KU. LEUVEN

KOREU negotiations and the EU institutional maze

From a member state aspect

Beatrix Polya

6/3/2013

Erasmus student

R0389113

External Dimensions of EU Policies

Professor Bart Kerremans

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Table of Content

INTRODUCTION ......................................................................................................................................... 3

Briefly on Principal-Agent theory .......................................................................................................... 3

I. LEGAL BACKGROUND ........................................................................................................................ 4

II. NEGOTIATIONS IN PRACTICE – Commission as the Agent ................................................................ 6

III. INTERACTION OF EU-INSTITUTIONS ............................................................................................. 8

IV. HUNGARIAN PERSPECTIVE .......................................................................................................... 12

Relevant trade relations of Hungary ................................................................................................... 12

Hungarian position in trade negotiations ........................................................................................... 14

Commission ......................................................................................................................................... 14

Council ................................................................................................................................................. 14

European Parliament .......................................................................................................................... 16

Debate and ratification in national assembly ..................................................................................... 16

CONCLUDING REMARKS ......................................................................................................................... 17

Bibliography ................................................................................................................................................ 19

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KOREU negotiations and the EU institutional maze

From a member state aspect

INTRODUCTION

In this final paper, I present the institutional system of the European Union standing behind a conclusion

process of a free trade agreement on union, national and intra-institutional level. The EU- South Korean

free trade agreement was the first ambitious and comprehensive agreement in EU history with regard to

the scope of issues it tackled. The first agreement concluded under Lisbon Treaty, which broadened the

scope of common commercial policy (CCP), an exclusive competence of EU. I will examine how the

institutions have been conformed to the new legal basis in practice, and how the interest reconciliation

went on during ‘bilateral’ negotiations. For the sake of clarity, I make use of the principal-agent theory.

The I. section lines up the legal basis of the KOREU negotiation process. This clarification is crucial to

advance to the following chapter where first the negotiations in practice will be in focus (II. section).

Then, I take a closer look on communication and interaction between EU-institution during the talks.

The second major part discusses KOREU of a member state’s perspective. I have chosen Hungary for the

analysis which choice I explain there. I discuss the economic incentives of the Hungarian position, then

the dynamics on institutional level.

Briefly on Principal-Agent theory

Since the principal-agent theory, which I will invoke in my analysis, was created decades ago by

economists, I will make use of the definitions given by scholars in economic sciences of the 80’s.

Professor Liang Zou defines the two actors the following: ‘the term ‘‘principal’’ refers to superior,

employer, governor, owner, coordinator, etc., who performs the function of coordination and/or

control. The term ‘‘agent’’ refers to subordinate, employee, or any specialized agent who acts for, on

behalf of, or as representative of the principal’ (Zou, 1989). Thus, the theory discusses the dilemma of

delegation and control (Zou, 1989). A problem occurs when there is an incentive divergence in the

agency relations, and difficulties emerge for the principal to verify the agent (Eisenhardt, 1989).

Furthermore information asymmetry arise in favor of the agent ‘what gives it potential to operate in a

more powerful and efficient manner than could a single individual’ (Holmström, 1982).

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Finding that the aforementioned problem exists in delegation of international organizations, the new

perspective was applied later by scholars in political sciences and international relations as well

(Eisenhardt, 1989). In EU’s case, an organization mixing supranational and intergovernmental elements

in its structure, the delegation-control seems even more exciting. In this paper, after Elsig and Dupont, I

will regard the Commission as an agent, who leads the external negotiations, in the name of the

principal formed by the Member States ergo the Council and, recently, by the European Parliament

(Elsig & Dupont, 2012). For simplicity’s sake, I set aside the other principal-agent formations in the EU

trade negotiation process, namely the Member of Parliaments (MEPs) - rapporteur of the Parliament

and the Council-Presidency relations, where delegation cost also emerges.

I. LEGAL BACKGROUND

To conclude such a comprehensive agreement as the KOREU is, the legal background had to be granted.

Lisbon Treaty provided this basis, enabling the EU to act in areas as intellectual property right (IPR),

trade in services (TIS) or foreign direct investment (FDI) (Dimopoulos, 2008). Furthermore, the Treaty on

the Functioning of EU (hereinafter: TFEU) settled and clarified the negotiation process and the

competence-division among EU-institutions thusly defined the relation between the principal and the

agent.

