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Free Trade Agreement with South Korea

  • The European automotive industry is not against the FTA with South Korea, but opposes the current conditions of the agreement.
  • The FTA offers an unfair competitive advantage to Korean industries with negative consequences for employment levels in Europe.
  • The FTA 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.
  • The conditions, furthermore, do not secure sufficient market access to South Korea.

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 United States of America currently refrain from signing off an agreement with South Korea on the basis of concerns that are similar to the ones expressed in Europe.

Market access - 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.

About the FTA

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 million cars per year, of which 2 million (64%) are exported. By contrast, 74% of cars produced in the EU are also registered in the EU. The EU is a key target market for Korean manufacturers.

South Korean competitiveness is expected to jump: The FTA represents a transfer volume of around €1 billion per year, as tariffs will drop from 10 to 0% in 3-5 years, i.e. €1,000 per car 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 2009, the EU exported just 33,000 cars to South Korea. South Korean manufactured cars control more than 95% of the Korean market; South Korea has the lowest level of import penetration of any developed country.

Course of events

  • May 2007 - Launch of the negotiations
  • 22 June 2009 - DG TAXUD warns against the negative effects of the Duty Drawback Clause
  • July 2009 - Compromise agreement
  • 25 September 2009 - Employment Commissioner Spidla opposes the application of Duty Drawback
  • 30 September 2009 - Taxation and Customs Union Commissioner Kovacs opposes the application of Duty Drawback
  • 15 October 2009 - the FTA is initialled
  • 18 May 2010 - Commission impact assessment is sent to Member States only 3 days ahead of a Member State meeting on the FTA
  • 14 July 2010 - European Parliament impact assessment is published
  • 7 September 2010 - European Parliament vote on amendments to the Safeguard Clause
  • 22 September 2010 - 1st reading agreement on amendments to the Safeguard Clause between Council, Commission and Parliament.
  • 6 October 2010 - Council signature of the FTA with South Korea, with a provisional application of the FTA scheduled on 1 July 2011. Prior to the ratification of the FTA, certain Member states’ constitutions provide that their national parliaments must also consent to the FTA. However, the provisional application of the commercial parts of the FTA can start without.

2009-2010, several associations have objected to the FTA, including the European Metalworkers’ Federation (EMF), the European Confederation of Iron and Steel Industries (EUROFER) and the European Trade Union Federation of Textiles, Clothing and Leather (ETUF-TCL).

Next steps

  • 22 November 2010 - European Parliament report on the whole FTA scheduled for adoption. It is with this report that Parliament can give its assent to the FTA.

Links

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 over €26 billion in R&D, or about 5% of turnover.

last updated 15/10/2010

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