Case Study: BMW and the EU-South Korea Free Trade Agreement

BMW, the German a global leader in the automotive industry operates in over 150 countries, with South Korea being a significant market for its vehicles. In 2011, the European Union (EU) and South Korea implemented a free trade agreement (FTA), eliminating tariffs and reducing non-tariff barriers on many goods, including automobiles. This agreement offered BMW (with a revenue of €68.8 billion in that year) an opportunity to enhance its competitive position in South Korea. Before the FTA, imported EU vehicles were subject to a 10% tariff in South Korea, making them more expensive compared to domestic brands like Hyundai and Kia (both combined reported revenues of approximately €57.7 billion in 2011). The FTA gradually reduced this tariff to 0%, significantly lowering the final cost of BMW cars. South Korea committed to aligning its automotive standards with international norms, simplifying compliance for EU carmakers. Previously, differing safety and environmental standards increased costs for European automakers exporting to Korea. South Korea’s growing economy and rising middle class created a robust demand for luxury goods, including premium cars like BMWs. The FTA made it easier for BMW to tap into this expanding market. The agreement also facilitated smoother trade in automotive parts, which BMW used for after-sales services and maintenance operations in South Korea. Lower costs on spare parts reinforced customer satisfaction and loyalty.

1.  Identify the forms of market barriers that existed before the FTA.

2.  What were the operational advantages for BMW after the implementation of the FTA?

3.  What trade theories could BMW build on?

4.  What were the most likely strategic actions of BMW in South Korea?

5.  What have been the benefits for South Korea, particularly the automotive sector?

6.  What were the most likely implications for other countries trading with the EU and South Korea?