According to the Lisbon Treaty, common commercial policy (CCP) falls under exclusive competence of

the EU, as well as the conclusion of international agreements ‘when its conclusion is provided for in a

legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in

so far as its conclusion may affect common rules or alter their scope.’ 1 That means, solely the EU

through its institutional framework can conclude agreements within this highly important field of

economics. However, the innovation of the Lisbon Treaty lies in the definition of CCP. Article 207 (1)

dissolved the ambiguity about TIS and IPR, and clearly added it to the definition of CCP. Solidifying was

needed to have a clear legal background, as the European Court of Justice convicted the EU before for

too wide interpretation of the Treaty and, for concluding the Trade-Related Aspects of Intellectual

Property Rights (TRIPS) and General Agreement on Trade in Services (GATS) agreements within the

World Trade Organization (WTO) (Dimopoulos, 2008). Noteworthy addition to the CCP-article is that

1 TFEU, post-Lisbon, art. 3 (1)

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Member States vested the EU with exclusive competence in the field of FDI (De Gucht, 2010). However,

the significance of the mentioned adjustments lies more in the clarification of interpretation than in its

new tenor, still it opens for concluding broader agreements under the name of CCP (Dimopoulos, 2008)

(De Gucht, 2010).

Indisputably, the most important change in concluding CCP-agreements was brought by rendering the

Parliament a co-legislator (Dimopoulos, 2008). Pursuant the article 207 (2) ‘the European Parliament

and the Council, acting by means of regulations in accordance with the ordinary legislative procedure’,

hence, the consent of the EP is preemptory to imply an agreement. That means no other, than the

Parliament emerged to an equal ‘principal-shaper’ to the Council. In other words, the Commission’s

hand is equally bound by the Parliament as by the Council, as it can maneuver under the negotiations to

the extent that MEPs will not raise their voice against the agreement in the ratification phase, thus

annulling the whole agreement (Delreux, The EU negotiates multilateral environmental agreements:

explaining the agent's discretion, 2009). To prevent such predicaments, Article 218 of Lisbon Treaty –

defining negotiation process – sets out that ‘the Parliament shall be immediately and fully informed at

all stages of the procedure’ which creates a communication channel between agent, ergo the

Commission, and principal, ergo partially the Parliament (TFEU, post-Lisbon, art. 218 (10)). KOREU was

the first agreement concluded with assent of Parliament which was needed even for the provisional

application (cp: Banana-Agreements with Latin-American Countries) (De Gucht, 2010). The newly

acquired position of the Parliament in the EU institutional maze generated a range of difficulties in the

conclusion procedure which I will elaborate in the following sections.

As for the role of the Council, it has the right to authorize the Commission to launch negotiations and

adopt directives for them (TFEU, post-Lisbon, art. 218 (2)). The Treaty utters again an obligatory

consultation via a ‘special committee appointed by the Council’, whom ‘the Commission shall report

regularly’ (TFEU, post-Lisbon, art. 218 (2)). In practice by KOREU, the consultative obligations were often

widely interpreted, meaning the Trade Policy Units received scant information about the ongoing

negotiations from the Commission.2 Nevertheless, the unanimous favoring of the Council at the end of

the negotiations implied controlling power for the Commission as well.

2 Interview, Head of Hungarian Trade Policy Committee 2 May 2013

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Concerning the voting in Council, Lisbon Treaty sets out qualified majority as general rule for CCP3, as

earlier Treaties disposed too, although it could be puzzling with regard to the practice. ‘The Council has

practically always acted by consensus’, and the following part of the article brings up a range of

exceptions where unanimity is needed (De Gucht, 2010).4 The FTA with South Korea was voted under

consensus as well. KOREU is a mixed agreement, meaning that the issues tackled in the agreement fall

partially under shared competence and exclusive competence. 5 Consequently, all the national

parliaments of the 27 Member States has to ratify the agreement in order to come into force (De Gucht,

2010). The ratification is still under process in the case of KOREU (7 countries missing) while the

provisional application has been put in place on 1 July 2011 (Council of EU Official ).

Summarizing this section, the Lisbon treaty provided the background for the KOREU negotiations to

become the most comprehensive FTA in EU history by clarifying thus broadening the scope of

interpretation of CCP. The EU has acquired exclusive competence in the field of FDI, IPRs and TISs.

