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Free trade agreement with South Korea must follow EU principles of mutual benefit and fair market access


04 Nov 2008


Trade & Society

BRUSSELS,  3 November 2008 - The European automotive industry is strongly concerned  about  the  prospective  highly unbalanced outcome of the free trade  agreement  (FTA)  with  South  Korea. The negotiations between the European  Commission  and  South  Korea,  that have resumed today and are entering  into  their  final phase, do not respect the basic principle of mutual  benefit, offering a disproportionate competitive advantage to the Korean auto industry when exporting to the EU. An unbalanced outcome will be at the expense of the automotive manufacturing in the EU. There would, furthermore,  be severe implications for upcoming negotiations with other Asian  countries,  setting  a precedent for more one-sided, harmful trade agreements.

The automotive industry is in favour of  further bilateral and multilateral trade liberalisation but insists this has to be based on the principles of mutual benefit and fair market access, covering both import duties and non-tariff barriers (NTBs). The present financial and economic crises  make  it  even  more  imperative  for  the  EU to negotiate trade agreements  that  are  well  balanced  and  do  not  further weaken  the competitiveness of the European industry.

The European manufacturers demand clear and unconditional market access to South Korea, in return for dismantling the EU tariffs as suggested by the Commission. “There is a huge imbalance in trade between the EU and South  Korea  that  has a fully export-oriented automotive industry, with the  EU being its main target”, said Ivan Hodac, Secretary General of the European  Automobile  Manufacturers’  Association  ACEA. EU exports are limited to around 25,000 vehicles per year to a market of more than 1.1 million  new  vehicles  annually. Currently, South Korea annually exports 700,000 vehicles to EU and this number is expected  to increase significantly. “We have repeatedly asked  the Commission to launch an
impact assessment on the consequences of a future FTA with South Korea, but without a proper reply.”

The  mandate  for the Commission to negotiate with South Korea stipulates that  an FTA should contribute to the competitiveness of the EU, and must eliminate existing  NTBs during the negotiations. “Regrettably,  the Commission  seems willing to treat the ‘Engine of Europe’ as a bargaining chip in exchange for the political objective of reaching a deal wit South Korea”,  said  Hodac. South Korea successfully uses trade barriers to insulate  its  domestic  auto market from international competition. This
practice  includes  policies  such as the maintenance of a discriminatory specific  tax  regime for imported vehicles, the frequent introduction of new  technical barriers,  and  direct or indirect actions that reinforce anti-import  measures  against  imported  motor  vehicles,  such  as well developed parallel ‘gray’ imports of  European vehicles.

The  automotive  industry urges the EU negotiators to allow vehicles that comply with UN ECE Regulations to be imported into Korea. The country has signed  these  international standards for vehicle registration, but does not enforce them. “These and other non-tariff barriers, including further regulatory  and  tax  issues  known  by  the  EU  negotiators,  should be addressed  and  resolved  before concluding this FTA. Concessions in this area  would  set  an undesirable precedent for all future bilateral trade negotiations that the EU undertakes”, said Hodac.

Concerning the more technical elements of the FTA, the automotive industry:
Supports  the  EU offer to provide South Korea a 7-year lead time for the tariff  dismantling  and  does not see any necessity to offer South Korea further  compromises  on  lead  time.  This  period provides a reasonable timeframe  to  re-adjust  EU  level of production downwards in a socially acceptable  manner.  The  Korean  manufacturers will save an average of € 1000 per exported vehicle to the EU.

Demands  a  symmetrical  linkage  between  the  dismantling  period of EU tariffs  and  the  period  over which South Korea will abolish non-tariff  barriers  and  implement  the UN ECE regulations. If South Korea does not comply  with  its  commitments,  the  EU should be able to put its tariff dismantling process on hold.

Is  opposed  to  changes in the preferential Rules of Origin and the Duty Drawback  clause.  Such  concessions  have not been granted in other FTAs concluded  by  the  EU,  and  the requested changes would deteriorate the competitive  position  of  domestic  manufacturers  in  the EU by further increasing  financial  benefits for Korean vehicle exports. Conceding the Duty  Drawback clause would offer an additional average financial benefit of more than €  300  for each Korean vehicle exported to the EU, provided this vehicle includes  imported  parts and components representing no more than 40% of its  manufacturing  value. To further  increase Duty Drawback benefits, South Korea wants the EU lower the Rules of Origin local content obligation from 60% to less than 50%. This  would enable Korean manufacturers to increase their foreign purchasing of parts and components in neighbouring countries such as China.

The European automotive industry is key to the strength and competitiveness  of  Europe. The ACEA members are BMW Group, DAF Trucks,  Daimler,  FIAT, 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  support another 10 million jobs in related  sectors. Annually, ACEA members invest €20 billion in R&D, or 4% of turnover.

For further information, please contact Sigrid de Vries, Director Communications, ACEA   +32 2 738 73 45 or Please also visit


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