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Pan-European efforts are being mobilized to help its automobile industry rebound from a lackluster performance amid fierce competition in the European car market. The pinnacle of this effort is CARS 21 (standing for “Competitive Automotive Regulatory System for the 21st Century”), a high-level advisory group for the European Commission comprising experts from both public and private sectors, which was established to recommend action plans to enhance the competitiveness of European automobile manufacturers.
The group finally issued a report just recently (June 20), wherein a host of measures were recommended. One of the key highlights of the recommendations was that trade agreements should be formulated to ensure reciprocal benefits and dismantling of non-tariff barriers haunting EU manufacturers abroad.
Although specific country names were rarely mentioned, one could easily tell that the underpinnings of the report were largely based on the EU’s experience from the Korea-EU Free Trade Agreement and the increasing market shares of Korean automobile manufacturers since the agreement went into effect in July last year.
Against this backdrop, last week’s news that France asked the European Commission to monitor automobile imports from Korea may well have been expected. In the request, France cites a spike in Korean car imports this year and particularly a surge in the market share of Hyundai and Kia in Europe, which makes the increase of European cars in Seoul during the same period instantly pale in comparison.
Of course, the monitoring does not have any teeth, but it could potentially be a first step toward the imposition of a safeguard measure under Chapter 3 of the Korea-EU FTA. A safeguard measure would basically mean a temporary nullification of benefits from the FTA ― a quite embarrassing situation for a trade agreement whose first-year anniversary has just passed.
The irony here is that the bulk of the automobile sales in Europe are for those produced from the Korean companies’ manufacturing facilities in the Czech Republic and Slovakia, which are thus treated as if produced by the EU’s own. Interestingly, Hyundai Motor Europe is even a member of the European Automobile Manufacturers Association, the very entity that supports CARS 21.
The precise extent of a surge, therefore, would require careful scrutiny, beyond simple research on the market share fluctuations.
Instead, what is more alarming at the moment is the European manufacturers’ continuing complaint against the alleged non-tariff barriers in Korea. The European car makers are again ascribing a modest increase of penetration in Korea to invisible regulatory and cultural barriers in Korea, which drive up the “total cost of ownership” for final consumers.
The EU-Korea Free Trade Agreement in Practice, an explanatory document published by the European Commission in October 2011, describes the abolishment of these invisible barriers in Korea as the most tangible benefit of the FTA with Korea, but unfortunately manufactures’ skepticism continues. For the same reason, the ACEA has announced that the same issue should be a focal point for an FTA with Japan, the negotiations for which are about to be initiated.
As amorphous as a non-tariff barrier claim is, it is closely related to the extent of trade imbalance in a particular sector. Korea’s FTA partners also have a strong expectation of their performance in the Korean market in the FTA era. If the expectation is not met for whatever reason, the first thing that comes to their mind would be the invisible barriers in the Korean market, regardless of whether the claim can be substantiated.
The wider the gap in trade balance becomes, the more intense this claim will be. A solid response would be needed to show an absence of such barriers. As with anything, proving absence is much harder than proving existence.
Numerous reports have been published in Korea to time with the anniversaries of key FTAs that Korea has concluded. These reports tend to compile examples of increases in exports by Korean companies, but they rarely discuss the increase of imports into the Korean market or how the exporters from the two countries did comparatively.
A comparative analysis like this is more demanded in sectors of fierce competition. When mutual benefits are not proven with hard numbers, disputes are bound to arise under the current scheme of the FTAs. That is why the European car manufacturers’ continuing reference to the non-tariff barriers is all the more concerning.
By Lee Jae-min
Lee Jae-min is a professor of law at the School of Law, Hanyang University, in Seoul. Formerly he practiced law as an associate attorney with Willkie Farr & Gallagher LLP. ― Ed.
The group finally issued a report just recently (June 20), wherein a host of measures were recommended. One of the key highlights of the recommendations was that trade agreements should be formulated to ensure reciprocal benefits and dismantling of non-tariff barriers haunting EU manufacturers abroad.
Although specific country names were rarely mentioned, one could easily tell that the underpinnings of the report were largely based on the EU’s experience from the Korea-EU Free Trade Agreement and the increasing market shares of Korean automobile manufacturers since the agreement went into effect in July last year.
Against this backdrop, last week’s news that France asked the European Commission to monitor automobile imports from Korea may well have been expected. In the request, France cites a spike in Korean car imports this year and particularly a surge in the market share of Hyundai and Kia in Europe, which makes the increase of European cars in Seoul during the same period instantly pale in comparison.
Of course, the monitoring does not have any teeth, but it could potentially be a first step toward the imposition of a safeguard measure under Chapter 3 of the Korea-EU FTA. A safeguard measure would basically mean a temporary nullification of benefits from the FTA ― a quite embarrassing situation for a trade agreement whose first-year anniversary has just passed.
The irony here is that the bulk of the automobile sales in Europe are for those produced from the Korean companies’ manufacturing facilities in the Czech Republic and Slovakia, which are thus treated as if produced by the EU’s own. Interestingly, Hyundai Motor Europe is even a member of the European Automobile Manufacturers Association, the very entity that supports CARS 21.
The precise extent of a surge, therefore, would require careful scrutiny, beyond simple research on the market share fluctuations.
Instead, what is more alarming at the moment is the European manufacturers’ continuing complaint against the alleged non-tariff barriers in Korea. The European car makers are again ascribing a modest increase of penetration in Korea to invisible regulatory and cultural barriers in Korea, which drive up the “total cost of ownership” for final consumers.
The EU-Korea Free Trade Agreement in Practice, an explanatory document published by the European Commission in October 2011, describes the abolishment of these invisible barriers in Korea as the most tangible benefit of the FTA with Korea, but unfortunately manufactures’ skepticism continues. For the same reason, the ACEA has announced that the same issue should be a focal point for an FTA with Japan, the negotiations for which are about to be initiated.
As amorphous as a non-tariff barrier claim is, it is closely related to the extent of trade imbalance in a particular sector. Korea’s FTA partners also have a strong expectation of their performance in the Korean market in the FTA era. If the expectation is not met for whatever reason, the first thing that comes to their mind would be the invisible barriers in the Korean market, regardless of whether the claim can be substantiated.
The wider the gap in trade balance becomes, the more intense this claim will be. A solid response would be needed to show an absence of such barriers. As with anything, proving absence is much harder than proving existence.
Numerous reports have been published in Korea to time with the anniversaries of key FTAs that Korea has concluded. These reports tend to compile examples of increases in exports by Korean companies, but they rarely discuss the increase of imports into the Korean market or how the exporters from the two countries did comparatively.
A comparative analysis like this is more demanded in sectors of fierce competition. When mutual benefits are not proven with hard numbers, disputes are bound to arise under the current scheme of the FTAs. That is why the European car manufacturers’ continuing reference to the non-tariff barriers is all the more concerning.
By Lee Jae-min
Lee Jae-min is a professor of law at the School of Law, Hanyang University, in Seoul. Formerly he practiced law as an associate attorney with Willkie Farr & Gallagher LLP. ― Ed.
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Articles by Korea Herald