Advancing the Parliament to co-legislator, on one hand implies legitimacy for the external negotiations;

however, on the other hand, it gives space to bureaucratic rivalry and tardiness in the conclusion

process. The interplay of EU institutions under the legal basis is discussed in the third section, in the

following section I reconstruct briefly the negotiations led by the Commission.

II. NEGOTIATIONS IN PRACTICE – Commission as the Agent

In this section, I present the procedure of negotiations of the Commission’s aspect, excluding the

‘principal shaping’ institutions (Parliament, Member States). I do so, on one hand, to demonstrate the

discretion that the Commission has in agenda setting to shaping the negotiation process, on the other

hand, to create a reference point for the next section where the institutional interaction is in focus.

After setting out South Korea as a priority in EU trade policy in the very ambitious communication by the

trade commissioner (Global Europe: Competing in the World), it was expected that Peter Mandelson’s

3 TFEU, post-Lisbon, art. 4 (1): ‘For the negotiation and conclusion of the agreements referred to in paragraph 3, the Council

shall act by qualified majority’ 4 Namely: IPR, FDI, trade in services, domestic implementation by unanimity, audiovisual services that affect cultural or

linguistic diversity, services in the social, education or health sector (De Gucht, 2010). 5 (EUabc.com): http://en.euabc.com/word/668

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Commission will put a proposal on the Council’s desk on launching trade negotiations with South Korea.6

In eight negotiation rounds and two years of discussion, between the Commission and Korea as well as

within EU-institutions, the parties reached a conclusion in October 2009.

The Commission proposal was endorsed by both of the two legislative EU-institutions, the Parliament

and the Council7 therefore the kick-off talk could have taken place on 6-10 May 2007 in Seoul (Agence

Europe, 2007). The first two rounds of bilateral talks concluded fruitfully, however, the third round in

September 2007 revealed the first controversies vis-á-vis the Korean party. Although arguable, still the

assertion of the head of Hungarian trade policy committee (TPC) outlines Korean position: ‘The Korean

interest in the FTA lies solely in further accession to EU car industry and to the market of entertaining

electronic products’.8 Indeed, on the fourth negotiation round in October 2007 detected the most

sensitive points of the agreement: both sides were concerned about motor parts and automobiles9,

Korea had further demands in textile industry, EU-negotiator expected more access to pharmaceutical,

cosmetic and chemical products and their services (AgenceEurope, Seoul may make concessions next

week to spur conclusion of FTA, 2007).

Although the Commission-reports intended to the trade policy committees of member states are not

public, Agence Europe released the substances of the balance sheet about the negotiators’ last six

month work.10 Summarizing the fifth round, non-tariff barriers (NTBs) and rules of origin remain ‘the

stumbling blocks’, in particular in the car industry, which was not even discussed in that session,

because differences arose on standards and rules. Electronic, chemical, pharmaceutical products remain

also in spotlight, and no agreement was reached on wines and spirits. Nonetheless, in discussions on IPR

Seoul eased its muscles, the parties had fruitful talks also on public procurement, transparency, services

and investments (Agence Europe, 2007).

The following two rounds did not bring any further progress on the sensitive topics, NTBs in the

automotive sector and the rules of origin, however, the other more than 70% of the provisions have

6 (European Commission Communication, 2006) Communication: Global Europe: Competing in the world – ‘’Based on these

criteria, ASEAN, Korea and Mercosur (with whom negotiations are ongoing) emerge as priorities.’’ 7 ‘’General Affairs/External Relations Council formally gave its approval on Monday, without debate, to the launch of

negotiations for "new generation" bilateral free trade agreements (FTA) with ASEAN, South Korea’’ (Agence Europe, 24/04/2004) 8 Interview, Head of Hungarian Trade Policy Committee 2 May 2013

9 ‘According to South Korean press agency Yonhap, cars and precision engineering machinery for manufacturing

semiconductors have been a particularly difficult issue to resolve.’ (AgenceEurope, South Korean Trade Minister in Brussels on 9 October to try and kickstart stalled FTA talks, 2007) 10

(Agence Europe, 2007)

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been settled (Agence Europe, 2008). As closer the Commission got to the FTA conclusion as nearer the

confrontation with the member states was forthcoming. Catherine Ashton, the new trade commissioner

had to postpone the eighth negotiation round, as she ‘faced with pressure from part of European

industry and some of the major member states reluctant to endorse further opening up of the

Community market to South Korean competition’. The agent’s hand was tied at this point; although the

agent has the legal discretion to act according to its objectives (i.e. concluding the agreement), thus it

risks the whole process, as at the endplay principal can always call off the reached agreement.

