As the EU and Korea wait for ratification of the free trade agreement signed on 6 October, carmakers in Europe, including Ford, appear determined to lobby for changes that will overcome the perceived competitive disadvantages the deal represents for the European automotive industry.
The agreement was signed by EU trade commissioner, Karl De Gucht, Belgian minister of foreign affairs, Steven Vanackere, and Korean minister for trade, Kim Jong-hoon, at the EU-Korea Summit in Brussels, with De Gucht stating that it would provide “a real boost to jobs and growth in Europe” when it came into force next July.
But it was the disadvantages that seemed uppermost in the minds of carmakers in Europe. According to Ford, the EU-Korea FTA should not be approved as it currently stands because it will not open the Korean market to European automotive imports.
“This is a bad deal for automakers and the millions of men and women in Europe whose livelihood depends upon this industry,” a Ford spokesperson told Automotive Logistics News. “European OEMs will continue to actively communicate the FTA's shortcomings and continue to press national governments to reject the agreement if it isn't improved.”
It is clear that the Korean automotive sector will benefit most from the deal as exports could increase by as much as $1.4 billion, according to the Korea Institute for International Economic Policy. 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. Kia, for example, currently imports 42% of the cars it sells in Europe from South Korea.
“Kia will benefit from the elimination of the duty imposed on Korean-made cars and we will use resulting savings to boot investment in new product development and enhance our marketing activities,” a Kia spokesman confirmed.
He added, “We are confident that this recent signing will bring positive results for all parties involved as the FTA was carefully scrutinized and revised by all EU nations.”
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 Europe’s automotive industry trade association, ACEA.
But the disparity in trade between the two regions was pointed out by the ACEA’s secretary general Ivan Hodac last year when he said that the proposed terms of the deal gave “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.”
Last month the European Parliament voted to impose amendments designed to safeguard regulations on the proposed agreement but the revisions have not placated carmakers.
That said, carmakers with joint ventures in Korea will benefit. GM Daewoo can expect to increase sales of its Chevrolet brand in Europe since 90% of the vehicles its sells in Europe are made in Korea.
On the other side Kia is growing its percentage of locally produced vehicles in Europe. “For the period of January to September this year, around 60% of all Kias exported to Western Europe countries were produced in either Slovakia or the Czech Republic,” said its company spokesman.
Ford, meanwhile, is looking more favourably at the FTA the US is signing with Korea. “Ford is pleased that the Obama administration has committed to negotiate improved auto provisions to ensure that the US-Korea trade agreement will actually help open one of the most closed markets in the world to automotive imports,” continued the spokesperson.
“The Korean government has a long history of actively intervening in the market to exclude imports. A well-negotiated U.S.-Korea FTA represents the last, best chance to open the Korean market to imported automobiles.”