* EU puts trade deals at heart of economic policy
* Resistance from carmakers threatens Japan talks
By Robin Emmott and Sebastian Moffett
BRUSSELS, July 6 South Korea's biggest car
maker, Hyundai Motor Co, decided to boost its European presence
five years ago, adding a family sedan and a sporty-looking
crossover SUV to its smaller hatchbacks.
The models have been a hit. European sales jumped 15 percent
in the first half of this year, even while overall vehicle sales
in countries such as France and Italy showed double-digit falls.
The company's market share has been growing for 41 consecutive
months, said Allan Rushforth, chief operating officer at Hyundai
That achievement is agitating European car manufacturers and
complicating the European Union's ambitious free-trade agenda,
just as EU leaders look to trade to revive the continent's
There is barely a corner of the world where the negotiators
from the European Union - the largest trading bloc - are not
trying to deepen trade ties, and talks with 80 countries are
under way, from Canada to Cape Verde.
The immediate target of European carmakers' discontent is a
free trade agreement between the European Union and South Korea
that went into force a year ago, heralded by the EU trade chief
as "the first in a new generation" of trade deals with Asian
With a Japanese accord next on the EU's list, these
sophisticated deals will go beyond simple tariff reduction and
take in intellectual property rights, services and regulation.
But Europe's ACEA auto industry association is concerned by
"the asymmetrical trade flow relations" between the European
Union and South Korea - meaning big increases in Seoul’s car
exports to Europe, yet only modest export gains for Europeans.
ACEA President Sergio Marchionne, who is also chief
executive of Fiat FIA.MI, said South Korea's increasing car
exports were a "warning sign" ahead of a free-trade deal with
Japan, Asia's biggest car exporter.
Marchionne might get backing from affected EU countries, all
27 of which must agree for any free-trade deal to take effect,
as they worry about the fate of a struggling industry
responsible for 12 million jobs in the European Union.
Italy, home of Fiat, along with Volkswagen's (VOWG_p.DE)
homeland Germany, and France, base for PSA Peugeot Citroen
(PEUP.PA), are those most concerned about a Japanese deal, say
diplomats involved in preparing for formal negotiations.
"We cannot sacrifice our car sector in the name of trade,"
said one Italian trade official in Brussels.
The executive European Commission, which negotiates on trade
matters for the bloc, sees an accord with Japan as crucial,
because the EU has yet to sign a free-trade deal with a major
Talks with India, which began in 2007, are nearing a
stalemate over India's tariffs on imports of European cars that
are nearly 10 times greater than Europe's on Indian vehicles.
For a FACTBOX on the EU's trade agenda: [ID:nL6E8HQ5T0]
For a GRAPHIC on trade: link.reuters.com/fas29s
For a graphic on trade deals: r.reuters.com/jew42s
A 275-BILLION-EURO STRATEGY
Free trade stayed in favour even after the global financial
crisis of 2008/2009, with leaders aware that protectionism
helped convert a crisis into a depression in the 1930s.
Trade is especially important at a time when the euro zone
debt crisis has sapped household demand for local goods and
unemployment is at record highs.
"If we finalise all the trade deals on the table, it would
create 2 million new jobs and increase the EU's economic output
by 2 percent on a permanent basis," Danish Trade Minister Pia
Olsen Dyhr told Reuters. "That's a 275 billion euro ($340
billion) contribution to the economy," she said.
Free trade is complicated by EU plans to coordinate its
external policies in areas such as trade, aid and foreign
affairs. An agreement with Colombia already signed by EU
ministers is being held up in the European Parliament, which
passed a resolution last month asking Colombia to do more on
human rights and labour laws, echoing concerns that held up
Colombia's free-trade accord with the United States.
Former EU foreign policy chief Javier Solana said rejection
of the agreement on human rights grounds would reduce European
influence. "By engaging with these states, by signing an
official accord, we gain better leverage and access," he wrote
last month in the International Herald Tribune.
Brussels dubs its new generation of trade deals "deep and
comprehensive", because they will go beyond the tariff cuts at
the centre of World Trade Organisation deals.
The new model includes things like the right of European
lawyers to set up shop in third countries, clauses on product
safety standards and protection for geographic product
indications, such as Champagne, Scotch whisky and Parma ham.
A joint U.S.-EU report in June looking at the possibility of
a trade accord between the United States and Europe called for
tariff elimination - and for harmonisation of health and product
standards that would mean drugs tested in the United States
would not need to be tested again in Europe, and vice versa.
CLOSED OUT OF KOREA?
Few in Europe question the overall benefits of free trade,
but the EU needs to address the damage to specific sectors.
Handbag and apparel makers have reason to be happy with the
South Korea deal. Seoul's imports of bags from EU jumped 35
percent from July 1, 2011 – when the accord came into force – to
June 15 this year, according to South Korea's finance ministry.
And European perfumers have even raised their prices over
the past year due to the popularity of their products: Christian
Dior’s J’adore Eau de Parfum is on currently on sale in Seoul
for 7.6 percent more than last year.
But struggling French automaker PSA Peugeot Citroen is among
those hit hardest by the South Koreans' sales offensive. South
Korean exports, such as the Kia Cee’d compact, have made inroads
in France, but PSA models such as the Citroen C4 and Peugeot 308
have recorded sales declines of more than 20 percent at home.
While European car makers are losing out at home, European
auto parts makers complain they cannot get a foothold in South
Korea, even with the trade accord. South Korea's close
relationship between car makers and their suppliers makes it
hard for foreign parts makers to break into the market.
"South Korea is a closed market," said Jean-Marc Gales, head
of the Association of European Automotive Suppliers. "You can't
have a free trade agreement and a closed market."
EU Trade Commissioner Karel De Gucht says trade with South
Korea benefits Europe overall, pointing to data showing EU
exports to the country climbing 16 percent in 2011 from 2010 to
32.4 billion euros. That compares to 24.7 billion euros in 2007.
The European car industry, however, is beset by
over-capacity in a shrinking market damaged by the euro zone
"It is not because of a rather limited drop in tariffs that
all of a sudden the European car market changes, or that
argument would be valid for Japan," De Gucht told Reuters.
"There are some structural problems with the car market in
Europe and carmakers have to address them."
Hyundai (005380.KS) attributes its European success to a
mix of aggressive marketing, a plant in the Czech Republic and
making the most of national schemes in 2009 to subsidise
purchases of low-emission vehicles in Europe, such as Hyundai's
"After the global financial crisis, most Europe-based
manufacturers reduced capacity," Rushforth of Hyundai told
Reuters. "We still had capacity and could take advantage of
scrappage schemes. This gave us a physical presence on roads
(Additional reporting by Francesco Guarascio in Brussels,
Eunhye Shin and Hyunjoo Jin in Seoul and Laurence Frost in
Paris; Editing by Giles Elgood)
((firstname.lastname@example.org)(+32 2 287 6835)(Reuters
Keywords: EU TRADE/
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