By Roddy Thomson (AFP) – Oct 15, 2009
BRUSSELS — Europe inked a free-trade deal with South Korea on Thursday, ignoring anger from automakers echoing US caution running all the way up to President Barack Obama.
But the agreement immediately ran into trouble when Italy, backing concerns within its auto sector, warned it wants changes before ratifying the document.
The blessing of all 27 member states, plus the European Parliament, is needed for the deal to sweep away trade barriers to take effect next year.
Negotiations were completed three months ago, but Seoul offered only a guarded welcome on a package said by Brussels to be worth 19 billion euros (28 billion dollars) a year to EU exporters.
"Should the deal come into effect, bilateral trade investment will significantly increase," South Korean Trade Minister Kim Jong-hoon said after signing.
According to Seoul, the two sides will phase out tariffs on 96 percent of EU goods and 99 percent of South Korean exports within three years.
Adolfo Urso, a junior Italian minister for external trade, said Rome "could exercise its right of veto" unless EU auto industry concerns are specifically addressed in the text of the agreement.
EU trade commissioner Catherine Ashton, who initialled for the world's largest single trading bloc, said she had visited Italy a "couple of times" to address concerns there.
"I've been told to initial the deal by all the member states, so I do have the support of the Italian government," she stressed.
The free-trade deal was immediately slammed by the head of the European carmakers trade association, ACEA.
"We call on the EU member states not to ratify the current text," Ivan Hodac said in a statement.
"The Korean negotiators have not only obtained unrestricted access to a market of over 500 million people, the European Commission has in addition allowed South Korea to subsidise exports from its key industries to the EU.
"This constitutes unfair competition and will lead to economic distortion."
The ACEA claims Europe's trade deficit with South Korea will only increase from its current level of around 15 billion euros per year under the terms negotiated.
Figures out Thursday showed South Korean Hyundai's sales rocketing by 53.7 percent across Europe in September -- with almost 50,000 more new cars sold over the recession-lashed first nine months of 2009 than in the equivalent period of 2008.
Ashton said EU negotiators had introduced "safeguards" that "will address the concerns the car industry rightly has."
Each side has three percent of the other's car market but the EU's market is much bigger and Ashton said a surge in South Korean imports would trigger a "return to our tariffs."
She also said a "cap" would be triggered if 'duty drawback' rises, referring to a mechanism which allows manufacturers to reclaim tariffs paid on imported materials used to make products for export.
The EU was South Korea's second-largest trading partner after China in 2008, with two-way trade worth more than 90 billion dollars.
The EU was also the biggest foreign investor in South Korea last year.
Washington and South Korea reached a trade agreement in 2007 but Obama opposed the pact as a senator and ordered a review on taking office amid fears for the US auto sector.
Calling it the "first of a new generation of free-trade agreements," Ashton said a similar "push" is underway with India, several southeastern Asian states and Canada.
However, there are "no plans" to start discussions with Japan.
The ambitious deal with Seoul also covers areas including intellectual property, procurement, telecommunications, environmental, legal, financial and shipping sectors.
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