III. INTERACTION OF EU-INSTITUTIONS

This section discusses the interaction and communication between EU institutions before decision-

making. First, I present the communication channels between institutions in general, then, I customize it

to KOREU.

The information flows through numerous channels before a decision will be made. The Commission, as

agent, stands in the centre of the information stream, and has the discretion to manipulate by filtering

them before passing to the actors (Elsig & Dupont, 2012). Figure 1 stands for presenting this setup.

Commission

European Parliament

Member states

(Council)Lobby groups

133 Committees (TPCs)

Reports, debates

Meetings

Figure 1 (own chart, after Art. 218, TFEU and (Elsig & Dupont, 2012))

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Nonetheless, the negotiators of Commission’s trade delegation (DG Trade) has to take in consideration

to some extent the objectives of the principals in order to pass the agreement at the ratification game,

therefore the agent also needs to be up-to-date especially on the aspirations of EP and the member

states. Hence, the communication is indeed equally important for the parties.

Lobby groups imply rather a tool for the Commission to affect the position of Member States

throughout their industries, hence it depends on the agent’s own incentive how much it uses this

opportunity. In the followings, I present the institutional interaction in KOREU’s case, according to this

simple figure, focusing on the Parliament’s and Council’s role.

By KOREU, the lobby groups played significant role. Elsig and Dupont’s exporter discrimination theory

asserts that the liberal- minded Commission’s strategy was to approach the most concerned countries

throughout their lobby groups (Elsig & Dupont, 2012). The Commission used the information

disaggregation between the TPCs and industries. The conception was perfectly designed for KOREU

where ACEA (European Automobile Manufacturers' Association) preannounced its reluctance before the

negotiation even started (Agence Europe, 2007). Member States producing cars in low or middle-price

ranges, namely Germany, Italy, France, Hungary, Czech Republic, Spain, and Portugal raised their voice

in the name of their car industries (Elsig & Dupont, 2012). Notable fact, when analyzing institutional

communication, the trade negotiation rounds went on without the presence of member state

delegations (TPCs), they have been informed always via reports by the Commission. It entitled great

power to the negotiators. The head of Hungarian TPC reflected on that phenomenon: ‘Article 218 gives a

real broad provision to inform the TPC regularly, and most of the cases, the Commission uses this

opportunity. We had a lot of problems with laconic and often delayed reports.’11

Nonetheless, to win all the member states for the Commission’s case meant an utmost importance as

KOREU required unanimity in the Council for the conclusion. After the seventh negotiation round,

Commissioner Ashton had to postpone the final talks because of repugnance in 133 Committee

meetings, as the member states prior approval was needed for further discussions (Agence Europe, 21

01 2009). The duty drawback clause12 (concerning rules of origin) and liberalization of car industry in

economic crises still implied such uncertain impact on European car industries that still large group of

member states opposed the agreement, including major states : France, Germany, Spain, Italy and also

11

Interview, Head of Hungarian Trade Policy Committee 2 May 2013 12

Duty drawback: ‘If Korean use parts from third countries [e.g. China] when manufacturing their goods, they do not have to

pay duty on these and can export them to Europe, while European manifacturers – even if they use some parts- do not enjoy this exemption of duty’ (Bernd Lange S&D group in Parliamentary Debate, 06/09/2010)

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Hungary which produces car parts (Agence Europe, 09 03 2009). No compromise was reached on the 6

March TPC-meeting nor on the G20 meeting in London (AgenceEurope, 26 03 2009). Signature had to be

put off again. (AgenceEurope, 09 03 2009) In May France added even a concern to the list, demanding a

better protection to audiovisual products in the safeguard clause (AgenceEurope, 26 03 2009).

Under the pro-free trade Swedish Presidency, the member states’ trade experts came across finally the

agreement in summer 2009 (AgenceEurope, 03 06 2009). Firstly, the German car industry gave up its

reluctance as ‘they already received sufficient support during the financial crises (cf. the German ‘’cash

for clunkers’’ programme and tax exemptions)’, then the other resistant member states switched their

position in domino effect (Elsig & Dupont, 2012). Italy seemed the most persistent rebel to the

agreement. On 10 September 2009, when the Council of Foreign Ministers intended to settle the date of

the agreement, Italy threatened to veto the agreement, mostly influenced by FIAT. The compromise was

set in 15 month delay in the FTA provisional application (Vogel , 2010). Here, it was seen that in KOREU’s

case, the Commission as agent could not lean on the ‘divergence of interests among multiple principals’

because of a simple legal reason: unanimity (Elsig & Dupont, 2012). Mixed agreements require

consensus, where every member state has equal weight, and it is still distressing that Italian government

has not yet came across ratification (Council of EU Official, 2013).

