The European Union and South Korea were still not ready to sign off a free trade agreement (FTA) when talks concluded on Monday in Stockholm, Sweden, thanks to “outstanding questions” from some EU members and opposition by European carmakers about the threat to European manufacturing they say that the policy will pose by allowing duty-free finished vehicles to be imported from Asia.
Sweden currently holds the EU presidency and it was hoped that last week’s visit to the country by South Korea’s President Lee Myung-bak would conclude the negotiations on removing trade barriers, which began in May 2007 and have gone through eight rounds.
However, despite what was described as a “breakthrough” last Friday, Swedish Prime Minister Fredrik Renfeldt said on Monday that an agreement between EU member countries needed to be finalised. “There might still be some outstanding questions, and we need to follow up on them before we could say that it’s absolutely all clear and all ready to sign,” he told reporters.
There was no doubt about ‘outstanding questions’ as far as the ACEA, the European Automobile Manufacturers Association, was concerned. Director of Communications, Sigrid de Vreis told Automotive Logistics that “important issues are still not solved”.
He went on: “We do not understand why there would be a need to rush things through. There is a lot at stake. There have not been any improvements since March and only last week Korea announced new rules on emissions which will severely limit exports.”
The 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.
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.
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.
GM Daewoo spokesperson, Jekong Chae confirmed that “Korean automakers, including GM Daewoo, are expected to benefit by largely increasing vehicle exports to the EU market on a long-term basis. Although GM Daweoo's exports have decreased due to the ongoing global economic recession, the EU is still GM Daewoo's largest export destination. The free trade agreement should help increase GM Daewoo's export volume and thus logistics activity in the coming years.”
The eventual signing of the FTA is also welcomed by finished vehicle carriers operating between the two regions. Espen Hofland, Head of the President’s Office at EUKOR, the largest operator, said: “The FTA between the EU and Korea is obviously good for the auto industry in both regions as it boosts trade between [them] and increases exports and imports of automobiles…we welcome and support the FTA.”
However, the ACEA sees the potential for what it calls “severe competitive disadvantage to European industries” should the agreement be signed in its present form.
“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 Ivan Hodac, Secretary General of ACEA in an official statement. “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.”
What the ACEA 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.”
China is South Korea’s largest trading partner.
South Korea reached a separate free trade agreement with the US in April 2007 but this remains unratified.