Sources in Brussels report that the European Union is close to clinching a 100 billion dollar trade deal with South Korea. A majority of the EU’s 27 Member States backed the deal but the main sticking point is the opposition by the EU auto-sector to “duty drawback” on South Korean cars.
What is “duty drawback?”
Under the proposed system, South Korean car manufacturers would be allowed to import cheap components from China and be able to reclaim all import duties paid on those parts as long as the cars were destined for the EU market. This is equivalent to our Inward Processing Relief (IPR) system.
However, there is strong opposition from some EU governments and from the EU auto sector which employs 2.3 million people directly and a further 10 million indirectly in related sectors. It appears that duty drawback is now a red-line issue and Member States will not grant this but the Commission will now attempt to negotiate this area to find common ground with the Koreans.
What benefits would this trade deal bring?
It is estimated that duty drawback will cost the auto sector approximately 150 million Euro’s per year compared to a potential 100 billion dollars boost for the whole European economy. Interestingly, some of the major auto-backers such as Germany are in favour of an agreement that includes drawback. A deal to lower barriers to trade and investment with South Korea would be its first such pact in Asia. The EU is the Asian country’s second-largest export market after China and South Korea is the EU’s fourth-largest non-EU trade partner.
Watch this space for further developments…