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EU-Korea trade deal ups pressure on Taiwan, Japan

EurActive | 16 December 2010

EU-Korea trade deal ups pressure on Taiwan, Japan

The European Union is set to clear the final legal hurdles to a free trade agreement with South Korea, putting pressure on Taiwan and Japan to strike similar deals with Brussels.


After repeated failures to conclude a global trade deal at the World Trade Organisation (WTO), the EU has started focusing on bilateral relations with key partners.

In September, the EU signed a free trade agreement with South Korea, the biggest trade deal that the bloc has ever signed and the first with an Asian country.

The EU already applies free trade agreements with South Africa, Chile and Mexico, as well as with members of the European Economic Area – Iceland, Liechtenstain and Norway – and almost all of its Mediterranean, Balkan and Caribbean partners.

Moreover, talks with the Gulf countries, India, Canada and Singapore are already at an advanced stage, the Commission said in November.

On 10 December, a bilateral summit with India marked a crucial step towards an FTA with Asia’s second largest economy.

On Wednesday (15 December), the European Commission is expected to find a compromise on a safeguard clause attached to the South Korea free trade agreement (FTA).

The FTA, agreed by EU leaders at a summit in September, was touted as the most far-reaching trade deal the bloc has ever signed.

But the deal has faced criticism, especially from the EU car industry, which feels threatened by competition from Korean carmakers, notably in the small car sector.

According to the agreement, safeguard measures can be triggered when the elimination or reduction of import tariffs "causes or threatens to cause serious injury" to EU industry.

The clause, which the Commission will negotiate on Wednesday with the European Parliament and the EU Council of Ministers, is aimed at reassuring European manufacturers that tariffs can be reintroduced in specific circumstances.

After a compromise has been found in the "trialogue" meeting, the European Parliament will give its final green light to the deal during its plenary session in February.

The FTA will then enter into force from 1 July 2011.

Taiwan expectations

The deal with South Korea is expected to put pressure on Seoul’s Asian competitors to cut similar deals.

David Lin, Taiwan’s highest representative in Brussels, said "the FTA with the EU is our medium to long-term goal". "It’s a goal we are pursuing and we are preparing for that," he told EurActiv.

Galvanised by a recent visa liberalisation agreement with the EU, Taiwanese diplomats are now focusing all their efforts in Brussels to signing an FTA with the bloc. "We are convinced that things are moving," said Lin, though he was quick to stress that "we are still in a preparatory stage" and "negotiations have not started yet".

"We have already done some work," added Lin, recalling that the EU and Taiwan have already set up a number of working groups to discuss bilateral issues such as intellectual property rights and the automotive sector.

"Even without an FTA, we cannot say that things are not moving," Lin insisted.

The EU’s trade relations with Taiwan represent about half the amount traded with South Korea (in 2009 EU exports to Taiwan amounted to €10 billion and imports reached €17.5 billion).

From an economic perspective, securing an FTA with Taipei is therefore considered less complicated than doing so with Seoul.

EU wary of China’s reaction

But European countries are cautious about moving ahead for fear of the reaction of China, which considers Taiwan to be a secessionist region and has so far prevented the island from getting a seat at the United Nations.

Indeed, no EU member state has official diplomatic relations with Taiwan, even though Taipei is a member of the World Trade Organisation (WTO).

"EU-Taiwan trade relations continue to improve and we have recently strengthened our mechanism of consultation," said John Clancy, spokesperson for EU Trade Commissioner Karel De Gucht.

However, he was also mindful of China, telling EurActiv that the Commission was of the opinion that "an FTA with Taiwan is not necessarily the ultimate means to enhance trade".

"In the most optimistic scenario, we could explore in the long term the idea of an FTA with Taiwan, in case Taiwan-China relations improve," Clancy said.

Indeed, relations between Beijing and Taipei have improved since new Taiwanese President Ma Ying-Jeou took office in March 2008. His conciliatory approach to China allowed the signature in June 2010 of what is considered to be the most important trade deal ever signed between the two countries.

After that pact, "a complete FTA with China is very possible," Lin told EurActiv. This could produce a complete new scenario, with Taiwan becoming a sort of bridgehead to China for EU firms and vice versa.

In the meantime, to offset the potential negative consequences of the deal with Seoul on EU-Taiwan trade, Taipei is increasing its direct investment, especially in Central and Eastern Europe, where Taiwanese ICT firms already own a number of manufacturing facilities.

"Our direct investment in Central Europe (especially Slovakia and Hungary) will alleviate some of the pressures resulting from the EU-South Korea FTA," Lin said.

EU-Japan deal more distant

However, a deal with Japan will be more difficult to negotiate as the impact on EU industry will inevitably be bigger.

The EU’s trade volume with Japan is twice the size of that with South Korea, and four times bigger than with Taiwan. In 2009, EU exports to Japan amounted to around €36 billion, while imports were worth a total of €55 billion.

Against this background, it is clear that any trade deal with Tokyo will be watched very cautiously by EU negotiators in order to avoid repercussions for European jobs and industry.

Despite these obstacles, Tokyo harbours high hopes that the EU’s new approach to bilateral trade will help further its case.

The EU’s Trade Strategy, presented in November 2010, originally featured friendly wording regarding EU-Japan relations, triggering speculation that negotiations on an FTA could start as early as next year. The final wording is more cautious than the initial draft, but improving trade relations with Japan remains an official priority for the European Commission.

At the G20 summit in November in Seoul, the EU and Japan held a series of high-level bilateral meetings and the Tokyo press reported extensively about trade discussions. However, the Commission denies that any concrete developments are imminent at the moment.

Next Steps
 15 Dec. 2010: Commission-Council-Parliament "trialogue" talks expected to seal final compromise on safeguard clause for EU-South Korea trade deal.
 Jan. 2011: European Parliament’s committee on international trade to vote on safeguard clause.
 Feb. 2011: Parliament plenary to vote on safeguard clause.
 1 July 2011: EU-South Korea FTA enters into force.

 source: EurQctive