Missed Trade Opportunity

October 27, 2010

Free Market Foundation

The new trade deal between the European Union and Korea gives U.S. companies a lot to envy, says the Wall Street Journal.

Once the deal is mostly phased in by 2016, it will eliminate annual tariffs totalling $2.2 billion a year on European exports to Korea.

Roughly half of those reductions will take effect on the first day of implementation.

European farmers alone will save 380 million (about $529 million) a year on tariffs, the European Commission estimates.

The Commission estimates a doubling of trade over the next 20 years compared to what would happen without the deal.

Korea’s high barriers to auto imports have long been the bane of Detroit, and a prime excuse for blocking ratification of America’s trade deal with Korea. Seoul’s opening to Europe shows how self-defeating those American objections are, says the Journal.

The EU pact eliminates Korea’s 8 per cent tariff on imported cars from Europe a tariff American companies will continue to face and also tackles Seoul’s notorious technical trade barriers, such as safety standards that deter imports.

In practice this means the price of a 25,000 (about $35,000) European car in Korea will fall by 2,000 (about $3,000) thanks to the duty elimination, while European car makers will not have to conduct expensive additional crash tests as long as they meet EU standards.

These are similar to the terms the U.S. negotiated in its 2007 deal, which still awaits ratification in Congress. President Obama now says he wants to “renegotiate” the deal, though how he thinks he could improve it is a mystery. One thing’s for sure: Nothing promotes exports like trade deals do, as the Europeans understand.

Source: Missed Trade Opportunity, Wall Street Journal, October 7, 2010.

For text: http://online.wsj.com/article/SB10001424052748703735804575536972846474404.html

For more on Trade Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=42

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 19 October 2010