In 6 October, just after the signature, the Commission could have been relieved but the Parliament has

set a precedent with the KOREU, the MEPs formed actively the endplay of the conclusion of the

agreement (Vogel & Brand, 2010). On trialogue meetings, started in August 2010 with the Commission

and the Belgian Presidency, the Parliament struggled to adopt the amendments projected by Pablo

Zalba Bidegain of its International Trade Committee (INTA) (Parliamentary Debate, 2010). Again, the

MEPs from member states with grand car industry were the most active on parliamentary debates,

some of Italian and French MEPs voted even against the agreement, thus disaggregated their party

(Vote Watch Europe, 2011). With regard to parties, the green (Greens and ALDE) and the left parties

(S&D and GUE/NGL) raised their objections from the very beginning. 13 The Greens and GUE/NGL turned

their concerns even to blackball (Vote Watch Europe, 2011).

13

The Greens statement: Official website, Korea Trade Agreement, 16 02 2011

ALDE’s position: Official website, ALDE Sceptical : EU - South Korea Free Trade Agreement, 11 02 2010 Debate in European Parliament 16 02 2011 Debate in European Parliament 06 09 2010

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When negotiations started, it was not yet clear that the Parliament’s assent will be pivotal for the

agreement, that is why ‘Commissioner Mandelsohn interacted sporadically with the EP’ (Elsig & Dupont,

2012). The first public dialogue took place interestingly just a day after the Lisbon Treaty was signed,

after five rounds of discussion (Agence Europe, 05 12 2007). The Parliament released a report ‘on the

trade and economic relations with Korea’ (European Parliament Documents, 2008) in which it sets out

the MEPs position concerning the FTA in four chapters. EP recommended the Commission to focus ‘on

quicker tariff reduction for environmental-friendly products, progress with ratification and enforcement

of core ILO standards’, on enforcing intellectual property rights and simplify the rules of origin

(European Parliament Documents, 2008)(European Parliament Official, 2007). Concerning the highly

sensitive issue, the EP considered that the agreement ’could have a severe negative impact on the

European automotive industry’ therefore, it requested a ‘strategy for phasing out EU import tariffs with

safeguards’. Furthermore EP ‘called on the Commission to insist that EU automobiles complying with

UNECE14 standards can be imported into Korea without testing or homologation; opposes provisions

exempting Korean vehicles from anti-pollution emission standards’ (European Parliament, 2007). The

report states that the major problem lies in the divergence from international standards in the

automotive, pharmaceutical, cosmetics and electronics industries. The Commission in its answer,

assured the Parliament that the concerns will be taken in to account in further negotiation process, still

more changes have been adopted after the conclusion in the bilateral clause (see: Zalba Bidegain’s

report, 2010) (European Parliament Documents, 2008).

According to final version of bilateral safeguard clause adopted after the trialogues, the Parliament has

acquired right to launch investigations on sensitive sectors, an option to create regional safeguard

clause has been granted, a strong monitoring and surveillance system should be built up especially on

duty drawback clause and last but not least, transparency should be provided to the new safeguard

clause by the Commission (Text adopted by Parliament, partial vote at 1st reading/single reading ,

2010).

It took the EU basically four and a half years to conclude a Free Trade Agreement with South Korea, a

country of around 50 million, and still ratifications are ongoing. Serious postponement was set out

before the final negotiation round, because of Italian rejection on FAC-meeting and because of the

Parliament’s concerns. On one hand, the EU institutional maze can be blamed, on the other, the

14

United Nations Economic Commission for Europe (UNECE) Agreement on Establishing of Global Technical Regulations for Wheeled Vehicles

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atrocious communication network is the scapegoat. The Commission, as agent, wastes a vast of time

when trying to maneuver with the information to maximize its bureaucratic interests. To further puzzle

the institutional maze, I introduce institutional interactions in a national system: the Hungarian.

