Late FTA Contract Puts Brakes on Car Exports

Due to the delay in ratifying the Korea-Chile Free Trade Agreement (FTA), the Korean car industry’s exports will decrease. Overall, car exports have been increasing, but without an FTA, the number of cars exported to Central and South America has fallen significantly.

According to a report from Korea Automotive Industry, Korea’s automobile industry exported 1,816,000 cars, a 20.3 percent increase from the year before and the most since exports began. On the other hand, the number has decreased 12.7 percent since 2002, amounting to 67,000 cars exported only to Central and South America (calculated as of last November).

For Hyundai Motors, market share in Chile has decreased from 10.5 percent (2001) to 8.9 percent (2003). During the same period, it fell to third from second place in company sales orders. Kia Motors also fell from fourth to seventh as their sales dropped from 7.6 percent (2001) to 6.5 percent (2003).

“This is because Chile recently signed a tax-free agreement and FTA with Europe and USA,” said researcher Seo Young-suk of Korea Automotive industry.

Japanese companies, which have factories in Europe and USA, can export automobiles tax free to Chile, where there is normally a six percent tax.

Southeast Asia is another concern for the Korean automobile industry. Korean car manufacturers only sold 32,000 cars to five countries in Southeast Asia: Malaysia, Thailand, Singapore, Indonesia and the Philippines. This comes out to a market share of 2.5 percent, even lower than 4percent market share Korean car exports have in the United States.

This is due to the early construction of manufacturing plants in these countries by Japanese auto companies. Asian countries levy 31 to 300 percent taxes on imported cars.

Seo speculates that without a FTA, there is no space for Korea in the market.

After Brazil, Mexico is the number two market in Central and South America for Korean cars. Here, there is no big problem as of yet because Hyundai Motors exports indirectly through Chrysler, which has a factory in Mexico. However, with a Japan-Mexico FTA on the way, the warning light is blinking because tax-free Japanese cars will be flooding in.

Mexico proposed a FTA to Korea in 1999. However, due to agricultural problems, Korea hesitated and the proposal was cancelled. “We will not sign a FTA with Korea until we have concluded our negotiations with Japan,” said Mexican officials at the end of last year.

Jong sik Kong Eun-Woo Lee kong@donga.com libra@donga.com