European carmakers are protesting about the terms of a prospective free trade agreement (FTA) with South Korea, labelling it as ‘highly unbalanced’ and ‘one-sided’.
The negotiations between the European Commission and South Korea have resumed this week and are entering into their final phase.
The European carmakers’ trade association ACEA says the prospective deal does not respect the basic principle of mutual benefit, offering a disproportionate competitive advantage to the Korean auto industry when exporting to the EU.
Moreover, ACEA says 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 trade association argues.
The European manufacturers say they want ‘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.”
Concerning the more technical elements of the FTA, ACEA says:
- ACEA 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.
- ACEA wants 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.
- ACEA 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.