean manufacturers, with 700,000 cars in 2007, or 20% of all EU car imports, and an average 10% annual growth between 2000 and 2007. Due to the economic crisis, 2007 is a better reference year than 2008.

South Korean competitiveness is expected to jump: The FTA represents a transfer volume of at least €1 billion per year, as tariffs will drop from 10 to 0% in 3-5 years, leaving a cost advantage of 700,000 times €1,000 on average. South Korean imports of car parts from neighbouring low-cost countries will strongly increase due to the Duty Drawback Clause plus a weakening of the Rules of Origin threshold to up to 50%, representing another €500 per car on average.

The EU would enable South Korean manufacturers to offset the rise in production costs in their home country, at the expense of fair competition for EU manufacturers, and at the expense of South Korean production in the EU. Concessions on Duty Drawback and Rules of Origin set a precedent for future FTAs with countries such as India and Japan.

EU access to the Korean car market will remain severely capped because of the problem of NTBs (non-tariff barriers).  South Korea does not fully acknowledge international test cycles and standards, and applies its own unique rules. An approved and tested EU car cannot be sold in South Korea; costly modifications are required. In 2007, the EU exported just 30,000 cars to South Korea. South Korean manufactured cars control more than 94% of the Korean market; South Korea has the lowest level of import penetration of any developed country.

• European metal and textile workers oppose trade deal with South Korea
• EU governments must denounce unfair competition to European industries in trade conditions for South Korea
• European automobile industry requests EU to suspend trade negotiations with South Korea
• Free trade agreement with South Korea must follow EU principles of mutual benefit and fair market access

About ACEA

The European automotive industry is key to the strength and competitiveness of Europe. The ACEA members are BMW Group, DAF Trucks, Daimler, FIAT Group, Ford of Europe, General Motors Europe, Jaguar Land Rover, MAN Nutzfahrzeuge, Porsche, PSA Peugeot Citroën, Renault, Scania, Toyota Motor Europe, Volkswagen and Volvo. They provide direct employment to more than 2.3 million people and indirectly support another 10 million jobs. Annually, ACEA members invest €20 billion in R&D, or 4% of turnover.

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