IV. HUNGARIAN PERSPECTIVE

I will present now the negotiation process and the interest reconciliation between the Commission and

the Council went on during the negotiations, from Hungarian aspect. Hungary was the second biggest

trading partner of Korea among the new member states in 2007: ‘at the starting phase of KOREU-

negotiations Korea’s exports were $1.201 billion and Hungary’s imports were $229 million; significant

surplus for the former’ (CEPS, 2007). It has been the first time that the country concluded a free trade

agreement within the EU institutional framework which caused difficulties. Because of several car

industrial greenfield investments (Suzuki, Audi, Opel, Mercedes) Hungary was also concerned about the

KOREU-provisions on automotive sector, especially on car parts (Hungarian Investment and Trade

Agency, 2012). Furthermore, my motivation to choose this particular Member State derives from the

fact that I am also Hungarian; therefore I understand political debates in the national parliament, and

the sometimes euro-skeptical air in current Hungarian politics. I also had the chance to make an

interview with the head of trade policy committee of Hungary, which I will make use of in the followings.

First, I will summarize external trade relations of Hungary to have a better understanding on what

factors determined the Hungarian position in trade negotiations. Then, I analyze its mobilization on

KOREU in EU institutions, and finally draw a conclusion.

Relevant trade relations of Hungary

Republic of Korea

South Korea is the 14th biggest import market to Hungary, excluding EU countries, the second biggest

after China. It is a highly eminent position considering that the country trades in 79% percents with EU

member states. With regard to the export, Hungary has significant shortcomings towards Korea; on this

chart the Asian country implies the 35th biggest export market for Hungary (Hungarian Investment and

Trade Agency official). In numbers: in 2011 Korea’s import to Hungary approached 166 million EUR while

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the latter’s import reached less than 17 million EUR (Hungarian Central Statistic Office, 2011). The

following table shows the setup according to main commodity groups.

M USD

As seen, only the first sector benefits Hungary. The member state has four comparing to Korea’s sixteen

industries in comparative advantage such as processed food, plastic, raw hide/leather/furs, pulp &

paper, textile products, cement & glass, steel, non-ferrous metals, semiconductors, telecommunications

equipment, home appliances, computers, machinery, precision instruments, automobiles,

rail/aircraft/ships, other manufacturing (CEPS, 2007). Noteworthy Hungarian export items are the

pharmaceutical, cosmetic products and transport equipments (CEPS, 2007). Hence, these sectors were

the driver in Hungarian policy-making during KOREU negotiations.

In 2009, Hungary received an amount of 500 million EUR of FDI which lifts Korea on the third place on

the list of investors excluding EU-countries. The biggest Korean companies are: Samsung, Hankook Tire,

KDB Bank and LG (Hungarian Investment and Trade Agency official).

Germany

I raise Germany to discussion, because of its exceptional influence on the Hungarian market. As number

one trading partner and, by far, the number one investor into the Hungarian economy (13 billion EUR!),

Germany determines Hungarian trade policy (Hungarian Investment and Trade Agency official). Berlin

also lined up Hungarian maneuvers in KOREU negotiations. Moreover, the top German enterprises in

Hungary are Audi, Daimler, LuK producing cars and car parts, Siemens dealing with telecommunication

and other energetic companies (Hungarian Investment and Trade Agency official). The second largest

enterprise, Audi Hungária has just celebrated its 20th anniversary with a prolonged strategic partnership

agreement concluded with the Hungarian government (Audi Hungaria Motor Kft. Official, 2013).

Export Import Balance

2010 2011 2010 2011 2010 2011

Total 295,8 353,8 2877,4 2 099,9 -2581,6 -1 746,1

Food, beverages and Tobacco 18,5 34,8 0,2 0,1 18,3 34,7

Crude materials 2,1 2,2 0,8 3,0 1,3 -0,8

Fuel, electric energy 0,1 0,0 0,1 0,8 0,0 -0,8

Manufactured goods 43,4 48,3 214,8 233,7 -171,4 -185,4

Machinery and transport equipments 231,7 268,5 2 661,5 1862,3 -2 429,8 -1 593,8

Table 1 Retrieved from http://www.hita.hu/Region/Korea,%20South/Info

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Hungarian position in trade negotiations

Under this chapter I go through the EU institutions examining Hungarian mobilization on negotiation

rounds. The order of analysis follows the influence of institutions in different phases of the bilateral

talks. Firstly the Commission, then the Council came to spotlight throughout the signature, and finally

the Parliament by the ratification process.

