Car makers slam FTA compromise
Publication date: 09 July 2009
European car makers have slammed the latest proposal put on the table by the European Commission regarding the ongoing free trade negotiations with South Korea. On 8 July, the ACEA, the European car makers’ association, described as “unacceptable” the new compromise negotiated with Seoul, which includes a safeguard clause for the automotive sector.
In the margins of the OECD ministerial, on 26 June in Paris, Trade Commissioner Catherine Ashton and Trade Minister Kim Jong-hoon have agreed on a new
formula to remove the remaining stumbling block, namely the so called ‘duty drawbacks’ issue. This new compromise aims at winning the full backing of the
member states and conclude shortly the most ambitious bilateral free trade agreement (FTA) ever negotiated by the EU.
The Commission’s new package will pass a decisive test on 10 July, when member states will examine it during a 133 Committee meeting in Brussels. “Ashton and Kim have agreed. Now they have to sell the deal to their constituencies,” said a Commission source.
Following a low-key meeting in Paris, “both sides agreed to come back to their constituencies,” said Asthon’s spokesperson.
Both negotiators have crafted a new compromise in order to solve the issue of ‘duty drawbacks’, a system by which South Korea allows import tariffs to be returned to companies that use imported materials to make products for export. Seoul argues that the system is authorised by the World Trade Organisation and applied by its direct competitors Japan and China, while the EU has so far refused to include such a scheme in the FTA it has negotiated with other trading partners. Since last March, this issue has become a deal breaker as Seoul refused to give up the scheme while the European industry denounces it as unfair advantage.
According to the new compromise, a safeguard clause would apply to ‘duty drawbacks’ in the automotive sector in order to protect car makers from an unexpected surge of import of Korean car partially outsourced in countries like China. This new formula aims to respond to the concerns expressed by the German car makers, who are opposed to the FTA with Seoul and are lobbying Berlin aggressively. Other European car makers have also launched a fierce attack against the deal, just ahead of the 133 Committee and the G8, hoping that German, French and Italian leaders will prevent José Manuel Barroso, the president of the Commission, to go ahead with the trade talks. The ACEA statement warns of the consequence of a deal for the future of the European car industry.
The proposed amendments, including a so-called safeguard clause, “do not present any tangible improvement,” says the ACEA (see box).
Commission negotiators hope that Germany will eventually cave in, on 10 July.
However, it remains to be seen whether Chancellor Angela Merkel, who will face general elections in September, will give the go-ahead to a free trade deal against the backdrop of a violent economic recession.
Since the collapse of Wall Street, last autumn, the mood towards free trade liberalisation has changed in Europe and in the US and the FTA with Korea has become a hard sell for the Commission. Moreover, even if Germany accepts a deal, Ashton will also have to convince other member states like Italy or Poland, which are also reluctant to support the agreement.
However, the Commission’s negotiators and the Swedish Presidency of the EU are more confident than they were two months ago and believe there is a chance to clinch a deal over the summer. The conditional tough unanimous support expressed by all EU leaders in favour of Barroso’s second term at the head of the Commission is seen as good news by FTA supporters. In May and early June, the president had put a brake on the trade talks, fearing that a deal would not go down well in Berlin, and would have weakened Merkel’s support for his second mandate. However, this situation of uncertainty could last even longer, since the confirmation of Barroso by the European Parliament is set to be postponed until the autumn. Therefore, the window of opportunity to conclude the talks launched in May 2007 is narrow. During the autumn, the preparation of the next mandate of the Commission could undermine the credibility of Ashton as a negotiator in the eyes of Korean diplomats. The commissioner could be part of the next Commission line-up but not necessarily with the trade portfolio.
Against this backdrop, negotiators on both sides would like to clinch a deal as soon as possible. South Korean President Lee Myung-bak could give a political boost to the FTA, on 13 July, when he visits Stockholm. However, another ministerial meeting between Asthon and Kim will be needed to conclude the agreement. “She is ready to jump onto a plane whenever needed,” said a Commission source. However, member states may ask her to show more patience.
“The responsibility resting on policy makers is huge,” said Ivan Hodac, secretary-general of the European automobile industry’s trade association, ACEA. He argues that 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. The FTA with Korea “would affect EU industries far beyond the auto industry alone and pose a severe risk to the manufacturing base of Europe,” added Hodac. “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.” The EU should reject, in particular, any compromise on the so-called ‘duty drawback’ clause and rules of origin threshold, both essential instruments to ensure a level playing field in international trade. “This proposal effectively opens the door for cheap imports from China and other Asian countries, without giving similar advantages to European industries,” argues the association.