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The EU is negotiating an FTA with South Korea – Facts and figures

April 2009 - Negotiations between the EU and South Korea to sign a free trade agreement (FTA) are in a decisive stage. The European vehicle industry is worried about the content of the FTA and insists the EU only signs a balanced agreement. So far, a number of important obstacles have not been solved.

• 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.
• In particular, the agreement would fail to secure the use of existing international vehicle standards when entering the Korean market, which constitutes an important non-tariff barrier to trade.
• The agreement would set a precedent for EU FTAs with other countries, notably in Asia, leading to further uneven competition.
• In particular, this concerns an increased import of low-cost parts from neighbouring countries, plus the drawback of duties on these parts. This issue is relevant for automotive as well as other sectors.

Automotive is a key part of the trade deal:

• Automotive is the largest single component in the EU/ South Korea trade relationship
• Automotive represents 14% of the total EU/South Korea trade volume
• 17% of all Korean exports to the EU consist 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

• Autos 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
• The EU is a key target market, with 700,000 cars in 2007, or 20% of all EU car imports, and an average 10% annual growth between 2000 and 2007.

South Korean competitiveness is expected to jump:

• The FTA represents a transfer volume of at least 1 billion euro per year, as - Tariffs will drop from 10 to 0% in 3-5 years; a cost advantage of 700,000 times €1 000 - South Korean imports of car parts from neighbouring low-cost countries will strongly increase: Duty Drawback of up to 40% (or €320 per car), plus a weakening of the Rules of Origin to 40%+ - The EU enables 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
• The FTA delivers a huge competitive advantage to South Korea; without anything tangible in return

EU access to the Korean car market will remain severely capped:

• A 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 28,000 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

The European car industry is essential for the EU economy:

• Automotive is the engine of the manufacturing industries in Europe
• The EU must safeguard its manufacturing base as the foundation of a knowledge based economy
• The European car market is the largest in the world (16 million in 2007), just before the US
• 80% of cars produced in the EU are also registered in the EU

Principles of a balanced deal:

• Market access: - cars that can be sold in the EU must be allowed on the South Korean market - 100% of the tariff and non-tariff barriers need to be resolved
• Reciprocity: both sides must gain from an agreement
• Level playing field: acceptance of duty drawback and weakening of the rules of origin create severe disadvantages for EU manufacturers
• Lead-time: abolishing of tariffs should take at least 7 years
• Global perspective: - Special concessions to South Korea set a precedent for similar FTAs with other countries (ASEAN, India, Japan) - Provisions on duty drawback and rules of origin have not been granted in trade arrangements with other developed countries (Mexico, South Africa, Chile) and are not covered by WTO standards



General Background:

• South Korea represents 2.8% of total EU imports, and 2% of total EU exports
• In 2007, the European Union 27 exported a total of €24.8 billion to Korea (11th largest) and imported €39.6 billion (8th largest).
• The South Korean market (1 million new cars annually) is a potential growth market, with a car density of 237 per 1,000 inhabitants
• With a motorisation rate of 466 cars per 1,000 inhabitants, the EU is a mature, replacement market, not a growth market
















• European automobile industry requests EU to suspend trade negotiations with South Korea

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• The EU is negotiating an FTA with South Korea – Facts and figures

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