Brussels divided over Korean trade deal
Business Week | 22 July 2009
Brussels Divided Over Korean Trade Deal
An agreement between the EU and South Korea worth billions of dollars has been put on hold after politicians balked at trade conditions
By Renata Goldirova
A proposed free trade agreement between the European Union and South Korea—expected to boost mutual trade ties currently worth over €70 billion—has caused a rift within the European Commission, with the thorny debate now postponed until September.
Officials told EUobserver that a number of commissioners—including Laszlo Kovacs in charge of taxation as well as commissioners from France, Germany, Italy and Slovakia—had questioned some conditions envisaged in the draft accord.
The biggest controversy centres around two issues—rules of origin that establish the level of permissible foreign content in products and so-called duty drawbacks that allow for reimbursement of tariffs under certain conditions.
According to commission spokesperson Lutz Guellner, there is "no obligation" for the college of commissioners to discuss future trade relations with Seoul at this moment.
He added that the executive’s legal services were currently preparing a legal text that would reflect the most recent discussions by EU member states.
Earlier this month, EU capitals gave their "broad support" to the foreseen trade pact with the Asian country, but Rome, Paris and Lisbon requested more time to study its details and consult the industry.
Carmakers have been staunchly opposed to the EU signing up to what they describe as "unacceptable demands" by Seoul.
"This is a damaging development for all European manufacturing industries, including the automotive industry, which is a very strategic sector for the EU," Ivan Hodac from the Brussels-based European Automobile Manufacturers Association (ACEA) said.
Under the current proposal, South Korean manufacturers would be able to purchase 45 percent of car components from low-cost countries such as China and claim the duties back when the vehicles are shipped to European markets.
"This would significantly distort competition," Mr Hodac argued. "Chinese radios in Korean cars will through this mechanism enter the EU at zero percent duties, while the EU companies will continue to pay 14 percent when importing the very same radios."
Although not against the rules of the World Trade Organisation, the possibility of tariff refunds would create a precedent in the EU’s bilateral free trade arrangements. The fear is that the 27-nation bloc could face similar demands from other corners of the world.
"It is a very political question for South Korea and although we would like to see duty drawbacks phasing out, you have to make a political choice at some point," one commission official said defending the concession to Seoul.
Brussels hopes to disarm critics by setting up an "automatic mechanism" that would enable the EU to cap imports from South Korea should its manufacturers abuse duty drawbacks.
The EU and South Korea have been negotiating the free trade agreement for approximately two years. The deal is expected to eliminate duties worth €1.6 billion for European exporters of goods and create addition opportunities worth €1.9 billion, according to the European Commission.
Provided by EUobserver.com
