European Union gives green light to South Korea free trade deal at summit

EU agrees to South Korea free trade deal

BRUSSELS — The European Union agreed Thursday to a free trade pact with South Korea that will slash billions of dollars in industrial and agricultural duties, despite some countries’ worries that the auto industry could be hurt by a flood of cheaper cars.

The deal — the first such pact between the EU and an Asian trading partner — will be signed at an EU-South Korea summit on Oct. 6 and come into force on July 1, 2011, said Belgian Foreign Minister Steven Vanackere, whose country holds the union’s rotating presidency.

However, it first has to be approved by the EU and South Korean parliaments and European carmakers are still hoping lawmakers will ensure safeguards for their industry.

“We believe very strongly that there is still room for improvement,” said Ivan Hodac, secretary general of the European Car Manufacturers Association.

In a concession to the auto industry, the EU’s Foreign Affairs Council said in a statement it also agreed “on the importance of an effective safeguard which provides protection in the case of sudden surges of imports in sensitive sectors, including small cars.”

The EU is South Korea’s second-largest export destination, and the Asian country is the bloc’s eighth largest trade partner, according to figures from the European Commission. EU trade with South Korea exceeded €65 billion ($84 billion) in 2008.

Vanackere called the deal “a very big step in opening markets in Asia” to European businesses. “This will create prosperity and jobs across in Korea but also in Europe.”

But Fiat CEO Sergio Marchionne said he remains opposed to the agreement, calling South Korea “one of the most closed markets in the world” and warning the pact would have “negative repercussions in terms of the competitiveness of this industry in Europe.”

In Seoul, the Ministry of Foreign Affairs and Trade said in a statement the deal will create “a considerable amount of tangible benefits” to South Korean businesses, through the lifting of tariffs on key exports such as cars, televisions, textiles and shoes.

The deal is expected to have a greater impact on South Korea than a free trade agreement with the United States as the EU generally has higher tariff rates, the statement said.

South Korean officials said the deal could push the U.S. to hurry to sign off on its own free trade agreement. The two sides signed a trade deal in 2007, but it remains unratified largely over U.S. concerns about South Korea’s bilateral auto surplus

Trade Minister Kim Jong-hoon said late last year the U.S. could lose several hundred thousand jobs if it fails to act and Seoul’s agreement with the European Union takes effect.

As with the U.S. talks, concerns about auto trade had proven a sticking point for the European deal. It was initialed last year, but fears that it could hurt car makers by opening the door to more and cheaper South Korean cars delayed the signing. Italy, home to automaker Fiat, long opposed the deal.

South Korea exported 303,205 vehicles to the EU in 2009, according to the Korea Automobile Manufacturers Association. EU automakers, meanwhile, exported 40,097 vehicles to South Korea.

The European Commission estimates the deal will see the elimination of €1.6 billion ($2.1 billion) worth of industrial and agricultural duties for European exporters to South Korea. The EU will cut some €1.1 billion of duties for Korean importers.

The two sides took a little over two years to strike the deal amid strong opposition from Europe’s automakers angry over the continent’s huge deficit in vehicle trade with South Korea, home to Hyundai Motor and Kia Motors.

In a statement, the EU called the agreement its “most ambitious trade agreement ever” that will likely lead to a doubling of trade with South Korea.

“The FTA is our first deal with an Asian partner,” the statement said. “It is a signal that the EU is open for business.”

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Associated Press writers Raf Casert in Brussels and Hyung-jin Kim in Seoul, South Korea, contributed to this report.