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Unease in Japan over EU-South Korea FTA

The Asahi Shimbun 2010/10/08

Unease in Japan over EU-South Korea FTA

BRUSSELS—The European Union and South Korea signed a free trade agreement Wednesday which will abolish almost all tariffs on industrial and agricultural products, a worrying development for Japanese businesses competing in Europe.

The agreement, signed by European Council President Herman Van Rompuy and South Korean President Leel Myung-bak, will take effect in July 2011 and eliminate tariffs between the EU and South Korea within five years.

EU officials said the FTA, its first with an Asian country, will likely double trade between the two parties.

According to the European Commission, the EU will be exempted from paying 1.6 billion euros (180 billion yen, or $2.22 billion) worth of tariffs a year, and South Korea 1.1 billion euros.

The agreement will make South Korean businesses more competitive in the EU market as its manufacturers will be free of the EU’s 10-percent tariff on automobiles and 14-percent tariff on TV sets.

According to an analysis released Wednesday by a think tank affiliated with the South Korean government, over the next 15 years, South Korea will export $2.537 billion more in goods to the EU annually. The think tank also forecast that South Korea’s trade surplus will increase by $361 million.

For Japan, which has been unable to even start negotiations with the EU on a similar free-trade arrangement, the agreement could deal a heavy blow to its auto and electronics industries.

Satoru Okuda, a senior researcher at the Japan External Trade Organization’s Institute of Developing Economies, estimates that Japanese manufacturers of home appliances, automobiles and other products will lose $3 billion worth of exports to the EU because of the EU-South Korea FTA.

Japanese companies are already voicing their concerns.

Fumio Ohtsubo, president of Panasonic Corp., said, "There will be a large gap in cost competitiveness with South Korea (because of the EU-South Korea FTA)."

Mikio Katayama, president of Sharp Corp., urged the Japanese government to negotiate with the EU as soon as possible.

"It will be difficult to cover the price differences (with South Korean products) because of the tariff cut on our own. We’d like to compete under the same conditions," he said.

The auto industry faces a similar dilemma.

According to the European Automobile Manufacturers’ Association, South Korea’s Hyundai Motor group, which includes Kia Motors, had a market share of 4.5 percent in EU countries between January and August this year. The market shares in the region for Toyota Motor Corp. and Nissan Motor Co. were lower at 4.3 percent and 2.9 percent, respectively.

"We may lose further market share because of the elimination of tariffs on South Korean cars," a Nissan official said.

The Japanese government, heeding concerns expressed in business circles, exhorted the EU during summit talks in April to start preparations for an economic partnership agreement (EPA).

The EPA would not only remove tariffs but also cover liberalization of investment and other areas.

The EU agreed to start talks at vice ministerial level to determine whether or not negotiations on the EPA should get under way.

Japan and the EU are expected to make a decision by the next Japan-EU summit meeting in spring 2011.

But it remains unclear if negotiations will go ahead as the EU stands to gain little through the EPA. This is because there is no tariff on European industrial exports to Japan, such as cars and electric appliances.

According to diplomatic sources, at the first round of vice ministerial level talks that took place in Brussels in July, the EU presented a list of nontariff areas in which it wants Japan to take action.

The 28 items on the list included simplification of procedures for the approval of medicines and food additives and eased access for liquor sales and financial services businesses, areas which all require revisions to existing regulations.

At the second round of talks in September, the EU expressed interest in the opening up of the Japanese market in areas where European companies have had little presence in the past, such as rolling stock for railroads and air traffic control systems at airports.

 source: Asahi Shimbun