Commission

When Commissioner Catherine Ashton was in crossfire of ACEA and member states before the formal

signature, she was attacked from an unexpected direction: her Commission. The Hungarian

Commissioner of Taxation, László Kovács jointly with his Czech and Italian colleges (Vladimir Spidla,

social affairs and Antonio Tajani, transport) raised their voice against the duty drawback system, which

puts Korean car industry in competitive advantageous position towards the European party (Falletti,

2009). Kovács, in his letter to José Manuel Barroso, highlighted also the textile industry and electronic

industries, as problematic issues (Agence Europe, 2010). Furthermore, he lamented about the

systematic ignorance of DG Taxud’s proposal on a stronger bilateral safeguard clause (Agence Europe,

2010). Lacking official statement, I could not find proper explanation for the Hungarian Commissioner’s

complaints. Senior Official of DG Trade interviewed by Elsig and Dupont asserts: ‘We thought he was

lobbied by the industry and eventually was influenced by the Hungarian government’s critical stance’

(Elsig & Dupont, 2012). The latter statement contradicts the position of the head of Hungarian 133

Committee. The COREPER stated: ‘Hungary got off the objectors’ row after Germany, as the Hungarian

car industry was concerned only indirectly in the agreement.’15 My assumption is that Commissioner

Kovács was rather following own preferences here.

Council

Before reaching the Council, the interest of Hungarian industries and labor market flows through several

channels. To simplify the institutional maze, I present it on the following diagram.

15

Interview, Head of Hungarian Trade Policy Committee 2 May 2013

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Figure 2: Based on Interview with COREPER and http://eu.kormany.hu/inter-ministerial-committee-for-european-coordination-icec

Hence, the ICEC gathers the information from all ministry and government commissioners and, passes

the statements of all sectors to the permanent representation in Brussels (The EU Policy website of the

Hungarian Government). The key actor is the 133 Committee here, which selects the information given

by the national party, and represents the expert’s opinions on TPC-meetings. The COREPER recalls:

‘Sometimes I was puzzled because of the conflicting opinions written in different sectors, and had to

find a middle way to present them on negotiation rounds. It happened also that an expert of agriculture

exceeded his competence and wrote about textile industry, I simply ignored those comments.’16 About

the communication with the Commission, he told: ‘Of course, the Commission struggles to maximize his

bureaucratic interests, and so it filters the information slickly. But on the weekly meetings we had the

opportunity to influence the agenda-setting.’17 Every 3 or 4 times actual agreement is put on the Foreign

Affairs Council table, the Minister for Foreign Affairs voted finally for the signature of KOREU and the

final text for safeguard clause as well (Agence Europe, 2008).

The activity of Hungary’s German-influenced car industry showed great dynamics during the

negotiations. Through ACEA it joined the lobbyists of Germany, France, Italy, Czech Republic, Spain and

Portugal worrying about their employers (Elsig & Dupont, 2012). As aforementioned, the Hungarian

automotive industry turned their tenor after the German shift. On the other hand, ‘the other sectors

agreed on the provisions quite silently’.18 It has several explanations in Hungarian economy. First, the

agricultural sector has still the biggest lobby in Hungary, which was not profoundly concerned with the

KOREU. The agreement implies even positive prospects with regard to IPR (protection for Hungarian

specialties), the elimination of custom duties and NTB’s on agricultural, food and wine products (Foreign

Affairs Minister, 2011). Concerning electronic entertaining and automotive products, which could be

sensitive for the Hungarian market, the agreement sets out transitional removal (Foreign Affairs

16

Interview, Head of Hungarian Trade Policy Committee 2 May 2013 17

Interview, Head of Hungarian Trade Policy Committee 2 May 2013 18

Interview, Head of Hungarian Trade Policy Committee 2 May 2013

Lobby groups and industries

Inter-ministerial Committee for

European Coordination

(ICEC)

133 CommitteeForeign Affairs

Council

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Minister, J. Martonyi, 2011). ‘In the audiovisual electronics area, I can even picture positive impact on

Hungarian labor marker, if Samsung decides to expand its factories’19.

