On Oct. 15, EU Trade Commissioner Catherine Ashton and South Korean Trade Minister Kim Jong-hoon initialed a free trade agreement (FTA), which the EU calls “the most important ever negotiated between the European Union and a third country.” 
Estimated to be worth a total of 19 billion euros in new trade for EU exporters, the agreement is designed to remove virtually all tariffs between the two economies. However, it is a bilateral deal. And European carmakers, apparently fearful of being swamped by imports of more economically priced Korean cars in an already depressed market, were the first to call for a rethink through industry body ACEA.
However, this appears to have been too little too late and according to the commission, the initialing signals the end of negotiations. The current “stable legal text” will be formally presented to EU Member States in early 2010. So what does this mean for the European tire (and associated product) markets?
First of all, South Korea will completely remove its 8% tariffs in this product segment. This will take effect as soon as the agreement enters into, resulting in an estimated 3 million euros in savings for EU exporters almost immediately. In response the EU will phase out its tariffs (averaging 4%) over a three year period.
So, three years after the free trade agreement takes effect, South Korean-made tires sold in the U.K. and European markets won’t have to pay the 4% levy they currently work with. Or, to put it bluntly, they will have an additional 4% of pricing leeway.
When you consider that the proposed FTA arguably has its greatest affect in the automotive market (which, in the U.K. at least, is already a major growth area for Korean manufacturers) and that these cars invariably carry Hankook, Kumho or Nexen tires, there is also likely to be a secondary OE pull-through benefit for the Korean tiremakers.
In addition, the stable text for the proposed EU-Korea FTA contains what it calls “a sectoral annex” on motor vehicles and parts which addresses non-tariff barriers in the sector. The list of provisions specifically for the auto-part business basically provides for a wide-ranging recognition of international standards by South Korea. UNECE standards, for example, will be considered as equivalent to Korean domestic standards from the start of the agreement.
According to sources at the European Commission, this covers all those standards signaled by the industry as being “significant trade barriers.” In practice this means EU tires complying with the standards covered by UNECE Regulation 30, 54, 75, 106, 108, 109, 117 will be considered as complying with the Korean Quality Management Safety and Control of Industrial Products Act (QMSCIPA) (Articles. 19, 20, 21); Enforcement Rules of QMSCIPA Article 2, paragraph 2, Article 19. In return, over a five-year period, Korea will align its regulations to a further 29 UNECE.
As you can see, the EU-South Korea free trade agreement has benefits for those exporting automotive parts (including tires) into South Korea. But not much product goes in that direction. So, as far as the tire business is concerned, the main beneficiaries of this agreement are the companies producing tires in South Korea for export into Europe.
[By Chris Anthony, editor of Tyres & Accessories]
