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Carmakers dampen EU free-trade drive

Malaysia Star

Carmakers dampen EU free-trade drive

7 July 2012

South Korea’s biggest car maker, Hyundai Motor Co, decided to boost its European presence five years ago, adding a family sedan and a sporty-looking crossover SUV to its smaller hatchbacks.

The models have been a hit. European sales jumped 15% in the first half of this year, even while overall vehicle sales in countries such as France and Italy showed double-digit falls. The company’s market share has been growing for 41 consecutive months, says Allan Rushforth, chief operating officer at Hyundai Europe.

That achievement is agitating European car manufacturers and complicating the European Union’s ambitious free-trade agenda, just as EU leaders look to trade to revive the continent’s stalled economy.

There is barely a corner of the world where the negotiators from the European Union the largest trading bloc are not trying to deepen trade ties, and talks with 80 countries are under way, from Canada to Cape Verde.

The immediate target of European carmakers’ discontent is a free trade agreement between the European Union and South Korea that went into force a year ago, heralded by the EU trade chief as “the first in a new generation” of trade deals with Asian countries.

With a Japanese accord next on the EU’s list, these sophisticated deals will go beyond simple tariff reduction and take in intellectual property rights, services and regulation.

But Europe’s ACEA auto industry association is concerned by “the asymmetrical trade flow relations” between the European Union and South Korea meaning big increases in Seoul’s car exports to Europe, yet only modest export gains for Europeans.

ACEA president Sergio Marchionne, who is also chief executive of Fiat, says South Korea’s increasing car exports were a “warning sign” ahead of a free-trade deal with Japan, Asia’s biggest car exporter.

Marchionne might get backing from affected EU countries, all 27 of which must agree for any free-trade deal to take effect, as they worry about the fate of a struggling industry responsible for 12 million jobs in the European Union.

Italy, home of Fiat, along with Volkswagen’s homeland Germany, and France, base for PSA Peugeot Citroen, are those most concerned about a Japanese deal, say diplomats involved in preparing for formal negotiations.

“We cannot sacrifice our car sector in the name of trade,” said one Italian trade official in Brussels. The executive European Commission, which negotiates on trade matters for the bloc, sees an accord with Japan as crucial, because the EU has yet to sign a free-trade deal with a major world economy.

Talks with India, which began in 2007, are nearing a stalemate over India’s tariffs on imports of European cars that are nearly 10 times greater than Europe’s on Indian vehicles.

Free trade stayed in favour even after the global financial crisis of 2008/2009, with leaders aware that protectionism helped convert a crisis into a depression in the 1930s.

Trade is especially important at a time when the euro zone debt crisis has sapped household demand for local goods and unemployment is at record highs.

“If we finalise all the trade deals on the table, it would create 2 million new jobs and increase the EU’s economic output by 2% on a permanent basis,” Danish Trade Minister Pia Olsen Dyhr told Reuters. “That’s a 275 billion euro (US$340bil) contribution to the economy,” she says. Free trade is complicated by EU plans to coordinate its external policies in areas such as trade, aid and foreign affairs. An agreement with Colombia already signed by EU ministers is being held up in the European Parliament, which passed a resolution last month asking Colombia to do more on human rights and labour laws, echoing concerns that held up Colombia’s free-trade accord with the United States.

Former EU foreign policy chief Javier Solana said rejection of the agreement on human rights grounds would reduce European influence. “By engaging with these states, by signing an official accord, we gain better leverage and access,” he wrote last month in the International Herald Tribune.

Brussels dubs its new generation of trade deals “deep and comprehensive”, because they will go beyond the tariff cuts at the centre of World Trade Organisation deals. The new model includes things like the right of European lawyers to set up shop in third countries, clauses on product safety standards and protection for geographic product indications, such as Champagne, Scotch whisky and Parma ham.

A joint US-EU report in June looking at the possibility of a trade accord between the United States and Europe called for tariff elimination and for harmonisation of health and product standards that would mean drugs tested in the United States would not need to be tested again in Europe, and vice versa. - Reuters