EU Auto Makers Cite Imbalance in South Korea Free-Trade Agreement

BRUSSELS – The European Union’s auto industry is happy to see its trade imbalance with South Korea decreasing two years into a controversial free-trade agreement, but EU car makers still are struggling to access the Korean market.

“Because of loopholes in the automotive annex of the agreement, the Korean authorities have proven reluctant to dismantle non-tariff barriers to trade, have introduced new ones and have failed to deliver their promised regulatory convergence,” Cara McLaughlin, spokeswoman for the ACEA auto makers’ association, tells WardsAuto.

These new barriers, she says, include a plan by South Korea to stop using nine United Nations Economic Commission for Europe international vehicle regulations, ranging from standards for the location and design of hand controls to those on heating systems and lights.

“This despite the fact the (trade agreement’s) automotive annex recognizes UNECE (regulations) as the basic standard for the FTA and states that both parties should be committed to developing and further adopting new UNECE regulations,” McLaughlin says.

Moreover, South Korea has introduced a new certification program for service parts such as brake hoses, seatbelts, lighting devices, rear reflectors and rear under-run protection in trucks, which now require the national Korean standards certification mark, the ACEA says.

Against this contentious background, the Hyundai and Kia Korean brands continue to sell especially well in the EU, according to the European Commission.

The value of South Korean car sales to the EU reportedly grew from €3.4 billion ($4.4 billion) in 2011 to €3.9 billion ($5 billion) in 2012, which means 402,000 Korean units were delivered in Europe last year, up from 383,000 the previous year.

The Korea Automobile Manufacturers Assn. says that this year through May, Germany imported the greatest number of South Korean vehicles: 50,155 units, followed by the U.K. and France, mirroring 2012 patterns.

In 2011, the first year of the FTA, the biggest EU importer of Korean vehicles was Germany, followed by Italy and France.

Kim Chul-whan, KAMA international cooperation general manager, credits the Koreans’ success to customized marketing tailored specifically for EU consumers. This includes placing ads showcasing their product awards for high quality during primetime televised sporting events that draw high ratings, such as Champions League soccer matches.

South Korean auto makers also have been adapting their models to meet European tastes, for instance, reducing cushioning in seats and adding headlights that automatically adjust their brightness to suit Europe’s variable climate, he says.

Small cars have done especially well in the EU since the FTA took effect, Kim says: "South Korea's vehicle exports to the EU have always focused mainly on smaller autos and compact cars, which are less expensive than larger models and tend to be more popular among consumers.”

This year, with Europe’s economic woes continuing to tamp down demand, Korean auto makers have been maintaining sales by stressing value and highlighting smaller, less-costly vehicles in their advertising, Kim adds.

However, there is a potential silver lining for EU auto makers: South Koreans bought 95,000 imported European cars in 2012, an increase of 20,000 units compared with 2011. That provided a slight uptick in export value, up from €2 billion ($2.6 billion) in 2011 to €2.5 billion ($3.2 billion) in 2012, the EC says.

“German premium-car sales in Korea (BMW, Mercedes, Porsche) are doing very well,” a Commission communiqué says. “Citroen resumed sales in April 2012 after a decade-long break, as well as Fiat, which had not sold to the Asian country since 1997. In consequence, our trade balance in the sector, although still negative, has improved.”

The Europeans’ vehicle-export performance is borne out by figures from KAMA, which says January-May EU sales in Korea reached €1.1 billion ($1.4 billion), while South Korea car exports to the EU in the same period stood at €2 billion ($2.6 billion).

But the ACEA does not sound as optimistic.

“Presently, Korean automobile exports to the EU are increasing despite a declining market, while EU exports to Korea are still limited to less than 7% of the market, and made up almost exclusively of premium cars,” spokeswoman McLaughlin tells WardsAuto. “Further, this increase is due only to South Korean consumer demand, rather than the FTA.”

– with Jennifer Chang in Seoul