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By Matthew Dalton
BRUSSELS--European Union trade ministers Thursday agreed to start talks with Japan on a free trade agreement, starting a lengthy process that must overcome concerns about the impact of a deal on Europe's ailing automobile industry.
France, Italy and a few other nations have worried that an agreement with Japan could boost imports from the country's powerful car industry without giving enough access to the Japanese market in return. These nations are feeling some buyer's remorse about a trade deal they signed with South Korea that was followed by a surge in car imports over the last year from Korean auto giants Kia Motors Corp. (000270.SE), Hyundai Motor Corp. (005380.SE) and the South Korean subsidiary of General Motors Co. (GM).
To address those concerns, the negotiating orders approved Thursday for the European Commission, the EU's executive arm, require the deal to include a safeguard clause that would allow tariffs to be reinstated if Europe faces a flood of imported Japanese cars or other "sensitive" goods.
The deal also allows the commission to end the talks if Japan hasn't already moved to eliminate "non-tariff barriers"--regulations that EU companies say restrict their ability to export to Japan.
"No other partner has ever gone as far as Japan before we sat down at the negotiation table together," EU trade commissioner Karel De Gucht said.
But European automobile makers were unconvinced.
"Independent studies have shown that this deal is a one-way street as far as the automobile industry is concerned," said Ivan Hodac, secretary general of ACEA, the main lobbying group for Europe's automobile industry. "This has already been our experience with the free trade agreement with South Korea which entered into force last year."
Struggling auto makers in France and Italy--mainly PSA Peugeot Citroen SA (PEUGY, UG.FR) and Fiat SpA (FIATY, F.MI)--have the most to lose from stiffer Japanese competition. Auto makers such as Toyota Motor Corp. (TM, 7203.TO) and Honda Motor Co. (HMC, 7267.TO) specialize in the kind of smaller cars that are the bread and butter of Peugeot and Fiat.
The European operations of Ford Motor Co. (F) also stand to suffer because of increased competition from Japanese auto makers.
"It is deeply troubling that the commission, in the midst of a serious economic crisis, is pressing ahead with the start of negotiations on a (trade deal) with Japan when studies have clearly indicated that this could result in further job losses in the European auto industry," Ford said in a statement.
The commission argues that a deal would have formidable economic benefits, even if individual sectors might lose out. A deal would create 420,000 additional jobs in Europe, the commission said.
It will likely be several years before the trade deal comes into force, if it is completed at all. The commission and Japan must first negotiate the terms of a deal, and then it must be approved by the European Parliament and EU national governments at the European Council.
Write to Matthew Dalton at email@example.com