EU carmakers fear Korea trade deal

EU carmakers fear that they could lose out in the next round of trade talks between the EU and South Korea.

Negotiators meeting for the seventh round of talks on a free trade agreement (FTA) in April will tackle non-tariff barriers, which have a direct impact on the competitiveness of the car industry.

The car manufacturers want South Korea to ease technical standards applied to foreign imports and eventually to adopt international norms. Non-tariff barriers are thought to be part of the reason why EU car exports to South Korea, currently 20,000 per year, are limited. South Korea exports 700,000 cars per year to the EU.

South Korea’s strict auto standards, which exclude some EU cars from its market, were left off the agenda in last week’s round of talks in Seoul (28 January-1 February). "They will be very much on the agenda in the next round," said an official from the European Commission.

But Ivan Hodac, secretary-general of the European automobile manufacturers’ association, ACEA, said: "The car industry is not happy with proposals that are on the table today. They are not balanced. There is not much progress on the Korean side."

Korea’s car companies are pushing for more flexible rules of origin, which determine whether products containing outsourced parts should receive preferential tariff treatment. Under EU-suggested rules, at least 60% of the value of the finished item must have been manufactured in the country of origin to qualify for reduced tariffs. This would place Korean companies, such as Hyundai, which outsource an increasing amount of manufacturing China, at a disadvantage.

Yun-Young Lee, economic counsellor to the embassy of Korea in Brussels, said that the high threshold was unfair given that European companies were free to outsource to any of the EU’s 27 member states. He referred to German luxury carmaker Mercedes-Benz’s recent decision to set up factories in Slovakia so as to benefit from cheaper labour conditions.

Lee said that the debate was about "measures" rather than "barriers". "There are many different systems in each country. They are not intended to block imports from the other side," he said, citing the EU’s strict chemicals legislation contained in the REACH regulation as an example of "non-tariff measures". Disputes over whether measures constitute barriers should be dealt with under the World Trade Organization’s settlement procedures, he said.

Eoin O’Malley, policy adviser at BusinessEurope, the European employers’ organisation, defended EU car manufacturers. "Clearly there are legislative measures that don’t amount to barriers. But Korea is the country that has most recourse to standards that act as barriers to trade and investment. There’s a clear imbalance. Something needs to be addressed there," he said.

Lee said: "We will need some extensive and careful negotiation to harmonise rules of origin. It is essential for both parties to benefit from the FTA deal.

"Very strict rules of origin can block free trade between the parties. The [scope] for our companies to be entitled to tariff free exports to the EU is limited."

The US, with which South Korea last year concluded FTA talks, had accepted more flexible rules of origin, he added. The US-South Korea FTA has yet to be ratified in both countries.

"At this stage the car industry does not see how it [the FTA] could work unless there is some reciprocity," said Hodac. "The EU car industry wants an FTA that is balanced and gives good market access."

Negotiators on both sides signalled last week that FTA negotiations could be concluded in the first half of the year, although it is thought that progress might be delayed until the general elections, set to take place on 9 April. A deal would then be expected under the French presidency of the EU in the second half of the year.

EU carmakers fear that they could lose out in the next round of trade talks between the EU and South Korea.