Positive Effects of Korea-EU FTA on Korean Car Brands? No Says Korean Car Lobby

The Korea Times has an interesting article on the effects of the Korea-European Union FTA on Korean car manufacturers.  A major Korean car lobby group has noted that the increase in exports of the last year is not attributable to the Korea-EU FTA.  An executive from a major local company, that I spoke to last week, has noted, candidly, to me that Korean cars, because of the FTA, are more noticeable to EU purchasers.  FYI: GM has Korean made cars, but the cars are not branded as Korean cars.

The Korea Automobile Manufacturers Association (KAMA) said the allegation is “misleading” on the positive effects of FTA and provides a “biased and distorted” view.

“The increase was not wholly owing to the Korea-EU FTA,” it said, adding that the export hike is attributable to combined reasons, such as new model releases, improved consumer confidence toward Korean cars, and enhanced marketing activities by the car makers among others.

After the Korea-EU FTA came into effect in July 2011, through March 2012 vehicle exports to Europe rose 67 percent to 335,320, according to the Korea Customs Office.

This statement came as European automakers have begun lobbying to revise the FTA, a move eventually aimed at modifying the agreed elimination of tariffs on cars by up to 10 percent in two steps.

The deepening financial crisis in Europe has left automakers there, including Fiat, Renault, and the European operations of Ford Motor and General Motors mired with excessive production capacity as well as losses or declining profits.

Several auto company executives met last month in Brussels to discuss the trade agreement with Korea and how they should respond to the import increase. “The meetings led to some positive developments on nontariff barriers in the automotive sector,” The Wall Street Journal quoted Helene Banner, an EU spokeswoman, as saying in a report released May 3. It was the inaugural annual gathering to review the agreement and try to make adjustments as needed.

The journal reported that Ford has been making private pleas to the leaders of different EU nations, including the new prime minister of Spain, Mariano Rajoy.

KAMA said the export increase coincided with the surge of new model launches in the EU by Korean car makers.

“It is noteworthy that the ratio of new car models exported to the EU accounts for 73 percent of total exports during July 2011 till March 2012, which is surely the major driving force for the increase,” it said. “It is a general view that such new model releases affect significantly consumers’ decisions on new car purchases.”

New car models exported to the EU include the Avante, Veloster and i40 from Hyundai; the Rio and Picanto from Kia; the Aveo, Spark, Orlando, Cruze and Malibu from GM Korea; and the Korando C from Ssangyong.

KAMA underscored several Korean car models winning awards in Europe thanks to quality improvement and enhanced consumer preferences, saying this is due to more confidence in the brands by European consumers. It added the effect of the FTA has generally been overstated.

Under the FTA, the EU’s 10 percent tariff on imported Korean cars was reduced by only 1.7 percentage points for cars with engines below 1,500cc and 3 percentage points for those over 1,500cc.

“It is too much to say that such a minor reduction in tariffs would have meaningful effects on exports,” the association said. “It seems more reasonable to look at back-to-back introduction of new models and improved customer recognition.”

KAMA is a non-profit organization representing Korean auto makers Hyundai Motor Company, Kia Motors Corporation, GM Korea Company, Renault Samsung Motors, and Ssangyong Motor Company.

Is the KAMA blowing hot air?   The complete article may be found at: Don’t Blame FTA for Korean Cars’ Popularity in EU
Sean Hayes, IPG’s Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

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