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European automobile industry requests EU to suspend trade negotiations with South Korea
Brussels, 05/02/2009 – The European automobile manufacturers request the EU member states to decline the unbalanced proposal for a Free Trade Agreement (FTA) with South Korea and revise the timeline for concluding negotiations. The unfair nature of the agreement is not acceptable in light of the current economic crisis.
The negotiations with South Korea are entering a decisive stage with final meetings of the EU trade expert Committee starting on Friday and the European Commission’s objective to seal an agreement in early March. The European vehicle industry is worried about the content of the FTA because the agreement would give South Korean vehicle manufacturers full market access to the European market without a tangible improvement in export conditions to South Korea. The agreement would also fail to secure the application of existing international vehicle standards and set a precedent for arrangements with other countries, notably in Asia, leading to further unfair competition.
“The EU must refrain from entering into unbalanced trade agreements that further weaken the competitiveness of the European economy and this is especially true in times of economic turmoil”, said Ivan Hodac, Secretary General of the vehicle industry’s trade association ACEA. “On the one hand, EU member states are rightly prepared to use public money to stimulate vehicle demand and warrant financial support to relieve the credit crunch. But at the same time, Europe would grant a costly trade agreement that will multiply the pressure on employment levels in the EU.”
The automotive industry is in favour of further bilateral and multilateral trade liberalisation but manufacturers insist that this process has to deliver mutual benefit and fair market access covering both import duties and non-tariff barriers as stipulated in the mandate given to the Commission to negotiate with South Korea.
In the case of South Korea, there are a number of urgent issues pending, in particular concerning non-trade barriers and the application of existing international technical vehicle standards. The industry, furthermore, rejects a weakening of the so-called Rules of Origin and the implementation of a Duty Drawback Clause, both of which would offer additional important financial benefit to Korean exports.
Note to editors:
- The European Commission is proposing to dismantle import tariffs over 3 to 5 years (depending on the vehicle category), as opposed to the originally proposed 7 years that corresponds with the usual lead-time for OECD countries.
- EU import tariffs amount to 10% for passenger cars; import duties to South Korea are 8%. Dismantling of tariffs will make Korean cars 10% cheaper, which is a large chunk of their average vehicle price of € 10,000. In light of the huge unbalance in import and export, the European vehicle manufacturers demand a minimum lead-time for dismantling tariffs of 7 years.
- Currently, South Korea exports 600,000 vehicles annually to the EU and this number is expected to increase significantly. EU exports, however, are limited to around 22,000 vehicles per year to South Korea (a market of more than 1 million new vehicles annually).
- The proposed FTA would further maintain this disequilibrium, as the agreement fails to secure the application of international technical standards. South Korea has signed the international technical standards for vehicle registration (UN ECE Regulations) but does not enforce them. South Korea would be allowed to continue applying local standards on, among others, vehicle emissions and safety that, in effect, serve as non-tariff trade barriers. Application of the existing international standards should be a precondition for signing an FTA.
- Non-tariff barriers in South Korea furthermore consist of various instruments, including specific tax regimes for imported vehicles and a parallel network of grey imports. Non-tariff barriers should be eliminated before signing an FTA, as requested in the EU negotiating mandate.
- Weakening of the Rules of Origin (from a minimum 60% local content to 40%) would allow Korean manufacturers to optimise their competitiveness with components from neighbouring low-cost countries, such as China. ACEA demands that the current rules be maintained.
- The Duty Drawback Clause would allow South Korean manufacturers to continue to reclaim import duties on imported vehicle parts from those neighbouring countries. European manufacturers pay on average 4% import duties on vehicle parts from countries such as China. Manufacturers are opposed to an FTA approving of such unequal competition. There are no other EU FTAs granting concessions on the Rules of Origin and the Duty Drawback Clause.
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.
For further information, please contact Sigrid de Vries, Director Communications,
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