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Ford Europe hits at EU-Korea trade deal

Financial Times

Ford Europe hits at EU-Korea trade deal

By John Reed in London

1 May 2012

The European boss of Ford Motor, the continent’s fourth-ranked carmaker by sales, has complained about “significant imbalance” in trade in cars under a free trade agreement with South Korea that took effect last year.

The remarks reflect automakers’ growing disquiet with free trade amid dismal industry-wide sales conditions, even as Brussels aims to conclude similar FTAs with India and Japan.

According to Ford, South Korean vehicle exports to Western Europe have risen by about 70 per cent since the agreement took effect last July, while EU exports to Korea grew by just 15 per cent.

“My issue with the Korean free trade agreement with Europe is that there are non-trade barriers – there is a government policy to buy Korean cars in Korea,” Stephen Odell, Ford of Europe’s chief executive, told the Financial Times. “They have demonstrated their ability to move the currency, and they have a number of legislative requirements that make it difficult to do business in Korea.”

Mr Odell said that Europe should have negotiated a “snapback clause” similar to that in place in South Korea’s FTA with the US, which allows Washington to reintroduce tariffs if Seoul is found to have reneged on any of its commitments,

“I’m not anti-Korean, I’m not anti-free trade, I just think the EU has to look at balanced free trade,” he said. “I don’t think it was negotiated with a full understanding of the implications.”

Ford, like nearly all mass-market competitors in Europe, is unprofitable in the region this year because of sliding consumer demand for cars and overcapacity in the industry, which is depressing prices.

The US carmaker lost $149m before tax in Europe in the first quarter of this year, and said last week it expected to lose $500m to $600m for the full year.

European carmakers have been dismayed by the big sales growth at their South Korean competitors Hyundai and Kia, which they claim is in part down to a manipulated currency and easier market access under the new FTA. Registrations of Hyundai cars in the EU surged by 12 per cent and Kia’s by 25 per cent in the first quarter, while the overall car market shrank by 8 per cent.

Sergio Marchionne, Fiat’s chief executive and president of the European carmakers’ association Acea, said in a recent speech that potential FTA partners “regard the EU as a big fish to catch”.

“We find ourselves in the bizarre situation in which Europe is pushing for one free trade agreement after another – and not always with mutual benefits – while internally, we’re suffering from inflexibilities and other restraints on our competitiveness.”

The European Commission was not able to comment on Tuesday. But EU officials have acknowledged that such agreements were likely to hurt mass-market producers such as Ford and Fiat, while helping premium brands such as BMW.

The FTA agreement does have a review clause allowing the EU to reintroduce tariffs if a flood of inexpensive Korean cars comes into the EU market.