Brussels, 08/07/2009 (Agence Europe) - In the run-up to the 133 Committee meeting on 10 July, which will be decisive for the future of the free trade agreement (FTA) between the EU and South Korea - which the European Commission and the South Korean government would like to see concluded in July - groups defending the (differing: Ed.) interests of several sectors of economic activity in Europe have ratcheted up their pressure on member states, which have to decide whether to give their approval to the compromise negotiated between the European Commission and the South Korean government. Car manufacturers are urging their governments to turn down the compromise on two key political grounds: duty drawback and rules of origin, on which the FTA had been foundering until present. The services sector and importers/distributers and retailers, who refuse to be harmed by a disagreement on the motor car chapter, are calling for the agreement to be finalised. The Commission, secure in the knowledge that it has the support of most sectors for its compromise negotiated with Seoul, is seeking to give reassurances on how balanced the new FTA will be.
ACEA rails against compromise that will harm European industry
In a press release published on 8 July, the European Automobile Manufacturers' Association (ACEA) calls on member states not to close the FTA without a guarantee that the outcome will be balanced in order to safeguard competitiveness and employment levels in Europe. “The responsibility resting on policy makers is huge. 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 ... 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 500 million people on Korean terms,” argues ACEA Secretary General Ivan Hodac. European car manufacturers, then, are pressing the EU to reject all compromises on the duty drawback clause and rules of origin threshold, both essential instruments, they say, to ensure a level playing field in international trade. According to Hodac, thexe compromises would allow South Korean manufacturers to import higher amounts of parts and components from neighbouring countries and to 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,” Hodac claims. Moreover, he says, teh draft compromise does not sufficiently improve access to the South Korean market, in particular because they fail to secure existing international vehicle standards on emissions and safety when entering the Korean market. “This constitutes an important non-tariff barrier to trade,” he states, before going on to say, “The European Trade Commissioner has repeatedly claimed to have solved the crucial remaining issues preventing an agreement. But the proposed amendments, including a so-called 'safeguard clause', do not present any tangible improvement”.
Commission defends its compromise with Seoul
In a press release reacting to ACEA's arguments, the spokesman for Trade Commissioner Catherine Ashton, Lutz Guellner, said that “the EU and South Korea have worked hard over recent months to negotiate a comprehensive free trade agreement that has real economic value and opportunity for both sides. This deal will create new market opportunities for EU business, including the car sector. European companies in industrial production, agricultural sectors and services are very keen that we conclude these negotiations as soon as possible”. The Commission says that the FTA will allow exporters to save nearly €1.6 billion annually on customs duties, with €1.2 billion of this on manufactured goods; European car exporters will make savings of €2000 per car worth €25,000. The FTA will also offer “solid disciplines” on non-tariff barriers, both horizontally and in key sectors, including cars, where South Korea will essentially recognise many European standards as equivalent. “These disciplines are stronger than any comparable existing free trade deal, and include the immediate elimination of those technical barriers signalled as important by the automobile industry during negotiations. This will be of interest to car producers already present in Korea, as well as those brands not yet established there,” the Commission promises.
The Commission also brings clarification on two key chapters, rules of origin and duty drawback. On rules of origin, it says that, under the terms of the compromise with Seoul, the EU will only slightly increase the levels of permissible foreign content, from 40% to 45%. The current level of use of foreign content by the Korean car industry is below 10%.
On the chapter of duty drawback, a system whereby Seoul authorises refunding of import duties to companies which use imported material for building export products (but that the EU has so far refused to negotiate with other trading partners), the Commission assures that the EU and South Korea both use this instrument and that their exporters currently use it in their bilateral trade. “ It is therefore not a new benefit. Any impact on the competitive situation of EU companies from duty drawback is small considering the low level of foreign content in Korean products, especially in the car industry. The impact will diminish further over time as a result of the ongoing process of bilateral and multilateral trade liberalisation”, the Commission stressed, specifying that the final agreement provides a special clause on duty drawback to meet the possible increases in foreign content in South Korean exports. The clause provides a cap that is permanently applicable on duty drawback if statistics prove a notable increase in sourcing from abroad used by South Korean manufacturers.
Finally, the Commission points out that European and South Korean car producers have a comparable share in each others' market, estimated at 3%. Also, the average value of European cars sold in Korea is considerably higher than the price for South Korean cars sold in the EU. Even given non-tariff barriers, European manufacturers have enjoyed strong growth on the South Korean market, evaluated at over 25% over the past two years (37,000 cars sold in 2008). South Korean car makers have, for their part, made large scale investment in EU production capacities. The vehicles concerned will not be affected by tariff liberalisation on imported cars, the Commission says, underlining that imports of South Korean cars into the EU have fallen by 38% over the past two years (446,000 cars sold in 2008).
Services sector - importers push for agreement
In a letter to Commission President José Manuel Barroso on 7 July, the European Services Forum, which defends the interests of major companies working in the tertiary sector as well as federations representing 20 service sectors, states its “total support” for the conclusion of the FTA. Such an agreement could, the ESF says, “considerably” improve the dynamism of the European services sector, which already accounts for 71% of GDP, 67% of jobs and 23% of EU trade, but also the trade in services between the EU and South Korea, which have increased by 66% over the past three year to settle at €11.1 billion in 2007, including €3.2 billion to the benefit of the EU. Meeting under the banner of the foreign trade association, importers/distributors and retailers also support conclusion of the FTA, calling in a press release on member states to validate the compromise found between Commission and Seoul. (E.H./transl.rt/jl).