from Automotive Supply Chain Magazine
Let’s make use of
what’s available
EU-Korea FTA offers competitive advantage for automobile industry suppliers.
By Tomasz Dziechciarz, Vice President, Global Client Services, STTAS.
This summer marks the fourth anniversary of the European
Union-South Korea Free Trade Agreement, the first of a new
generation of comprehensive trade liberalisation agreements
for both sides. The FTA’s goal of eliminating duties on 98.7%
of two-way trade by value will soon be achieved, and nontariff trade barriers are coming down. The effect of these
changes on the automotive trade is unmistakable, with EU
exports of auto parts to Korea up 6% and EU imports from
Korea up more than 20%, including a 50% jump in imports of
cars with medium to large engines.
However, many automobile and auto parts manufacturers
74
remain hesitant to take full advantage of the duty-free and
low-duty provisions of the FTA even though doing so could
provide a significant competitive advantage by reducing
overall costs. Their reasons include requirements that can
be complex and bring repercussion for noncompliance that
can be severe from delivery delays and loss of benefits to
financial penalties.
Origin requirements and the approved exporter rule
While there are many criteria that must be met to qualify
products as eligible for duty savings under the EU-Korea FTA,
two that cause particular challenges are the origin rules and
the requirement that the exporter be approved by government
authorities.
To benefit from the FTA’s duty-free or lower-duty rate
provisions, a product must originate in either the EU or
Korea; i.e., it has to meet the rules of origin set forth in the
agreement by being either wholly obtained or sufficiently
processed in Korea or an EU member state. However,
compliance with this requirement can be tricky given that
the criteria for determining whether a certain part or product
meets the FTA rules are extremely detailed and productspecific and can therefore vary widely.
For example, a passenger car can be considered as
originating in the EU if the value of the materials imported
from outside Korea or the EU and used in the assembly
does not exceed 45% of the vehicle’s selling price. This can
be difficult for original equipment manufacturers in the
automotive sector to track because they tend to purchase
parts from numerous suppliers worldwide. Close attention
to the FTA’s provisions on country of origin and the proper
tariff classification of the constituent parts is thus vital to
obtaining the savings possible under the FTA without running
foul of customs authorities.
Further, to apply for preferential treatment under the
EU-Korea FTA, OEMs must have a valid origin declaration.
Country of origin information can be declared on an invoice,
a delivery note or any other commercial document that
describes the products involved in sufficient detail to enable
them to be identified. In practice, this obligation generally
results in the following text being inserted into one of these
documents: “The exporter of the products covered by this
document (customs authorisation number ___) declares that,
except where otherwise clearly indicated, these products are
of ___ preferential origin.”
It should be noted here that this FTA is the first concluded
by the EU that does not allow the EUR 1 movement certificate
to be used as proof of origin.
To obtain a customs authorisation number a company
has to become an approved exporter, a status granted by
the customs administration of one of the EU member states
or Korea. Being an approved exporter means that not only
does the company understand the FTA rules but it also has a
robust origin management system that is not limited to origin
solicitation and FTA eligibility qualification. This system
should allow customs authorities to verify the originating
status of products claiming FTA preferences at any time.
While meeting these rules is challenging enough, it
becomes even more so for companies operating in multiple
EU countries with distinct customs authorities and separate
ERP systems. For these companies, being able to provide
necessary information both internally among their business
units and to government authorities on demand can be
daunting. It is small wonder that so many companies that
stand to reap significant benefits from this trade agreement
have opted out.
Taking advantage of the FTA on a global scale
Fortunately, there are streamlined, efficient and costeffective ways a company might overcome these obstacles
and incorporate FTA savings into its operations. The most
robust and risk averse solution is to adopt an external web
platform operated by a dedicated team with a high level of
proven expertise in the complex and constantly-changing
global trade arena. A system that combines an automated
solution with established global trade expertise can reduce,
if not eliminate, the administrative burden of compliance,
freeing businesses to enjoy the lower costs that the FTA was
designed to offer in the first place.
About the author:
Tomasz Dziechciarz is the Vice President of Global Client
Services for STTAS, the world’s largest dedicated Global
Trade Compliance Management company. He oversees the
firm’s operations in Europe, RCIS the Middle East and Africa.
With more than 750 global trade professionals serving North
America, South America, Asia, Africa, Europe and the Middle
East, STTAS provides import and export compliance services
to multinational corporations in all major industry sectors. a
75
www.automotivesupplychain.org
Jim Bovenzi
Exclusive interview with GM’s
Executive Director,
Demand/Supply
July-September 2015
GAZ Group
North American Carriers
European Short Sea Shipping
Packaging
Congress Report