The European Parliament has voted to impose amendments that will strengthen safeguard regulations on the proposed free trade agreement with South Korea, a move welcomed by the automotive industry trade association, ACEA.
ACEA represents all the major automotive manufacturers in Europe with members including BMW, Daimler, Fiat, Ford of Europe, General Motors Europe, PSA and Renault amongst others.
The FTA agreement is facing opposition by European carmakers concerned about the threat to European manufacturing they say that the policy will pose by allowing duty-free finished vehicles to be imported from Asia. Industry representatives have asked the European Commission and EU member states to make all efforts possible to achieve a better deal before a final signature is put to the agreement. Further discussions regarding the deal are taking place in Brussels this week.
“This vote is a strong political signal that improvements to this free trade agreement can and must be made”, said Ivan Hodac, ACEA secretary general. “There is no need to rush things through”, added Hodac.
Once the FTA is signed it will eliminate the 10% import tariffs on automobiles coming into the EU. The Hyundai-Kia Automotive Group is already said to be realigning its logistics processes to respond to increased demand.
The vote means that the European Parliament has adopted amendments designed to increase the effectiveness of the safeguards regulation accompanying the FTA. This regulation is meant to help enforce a level playing field, but the European automotive industry has long argued that the provisions will be extremely difficult to implement.
As early as last year ACEA saw the potential for what it calls “severe competitive disadvantage to European industries” should the agreement be signed without the sort of amendments called for in last week’s vote.
“The current proposals give an unfair competitive advantage to Korean industries and set a harmful precedent for FTAs between the EU and other major trading partners, undermining an important pillar of standing EU trade policy,” said Hodac then. “Such an outcome would affect EU industries far beyond the auto industry alone and pose 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. There is absolutely no reason to open a European market of over 500m people on Korean terms.”
Finished vehicles are the most important export for South Korea. Of the 3.5m cars made per year, 2.5m (73%) are exported. The EU is a key target for Korean carmakers and they composed 20% of all EU car imports in 2007 according to ACEA.
What it is particularly concerned about are the Duty Drawback clause and the Rules of Origin threshold. “First, South Korean manufacturers would be allowed to import higher amounts of parts and components from neighbouring countries,” said Hodac. “Second, they could claim the duties back that they paid on these parts, as soon as the full product – also duty free – is on its way to Europe. This proposal effectively opens the door for cheap imports from China and other Asian countries, without giving similar advantages to European industries.”
The FTA safeguard mechanisms should now cover the Duty Drawback arrangements from the very moment that the agreement enters into force.
The safeguards regulation is one of a number of issues the European automotive industry is eager to see addressed before the FTA is signed and ACEA has called for better guarantees that it will be balanced and fair. Concerns include South Korea’s proposed introduction of CO2 legislation that could constitute a new non-tariff barrier to trade, severly limiting or even halting EU car exports to the country. “The EU must put measures in place to prevent such situations,” said Hodac. 
The Parliament has also voted for a ‘regional clause’ under which the effects of the FTA on European regions should be monitored and, possibly, compensated, in particular with regard to manufacturing levels. As the Commission’s impact assessment revealed, the FTA is certain to lead to job losses in the EU.
“At the other side of the Atlantic, US officials are equally seeking improvements to the automotive chapter in their FTA with South Korea,” added Hodac.
Disgruntled carmakers there similarly fear the agreement would guarantee access by South Korean automotive companies to the US market without reciprocal assurances that US carmakers could improve their sales there.
South Korea only imported around 6,100 vehicles in total from the US last year, while last month Kia alone sold nearly 38,000 vehicles in the US.
The imbalance led Representative Sander Levin, chairman of the House Ways and Means trade subcommittee, to state earlier this year that, “In no sector is the lack of reciprocal market access more apparent than in Japan's and South Korea's auto sector, where market access barriers to US auto imports have led to grave auto trade deficits."