FTA with EU a double-edged sword for Korean industries

SEOUL, July 13 (Yonhap) -- A free trade deal with the European Union (EU) is
expected to give a boost to South Korean makers of autos and electronics but hurt
the local machinery and chemicals sectors, analysts said Monday.
Under the deal, Seoul and Brussels will eliminate or phase out tariffs on 96
percent of EU goods and 99 percent of South Korean goods within three years. Both
sides have also agreed to abolish tariffs on all industrial goods within five
years of the deal taking effect.
Analysts said the South Korean carmaking industry, among others, is positioned to
benefit most from the pact, with the world's single largest economic bloc now
scheduled to phase out a 10 percent tariff on Korean autos within five years.
"The free trade deal will help South Korea's automakers expand their presence in
the European market," said Ahn Sun-kwon, an analyst at the Korea Economic
Research Institute.
The two sides agreed to scrap tariffs on cars with an engine displacement of over
1.5 liters within three years, while those on smaller cars with an engine
displacement of less than 1.5 liters will be lifted after five years.
South Korea currently imposes an eight percent import duty on European cars.
"Tariff elimination will lead to price drops for South Korean-made cars in the
European market," said Seo Jin-kyo, a researcher at the state-run Korea Institute
for International Economic Policy (KIEP). "Local carmakers will see an increase
in sales of compact cars in the long term," he said.
Hyundai Motor Co., South Korea's leading carmaker, sells one-third of its
vehicles to the European market. Along with Hyundai, other local rivals sold a
total of 408,934 units worth US$5.09 billion in EU countries last year. In the
same period, South Korea imported 41,880 cars worth $1.98 billion from the EU.
In the first five months of the year, South Korean carmakers have sold a total of
106,680 vehicles in the EU zone, accounting for 14 percent of their total exports
of 757,952 units.
Along with the auto sector, sales of electronic goods such as TVs and
refrigerators are also expected to increase.
For example, Samsung Electronics Co., the world's largest maker of computer
memory chips, is likely to see large gains in sales when the EU cuts its main
tariffs on electronic goods, which are currently as high as 14 percent.
"The European market is very important to local electronics companies," said an
official at LG Electronics Co., South Korea's No. 1 home appliance maker. "With
the tariff elimination, exports will further increase."
Last year, South Korea posted a surplus in trade with the EU of $16.3 billion by
selling electronics goods to the European market.
But not every sector will benefit from the free trade accord, according to analysts.
South Korean machinery and chemicals companies are expected to face declines in
their domestic sales due to an influx of cheaper and higher quality goods from
the EU.
Last year, South Korea posted a trade deficit of $2.5 billion in
chemicals-related trade with the EU.
The KIEP estimated that the local agricultural sector will also suffer around 300
billion won in losses due to the deal, which will make cheap imported pork and
dairy products more readily available in South Korea.
sam@yna.co.kr
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