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In a time when countries with free trade agreements (FTA) are discriminating against countries with which they have no FTA, Korea, which has no FTA, is becoming the odd man out.
Yet while Korea has been unable to ratify a proposed FTA with Chile, the United States has entered into an FTA with that country, and China has also proposed one. In the rush to form global trading alliances, Korea continues to fall behind.
Discrimination towards non-FTA nations
At the start of the year, Mexico raised import tariffs by 2.5 times higher on automobiles produced in Korea or other countries with which it does not have an FTA. Tariffs on tires and six other automobile-related items were also raised significantly. Mexico has also decided to prohibit non-FTA nations from bidding on government construction contracts.
Malaysia imports all of the H-steel it uses in construction and public works, but Korean steel is unable to perform in the market. Korea and other nations with which Malaysia does not have an FTA face tariffs four times higher than for ASEAN member states.
Korea is paying higher tariffs than its competitors or suffering from more difficult quality certification requirements when exporting textiles to the European Union, newspaper rolls to Vietnam, and tires to Brazil, simply for the lack of an FTA.
Hyundai Motor's Indian unit is worried that it will lose its Indian market to Japanese automakers when an FTA between India and Thailand takes effect in April. Japanese companies produce most of their parts in Thailand, so they can send the parts to plants in India free of tariffs. Hyundai produces most of its parts in Korea, and has to pay 20 percent in tariffs.
Korean products being pushed out
The United States signed an FTA with Chile in June last year, eight months after Korea, which signed a similar agreement in October 2002. The U.S., however, ratified the FTA quickly, and the agreement took effect at the start of this year. Tariffs on approximately 5,300 American products entering Chile were removed, putting the onus on Korean products.
In the four months since Chile's FTA with the European Union took effect in February of last year, the US$9.40 million in automobiles, mobile phones, and other products imported from Korea began to come from the EU instead, according to the Korea Institute for International Economic Policy (KIEP). The result has been that Hyundai Motor’s share of the Chilean market was 10.5 percent in 2001 (from January to November), but has since dropped to 8.9 percent. In the same period, Kia Motors' share fell from 7.6 to 6.5 percent.
Korea will be pushed farther to the margins in the Chilean automobile market now that the FTA with the United States has gone into force. American automobile makers as well as Japanese companies that produce cars in the United States will be able to export their products to Chile free of tariffs.
Late last year, China also proposed an FTA with Chile, and the Korean export front is in a state of emergency. "If China signs an FTA with Chile," said Kim Byeong-seop of the Ministry of Foreign Affairs and Trade, "Korean price competitiveness will be dealt a serious blow."
Chile has also signed a customs union agreement with Mercosur, the joint South American market formed by Argentina, Brazil, Paraguay, and Uruguay. This means that if an FTA takes effect between Chile and Korea, and Korean companies invest and produce products there, companies will be able to export to most of South America tariff-free.
"If a ratification of the FTA with Chile is delayed," said Jeong In-gyo, in charge of FTA research at KIEP, "we will suffer the consequences in most parts of the South American market."
(Yi Dong-hyeok, dong@chosun.com )
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