The free trade agreement between Korea and Peru is expected to significantly boost exports of Korean cars and electronics products, as well as encourage Korean firms to tap into Peru's abundant natural resources such as copper, zinc, oil and gas.
The pact will sharpen the price competitiveness of Korean vehicles in the South American county, boosting sales by as much as 10 percent, according to the Ministry of Knowledge Economy. Cars accounted for the largest share or 36 percent of Korea's exports to Peru during the first seven months of this year.
Peru currently collects a 9-percent tariff on imported vehicles. Once the trade deal takes effect, tariffs on Korean cars with a displacement of three liters or more will be scrapped immediately, and those with engines smaller than that over the next 5 to 10 years.
"Japanese autos used to take up two thirds of Peru's imported auto market, but their shares are falling as Korean cars move in. The FTA will accelerate this trend," a senior researcher with the Institute for International Trade said.
In the mid-2000s Japan accounted for 64.3 percent of foreign cars in Peru, but the figure slipped to 46 percent in the first half of this year. Over the same period, the share of Korean carmakers jumped from 7.4 percent to 23.6 percent.
A Hyundai Motor spokesperson agreed that the trade pact will likely increase the automaker's market share there. Korea exported over 16,000 cars to Peru from January through July, with Hyundai-Kia Automotive Group accounting for the majority or 14,000 units.
The electronics industry expects increased exports of staple products such as mobile phones, washing machines, refrigerators and TV sets as Peru's current tariffs of 9 to 17 percent will be eliminated under the deal. Peru is already such an important market in the region that both Samsung Electronics and LG Electronics operate units there, and the industry expects the FTA to help boost the trade volume between the two countries even further.
"Peru is a smaller market than Brazil or Argentina, but Korean firms have been successfully doing business there for a long time," an LG spokesperson said. "LG's washing machines and refrigerators were the market leaders in Peru last year. Korean goods are very popular there."
In terms of natural resources, the South American country ranks among the top three in the world in copper reserves (second place), zinc (third) and tin (third), while petroleum and natural gases are also abundant.
"As of late last year Korea had invested some US$800 million in developing oil fields in Peru," a Knowledge Economy Ministry official said. "With the agreement to enhance cooperation and transparency in energy and mineral resources, Korean firms are likely to expand their involvement in resources development there."