Hearing on the FTA between EU and South Korea

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Hearing on the FTA between EU and South Korea
European Parliament, INTA Committee Wednesday,
23 June 2010
Ivan Hodac Secretary General of ACEA
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Why is automotive important for the EU and the
FTA?
15.2 million vehicles produced in 2009
Over 26 billion in RD spending, largest
private investor
42.8 billion of net trade contribution
377 billion of tax revenues

• The European automotive industry is key to the
  strength and competitiveness of Europe.
• It provides direct employment to more than 2.3
  million people and indirectly supports another 10
  million jobs.
• 36.6 of EU manufacturing employment.
• Annually, ACEA members invest over 26 billion in
  RD, or 5 of turnover.

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Major Trends for the Auto Industry

• Increasing global competition
• China, India, Brazil, ASEAN countries
• Unequal competition in terms of social model
  (labor cost, conditions, etc.)
• Need to keep manufacturing/supplier base in EU
• Global economic difficulties
• Value of manufacturing
• Growing demand for (individual) mobility
• Further urbanisation
• The challenge to ensure that mobility is
  sustainable

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Todays Environment - Europe

• Economic instability euro crisis
• Unemployment
• EU leadership ambition on climate change
• Barroso II Balancing green and growth
• A revival of the value of manufacturing?
• Strategy 2020 where trade is a cornerstone
• Smart, sustainable inclusive growth
• But a trade policy that is out of sync
• Safeguarding the European social model is
  incompatible with simple opening of markets
  agreements need to achieve real balance
• FTAs need to preserve EU employment!
• This includes offering export opportunities for
  all segments of EU automobile production

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The EU/South Korea FTA and the automobile industry

• The automobile sector was a key sector in the
  negotiations.
• EU tariffs applied today (10) on Korean car
  imports.
• Korean tariffs (8) and numerous non-trade
  barriers on EU car exports to South Korea (SK).
• Tariffs and NTBs dismantling is welcome, but the
  agreement, as currently drafted, is clearly in
  favour of the Korean automobile industry and
  offers it an unfair competitive advantage.

In short the automotive industry is a
bargaining chip in the negotiations
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Different market sizes and opportunities
500 million
49 million
Consumer market
Car market
14.2 million
1.34 million
Car production
13.9 million
3.7 million
Total car exports
2.0 million
3.4 million
541,500 to EU
Bilateral car exports
32,500 to SK
Bilateral car exports as of total car exports
25 to EU
1 to SK
Average of last 4 years
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Imbalances

• EU trade deficit in goods with South Korea
  amounts to about 14 billion (Eurostat).
• EU trade deficit in automobiles with South Korea
  amounts to about 3.5 billion (Eurostat).
• EU trade deficit in automobiles amounts to about
  25 of the total trade deficit!
• And it will grow with an FTA!

Average of last 3 years
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Unfair competition - the Duty Drawback (DDB)

• DDB enables manufacturers to reclaim duties for
  parts imported from 3rd countries and used for
  cars produced for exports.
• Our industry asks that the DDB should be excluded
  after 5 years once the import tariffs are
  dismantled.
• DDB has never been granted to any OECD country
  before in an FTA negotiation.
• Granting it now permanently creates a harmful
  precedent for future FTAs.

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Unfair competition - the Duty Drawback (DDB)

• Korean manufacturers could save an additional
  300-500 (independent study Credit Suisse) on
  cars exported to the EU (average car value of
  10,000 ).
• European manufacturers would benefit only
  marginally from better export opportunities to
  South Korea the large market is in Europe
• Trade Commissioner de Gucht has publicly declared
  that the FTA was not about opening the South
  Korean market for cheap small cars.

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Bilateral Safeguard Clause

• Bilateral safeguard clauses are normally tools to
  give a sector time to adjust to new circumstances
  (such as import surge).
• They are limited in time (10 years) and represent
  only a short respite in the lifetime of an FTA.
• Bilateral safeguard clauses, such as the one
  proposed by the Commission, do not address, let
  alone redress, the imbalance created on a
  long-term basis by the Duty Drawback!

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Bilateral Safeguard Clause

• The bilateral safeguard clause should be simple
  to apply and efficient.
• To that end, our industry calls on the MEPs to
  support amendments
• Clarifying definitions
• Reducing investigation lead-times
• Giving the right to the Industry to request the
  initiation of an investigation
• Prolonging the duration and review of safeguard
  measures, of up to 4 years for the initial period
• Proposing a regional (or national) dimension, and
  a
• narrow interpretation of Union Industry or,
• Introducing the concept of Regional Industry

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The Special DDB Clause

• The Special DDB Clause will also be an essential
  element to lessen somewhat the negative impact of
  conceding DDB.
• We welcome the EP and Commission willingness to
  include it in the EP and Council Regulation
  implementing the Bilateral Safeguard Clause.
• But, to be fully efficient, it must
• Apply as soon as feasible after the entry into
  force of the FTA, and not after 5 years as
  provided today.
• Cover several additional tariff lines besides the
  purely automobile ones in order to reflect the
  reality and costs of car production.
• When investigating on DDB, the Commission shall
  be ready to evaluate production capacities,
  currency practices, and labour conditions of
  third countries that sell products covered by the
  DDB.

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Commission Impact Assessment (IA)

• The IA acknowledges that
• The EU automobile industry will not gain from the
  FTA.
• The already negative EU trade balance for this
  industry will deteriorate by at least 5 billion
  euro and probably more.
• Korean manufacturers gain a competitive advantage
  and will increase their market share in small and
  medium-sized vehicles segments.
• Production and employment levels in the EU
  automotive industry will decrease as a
  consequence of the FTA.
• The overall positive effects of the FTA are more
  important for South Korea.

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Commission Impact Assessment (IA)

• However
• The IA plays down negative effects on the
  automobile industry.
• It overrates potential positive effects, refers
  to a very unlikely high figure of 400 increase
  of EU car exports to South Korea thanks to the
  FTA.
• It assumes that South Korea will eliminate all
  NTBs and not introduce new ones, including
  technical regulations.
• It plays down the decline in automotive jobs due
  to the FTA.
• A decline by 1.4 represents a loss of direct
  employment of at least 30,000 jobs (or more than
  10 production plants), with a loss of another
  150,000 indirect jobs related to the industry.
• It does not assess the impact of the changes in
  the Rules of Origin threshold and the permanent
  concession of the DDB to South Korea.

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Risks of future regulatory NTBs - ACEA requests
for improvements of the FTA text

• Automotive Annex 2-C in the FTA
• Articles 4 and 7 are drafted in such a way that
  they enable the parties to introduce in the
  future new safety and environmental legislation.
• As an example, currently, the Korean MOE
  seriously envisages implementing a more stringent
  CO2 legislation favouring domestic production.
• Such new legislation could considerably hamper EU
  car exports to South Korea, without giving to the
  EU proper means to oppose such legislation
  (sovereignty of South Korea).
• Our industry requests a modification of the
  drafting of these two Articles by deleting the
  last of Point 1 of Article 4, and the last
  sentence of Article 7.
• Contrary to what the Commission believes, the
  dispute settlement mechanism in Article 10 will
  be very difficult to apply for this category of
  new legislation.

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Rebalancing the deal
We call on the European Parliament to rebalance
the deal and safeguard the legitimate competitive
interests of the European automotive industry