European Parliament

Peacefulness remained on parliamentary debates on Hungarian side. It is not surprising, when

considering that 19 Hungarian MEPs out of 2720 sits in the European Peoples Party (EPP) which was the

earliest and biggest advocator of the agreement (European Parliament Official, 2013). Even the three

non-attached MEPs who are delegated from the radical right Jobbik party stayed silent in the debates

though, they voted against the agreement (except one abstention) and the bilateral safeguard clause as

well (Vote Watch Europe, 2011). I have not found any official reasoning of the protestor MEPs, though

according to the votes of Jobbik members in national parliament, the party’s behavior is incoherent: in

the Hungarian assembly only one Jobbik-member voted against out of 46 (Hungarian Parliament Official,

2011). Relating the MEPs votes with Jobbik’s general objectives, I assume the party voted against it

because of sovereignty derogation and high sensitivity level of potential negative impact of the

agreement. Although the MP’s apparently didn’t share the position with their colleagues in Brussels.

Debate and ratification in national assembly

Prime Minister Viktor Orbán on a meeting in May 2011 assured his Korean colleague, Kim Hwang-Sik

about speeding up ratification process in the Hungarian parliament (Parliamentarty Debate, 04 07 2011).

The quick proceedings were important primary because of legal difficulties (provisional application does

not exist in Hungarian law), and of course it can serve as diplomatic gambit.21 However, the Parliament

was partner in giving high priority to KOREU (Voting on quick proceedings on ratification on KOREU,

2011).

The Debate went on extremely smoothly; basically no voice was raised against the agreement. Besides

the aforementioned proposal by the Foreign Affairs Minister, Zsolt Németh Minister of State for Foreign

Affairs in his introduction of KOREU anticipates further positive impacts on Hungarian market; as capital

import (Németh, 2011). The only comment from government’s side was about underlining the

19

Interview, Head of Hungarian Trade Policy Committee 2 May 2013 20

This is the total number of MEPs with Hungarian nationality, Hungary delegates only 22 of them 21

Interview, Head of Hungarian Trade Policy Committee 2 May 2013

Beatrix Polya 03/06/2013 r0389113

exceptional character of the FTA and the importance of early ratification (Hóvári, 2011). On final voting

almost 100% success was reached, only one MP voted against the agreement out of 334: a Jobbik

member (Vote on KOREU, Hungarian Parliament Official , 2011). The surprise lied in radicals’ position;

one could have thought that Jobbik MPs oppose the agreement following their fellows in EP.

Finally after the Hungarian Parliament gave green light to the KOREU to enter Hungarian law course in

August 2011 the FTA was officially ratified (Council of EU Official, 2013). The country has been among

the firsts who ratified the agreement.

CONCLUDING REMARKS

Though KOREU settled indeed an outstanding precedent in the EU’s CC – that was also the prior goal for

the Commission – still there is lot to develop on the mechanism. Amongst all, I would highlight the time

factor. It took more than four years to conclude the agreement with a medium sized market of 50

million consumers. It is true that there are several competitive fields in Korean and European industries

that impeded the free trade negotiation process, nonetheless, there are lot larger trading partners in

EU’s scope that will have a much severer affect on member states’ markets (cf. EU-USA FTA-

negotiations), and those are to be settled in a reasonable time frame. Therefore, the institutions and the

Commission acting as agent, and chief negotiator in CCP negotiations has to find a way to accelerate the

decision-making with more effective communication especially towards member states.

The second weak point to be highlighted here was the unexpected objections. The Commission has to

set up better strategy to embrace interests within the Council, the Parliament, but first of all, in its own

department. Deficient and infrequent communication led to the evitable opposition of the Italian

government at the final stage. The British Trade Commissioner many times bypassed the 133

Committees and her fellow Commissioners, and followed her own objectives regardless to the

institutional blocks.

Karel de Gucht’s Commission sets out such partners as Brazil, Russia, China, India and USA (European

Commission Communication, 2010) to conclude deeper trading partnership with, which anticipates far

greater challenge for EU’s economy comparing to South-Korea. E.g. the EU-US trade agreement is

expected to call on member states to form groups again to defend their interests; Hungary will be even

more active to protect itself from agricultural dumping. In other words, effectiveness will be challenged,

where the Commission as leader negotiator has to improve its strategy.

Beatrix Polya 03/06/2013 r0389113

However, the comprehensiveness of KOREU was indisputably a progress in the field of CCP. Among the

take aways, I would mention here the conclusion of IPR, as it was a particularly important issue in South

Korea’s case. In this context, KOREU set indeed a model for EU’s future free trade agreements.

Beatrix Polya 03/06/2013 r0389113

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