On the first anniversary of the free trade agreement between the European Union and South Korea, the European Commission has outlined the advantages that lower tariffs have brought for EU companies, as well as the increase in EU car exports. However, the European Automobile Manufacturer's Association (ACEA) has highlighted what it perceives as an imbalance in trade brought about by the continued existence of non-tariff barriers.
The EU-Korea FTA was officially a year old on July 1st and the EC stated last week that lowered import tariffs for European products at the Korean border are estimated to have saved European businesses €350m ($441m) in duties over nine months (full year figures will not be available until the autumn).
The EC stated that over those nine months, EU exports to South Korea are €6.7 billion higher, or 35% larger when compared with the same period in 2007 (EU exports to other countries also grew but with a 25% increase).
"The successful implementation off the EU-South Korea Free Trade Agreement shows that EU trade policy is on the right track," said EU trade commissioner Karel De Gucht (pictured).
For products that were only partially liberalised on 1 July 2011, which include vehicles and agricultural products, and accounts for 44% of EU exports to South Korea, there was an increase of €3 billion or a 36% increase. More specifically, for car exports from the EU, the increase was more than 70% according to the EC, which translates as €670m in new car sales in Korea.
According to ACEA, however, figures show what it describes as an "asymmetrical trade flow" with "massive increases for Korean exports of passenger cars yet only relatively modest gains for the EU industry".
ACEA published figures showing that from the Ist July 2011 to the 31st May 2012 South Korea exported 400,000 domestically manufactured passenger vehicles to the EU, a 40% increase from the same period one year earlier. By contrast, South Korea imported just 73,000 European-made passenger vehicles, an increase of 13%.
The industry body said those figures were confirmed by the Korean International Trade Association and "paints a very different picture to that presented by the European Commission."
It also showed that since the introduction of the FTA Korean import duties have dropped from 8% to around 6% while EU import duties have dropped from 10% to 8%.
"It is still too early to say if there is a direct relationship between the entry into force of the FTA and the increase in trade flows," admitted ACEA's secretary general, Ivan Hodac. "What is clear, however, is that European exports are being hampered by the continuing existence of automotive non-tariff barriers."
In response, John Clancy, EU Trade spokesperson at the EC, told Automotive Logistics News that it was too early to assess the true impact of the FTA.
"In essence you must be honest and to be honest you must admit that rushing to judgement and pointing blame after nine months – the best figures you can have [right now] – on a deal that only fully impacts after 5-10 years, is at best doubtful."
Clancy's words echoed that of the original statement issued by the Commission, where it pointed out that as most of the regulatory changes from the FTA had yet to be implemented, the trade benefits of the agreement can only be assessed with certainty after five to ten years. By 1 July 2016, it maintained that 98.7% of import duties of EU and South Korea in trade value for both industrial and agricultural goods will be eliminated.
Clancy agreed that additional efforts need to be made on non-tariff barriers (NTBs) but said it was difficult to assess the effects of the FTA so early after its signature, adding that "difficult becomes misleading" if the reference period is the last few months before FTA.
"Just to give an example of misleading short term figures," said Clancy, "if we were only to compare the last few months before and after, as ACEA did, we [would] see that the growth rate of Korean car sales has flattened after the FTA, as if the FTA had slowed down Korean exports compared to pre-FTA. We know that's not true. But what is true is that there is no post-FTA surge."
Clancy pointed to "the bigger picture" and outlined three contributing facts. The first was that Korean car sales are below crisis level. The second was that there were 9m cars in Europe and 400,000 imports is a "drop in the ocean". And the third point was that there was an extremely small increase in overall EU imports with Korean imports replacing other foreign brands, whose sales are declining.
"In short, it is easy to point blame," said Clancy, "but perhaps, as for all European industries, [each] should focus on being the most competitive and provide the best quality and value for consumers."
ACEA's Hodac said the Commission needed to work on resolving the automotive non-tariff barrier issue and ensure that no new ones were introduced. "We will continue to actively monitor the situation and remain vigilant to further developments," he said.