The European Union-Korea free trade agreement will have a big effect on the auto industry worldwide

Posted July 21st, 2011 by Chip Shipt and filed in Auto
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This did not get much press here in the States, but it will have a big effect on the automotive industry worldwide. According to the International Centre for Trade and Sustainable Development (ICTSD) website,

EU flagThe EU’s free trade agreement (FTA) with South Korea officially came into force on 1 July, making it the 27-member bloc’s first deal with an Asian country; it also marks the largest trade pact negotiated by Brussels. The agreement, which was signed this past October (see Bridges Weekly, 13 October 2010), is expected to have major trade ramifications for both sides.

Trade between the two parties was estimated at €66 billion last year. The European Commission noted that EU exports could rise by approximately €19 billion with the deal, citing a study published by the Copenhagen Economics firm.

Flag of South KoreaIgnacio Garcia Bercero, the EU’s chief negotiator, praised the agreement, noting that it “is very much the model of the type of trade agreement that we would very much wish to conclude with other countries in Asia.” India and Singapore are among several countries discussing similar trade agreements with the EU.

Under the agreement, tariffs will be eliminated or phased out on 96 percent of EU goods and nearly 99 percent of South Korean goods within three years. Within five years, duties on most industrial goods will be abolished.

How will this affect the automobile industry? The EU currently imposes significant tariffs on imported cars and parts. For South Korea, the 4.5% parts tariff will go away immediately, a 10% tariff on mid-size/large cars will go away in three years, and a 10% tariff on small cars will go away in five years.

This is a great thing for Hyundai and Kia (which is partly owned by Hyundai). Even though automobile sales in the EU declined by 6% in EU last year, sales of Hyundai and Kia cars increased by 4%. Together, they sold more cars than Toyota did there. So they are already doing well. The elimination of these tariffs is only going to help them do better.

Also, did you know that, if you combine the sales of these two companies, they count as a Top 5 automaker in the world? Last year, Hyundai sold about 3.6 million automobiles, and Kia sold about 1.4 million, for a total of about 5 million. That’s a lot of cars.

It’s pretty clear why Korean cars have sold well in the US and Europe: they offer a high level of quality for a low price. Like anything else, the stronger these companies get in any one region, the stronger they get in the world as a whole. That’s why the EU-Korea deal is so important.

In my next post, I’m going to talk about a rising star in India that’s sure to make waves around the world: Tata Motors.

Chip Shipt
The Nationwide Auto Transport Blog Team

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