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European car makers have launched a last-ditch attempt to derail the controversial EU-South Korea free trade agreement (FTA), which the European Commission plans to initial in October. The European automobile manufacturers' trade association ACEA urged member states to block EU Trade Commissioner Catherine Ashton's plan in a letter sent to the 27 capitals, saying it would lead to "unfair competition". In their letter dated 28 September, the car makers argue that the "Commission should improve the conditions of the upcoming FTA and ensure a more transparent process for all stakeholders". Negotiations for the trade deal with Seoul, which has been on the table since May 2007, are now in their final stage, with Ashton trying to win over the remaining opponents within the Council and the Commission.

"The European automobile industry, together with other major European manufacturing sectors as well as major trade unions, finds it unacceptable that DG Trade chooses to ignore concerns that will affect many million Europeans," said the open letter. The car makers have been opposed to the FTA since the beginning of the talks, arguing that it would benefit mainly their Korean competitors. While the elimination of customs duties will open further to Hyundai or KIA the gates to a market of almost 500 million consumers, Volkswagen or Peugeot see limited prospects on the relatively small Korean market of 49 million people.

Moreover, car makers are unhappy about the Commission's acceptance of the so-called duty drawback' scheme as requested by Seoul. This system "will encourage the duty-free entry of [car] parts and components from China and other Asian low-cost countries, while EU manufacturers will gain no such advantages: they will have to continue paying duties when importing the same parts and components," argues the ACEA. In order to alleviate those concerns, DG Trade has agreed with South Korea to set up a special mechanism that will allow the EU to cap the use of duty drawbacks in case of a massive influx of Korean cars. However, this latest proposal negotiated in June falls short of the car makers' expectations. The ACEA points out that the mechanism will only apply five years after the entry into force of the FTA, "and will therefore grant full benefits to Korean manufacturers". Car makers slam Asthon's intention to conclude the agreement "despite there being no indication that important, remaining problems have been solved".

However, the chances for the car industry to derail the FTA are getting slimmer, as resistance within the Council is evaporating. During the EU trade ministers' dinner, on 13 September, no one raised the issue, Europolitics has learned. Berlin had been at the forefront of the opposition to the FTA but eventually caved in last July. But Asthon and President Jose Manuel Barroso had postponed the initialling of the deal until October to avoid a political backlash during the election campaign. Italy is now the only member state to openly reject the FTA. Ashton went to Rome, on 21 September, to convince the Italian government. "They are increasingly isolated," said a diplomat from a big member state.

Meanwhile, capitals are screening the final draft (several hundred pages) of the most ambitious and complex FTA ever negotiated by the EU. The Commission has postponed until October the final discussion to be held in the 133 Committee, originally scheduled for late September. Legally, the full support of the member states is not required but Ashton is preparing for the next step: winning support from the General Affairs Council that will be needed following the initialling and before the signature of the text.

Kovacs resists

Laszlo Kovacs, the commissioner in charge of taxation, is adamantly opposed to the duty drawback scheme included in the deal. Barroso and Ashton have so far bypassed the opposition of the Hungarian commissioner by avoiding a debate within the College of Commissioners, on the ground that it was not legally required. However, this position is irritating several capitals and Barroso could soon put the FTA on the agenda of the college to avoid a backlash within the Council.
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Publication:European Report
Geographic Code:9SOUT
Date:Sep 30, 2009

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